How Boards Work: And How They Can Work Better in a Chaotic World – Dambisa Moyo
“How Boards Work: And How They Can Work Better in a Chaotic World” is a book written by Dambisa Moyo and was released in 2021 . The book offers insights on corporate boards and their responsibilities, their limitations, and how they can adapt to a rapidly changing world.
Setting the company strategy
Beyond the normal challenges of incomplete data producing a bad strategy and poor execution undoing a good strategy, boards face an increasingly hostile environment for setting strategy in the first place.
As such, there is a distinction between these normal challenges that will probably always exist and the broader uncertainties that loom, including geopolitical turmoil, economic stresses, and changing customer preferences. It is impossible to overstate the escalating risks that boards will face in the coming years.
A culture revolution enters the boardroom
Today’s corporations are being called on to say what they think about emerging societal issues, matters about which governments would traditionally be expected to lead and legislate.
Pay parity, obesity, gender equality, racial equality, gay rights, gun control, climate change, mental health, worker rights, parental leave, and sexual harassment are among the issues on the long list shaping a new cultural frontier that go well beyond the non-negotiables described above.
Innovate or die: the existential crisis of the twenty-first-century board
Former president Barack Obama has observed that “By the time something reaches my desk, that means it’s really hard. Because if it were easy, somebody else would have made the decision, and somebody else would have solved it.”
His words capture the value of having an ultimate arbiter, such as a board, who takes responsibility for making the hardest decisions.
In order to maintain high standards, boards must be assertive in how they reform themselves in response to the transformation of the environment around them.
Conclusion
Today’s board members are custodians whose job it is to strengthen the company’s foundation, upon which board members of the future will continue to grow and run the business.
Ultimately, this means corporate board members must embrace humility rather than hubris, remaining vigilant and malleable as they lead in an increasingly chaotic world.
The Chairman
The chairman plays a central role in guiding and chaperoning board members, helping them navigate the board agenda, and making sure the board fulfills its mandate.
The chairman’s leadership ensures that all matters are discussed fully but prevents spending limitless time on individual agenda items and that all members make useful and valuable contributions to board discourse. In short, a good chairman makes certain that the board gets the best out of all its members.
Knightian uncertainty
What will distinguish the most successful companies’ performance is the ability of their boards and management to constantly identify, quantify, and mitigate these risks. There will be important trade-offs for the boards to assess as they determine the company’s strategy.
To achieve the best outcomes possible, companies will need to regularly update the risk tools, data, and models upon which the board’s strategic decisions rely.
Boards are asked to make and endorse critical, win-lose strategic decisions about the companies they serve in an environment of limited knowledge and while facing a fundamental unpredictability of future events.
This frame, called Knightian uncertainty after the University of Chicago economist Frank Knight, underscores the central challenge of strategy setting for a board: risk can be measured and managed, but uncertainty is unquantifiable and thus much harder to mitigate.
Bad things happen
There are many times when boards are asked to suspend their ideological views for the sake of the company’s future. In these moments, the judgment of the board—both individual members and the board as a collective—becomes critical.
For example, when presented with complex decisions, the board generally exercises its judgment and discretion under a shroud of uncertainty since members simply do not have all the information they need. At these moments, it is the judgment of the board that reigns supreme and ultimately seals a company’s fate.
Corporate social responsibility
Corporations have a growing responsibility to address social concerns and become agents of change, as demanded by employees, investors, governments, and society. This puts cultural issues on the board’s agenda, but they can be difficult to navigate due to complexities, trade-offs, and competing global standards.
NGOs and various stakeholders are united in demanding that corporations take a broader view of social issues. While some areas have already been regulated by governments, corporations are under pressure to fill in the void in other areas, such as obesity and mental health.
Critical risks
A number of critical risks determine the corporate winners and losers of the future. These risks include short-termism, fast-evolving technology, and rising protectionism.
The best boards are continuously striving to put in place a strategy that survives come hell or high water—a strategy that does more than just generate profits but carries the company through the very worst market conditions, winning in all environments. As we will see in the next chapter, executing this strategy requires the very best leadership—not only from the board but also from the CEO.
This is why leadership selection is such a critical task for the board.
Hiring (and Firing) the CEO—and the Board
A good board can be identified by the way it goes about its business. One overriding principle should be that independent board members are there to oversee management, not to manage the day-to-day operations of the company. In this respect, you know a good board when you see it.
Other necessities include transparency in the board structure, clear delineation of the roles and responsibilities among board members, and strong, independently minded, and engaged directors. The chairman plays a central role in guiding and chaperoning board members, helping them navigate the board agenda, and making sure the board fulfills its mandate.
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