Why is engagement crucial for boards operating in increasingly demanding environments? Andrew Kakabadse, Professor at Henley Business School, considers this issue and asks what role compliance and stewardship play.
‘It’s all about engagement!’ exclaimed the chair of a major multi- national presiding over the decline and imminent collapse of his company – just one anecdote from hundreds of hours of interviews our team has conducted with board members and C-level executives over the past decade.
In fact our research into thousands of organisations highlights an inescapable fact – it is engagement, not alignment that needs to be the primary concern of boards.
Boards are central to the function and sustainability of any organisation. More than this, boards are the guardians of their enterprise. Through their governance the company will either thrive or fail. They have to consider big questions, such as: Should the enterprise be dismantled? Should it be dissected and sold as separate parts? Are the interests of shareholders the priority? Which broader stakeholders need to be appeased?
Time and again we have identified a fact that should be common knowledge by now. Boards have one critical responsibility, which is to exercise governance while having full oversight of the assets in their care, be these a company, charity, or government agency.
Further to this, boards have to utilise two essential levers in order to successfully achieve their task: compliance and stewardship.
An analysis of major governance scandals and financial collapses, ranging from Baring’s Bank to Enron, indicates that compliance is the most favoured lever.
In the current global economic climate board directors are actively having to consider how to balance the organisation’s monitoring (compliance) and mentoring (stewardship) approaches.
Our ongoing research indicates that management and the board are intimately aware of the obstacles they face, but rarely act on these challenges because they are too inhibited to raise and address uncomfortable issues. Many are afraid that the insensitive discussion of known concerns will significantly damage relationships and create irreparable divisions.
This distinct limitation means that under pressure, boards and management impose increasing controls and procedures in the belief that following such disciplines will lift the organisation and allow it to plough through any challenges.
However, caution must be exercised as pushing for more protocols and controls in isolation does little to stave off the potential for decline and collapse.
The less frequently used alternative to compliance is stewardship which, employed effectively involves leadership being completely in-tune with the sentiments, experiences, frustrations and actions of staff, management and key stakeholders – all of whom shape the future of the company.
Stewardship surfaces shared, or even unshared beliefs, as to the purpose, mission and function of the organisation. When sensitively and appropriately applied, stewardship strengthens the commitment of staff and management to the organisation’s strategy and addresses the operational challenges that stand in its way.
Despite this, many boards still find themselves asking the question ‘are we aligned?’ On the surface most boards and management teams are. However, this could also be said of Marconi and Carillion prior to their respective collapses. Both had boards and C-Suites demonstrating an alignment of thinking and interests, but key players behind the scenes were disengaged and unprepared to confront the problems they faced.
Having the courage and ability to address existing and known challenges is a problem for well over 66% of the world’s organisations which is maddening given the growing understanding that engagement is the most critical feature of leadership and governance.
Ultimately the chair’s skill balances compliance with engagement, giving management and staff ownership to pursue the best way forward. The chair’s facilitation of engagement enables high performing boards to work through internal and external differences and lay the foundation for high performing organisations.
There is still a long way to go. Our global research shows that only 18% of boards are able or willing to exercise engagement as a prime component of their governance and leadership activities.
The reasons behind this are topped by the challenge of establishing a diversity mindset on the board and management team. The most effective chairs think about how to integrate people, interactions, structures, strategy and business opportunities to realise competitive advantage.
This involves asking questions including: Do the board and management appreciate the nature and depth of the problems being faced on the ground? Have they systematically gathered evidence that fully informs them of the available pathways going forward?
The way forward
Highlighting ‘practical wisdom’ the Greek philosopher, Aristotle, referred to working through sensitivities while maintaining relationships as being the greatest form of knowledge.
This is also true of outstanding boards, which pursue engagement in order to work through unwelcome misalignments.
Their aim should be to embed a culture of engagement throughout the organisation, while the chair takes on the task of establishing an independent mindset and a culture of resilience, utilising sensitive interactions within the board and across the wider organisation to do so.
In effect engagement is about showing sensitivity towards others, having an awareness of context, and also knowing how to work through misalignments and using these to the advantage of the organisation in a way that positively differentiates and delivers value.
Why must the chair should responsibility for all of this? Because theirs is the only role in the hierarchy where business and governance merge.
Chairs who contribute successfully at a high level combine IQ with emotional quotient, or EQ. It is imperative for them to intelligently analyse and work through challenges, while also appreciating the sensitivities and concerns of those involved.
Once this balance of intellect and facilitation is realised, it generates a positively infectious mindset that spreads through the board, management and onto other key stakeholders. This in turn provides shareholders with confidence that the governance and leadership of the company is worthy of their continued investment.
Simply put, engagement is not just about people, it is about determining a sustainable business.
is Professor of Governance and Leadership at Henley Business School. He consults and lectures in the UK, Europe, United States, Asia, China, Japan, Russia, Georgia, the Gulf States and Australia. He is currently embarked on a major £2 million global study of boardroom effectiveness and governance practice, with the participation of a number of governments including British Ministers of State. His top team database covers 17 nations and thousands of private and public sector organisations.