A study of board leadership has highlighted a number of issues that should be of interest to all business leaders, senior managers and board members. The study – conducted by Alvarez & Marsal in conjunction with Henley Business School, with input from more than 70 Executive and Non-Executive Board Members – was commissioned to explore the reasons why so many organisations have struggled to deal with increases in complex disruptions and shareholder activism.
In his introduction to the report, Malcolm McKenzie, Managing Director of Alvarez & Marsal, states that: ’These challenges are unique rather than routine, involve multiple internal and external stakeholders, are triggered by major internal or external events and have no obvious solution. (They are) in effect extraordinary disruptions.’
’Many Boards are arguably not currently equipped to deal with major or extraordinary disruptions and discontinuities and are often found to be unaligned with their management team and not effective in addressing the most pressing issues.’
The research found there to be four distinctive types of extraordinary disruption, as summarised below:
The survey concluded that each type of disruption demands a different style and source of leadership, and that large disruptions can evolve from one category of disruption
to another (e.g. from reputational to transformational).
Having established the range of disruptions, the research analysed the role of boards – and board members – in identifying the issues at an early stage and taking the appropriate leadership approaches to minimise the disruption.
The report defines four specific characteristics which underpin the ideal leader in any extraordinary disruption scenario:
- Particularly high levels of emotional resilience
- Exceptional communications skills
- High levels of IQ, EQ (emotional quotient) and XQ (execution quotient)
It goes on to list the disciplines that must be applied in order to bring about a greater likelihood of success, including constructive top-level relationships, articulating the purpose of any action, basing decisions on clear evidence, getting the right people in place, ensuring effective stakeholder management and maintaining strategic alignment and engagement between the board and the management team. Based on this, the research team formulated a framework for successfully navigating an extraordinary disruption, which can be summarised thus:
The research concluded that understanding the context and discontinuity being faced is vital, as these factors determine the type of leader and leadership style required to address the disruption. Different types of disruption require not only different leaders, but also leadership from different roles (e.g. CEO or Chairman). The role and contribution of the CEO, Chairman, management team and Board will vary considerably according to the type of discontinuity and its severity.
The most effective leaders apply distinct disciplines and possess very high degrees of intelligence, savviness, resilience and drive. These attributes are required to a much higher degree and in a different balance when leading through extreme disruption than at other times.
There is a broad approach that successful leaders use when addressing disruption, but the way it is applied varies and is not prescriptive. However, it is always iterative, as facts are often uncertain and situations change quickly. The interactions between Executive and Board at these times are critical and are necessarily very different.
Moreover, emotions are high and personal reputations at stake. Most current board guidance focuses on the steady state or incremental change. In fact, one of the most important roles of the board is to call out these critical discontinuities. Successfully recognising and managing through these discontinuities is one of the biggest drivers of the success of the enterprise.
The final point of the conclusions is symptomatic of many of the problems I’ve seen during my own research.
Whilst external factors have increasingly disrupted organisations over the past few years, my belief is that the internal factors are a greater influence. And in particular, what I’ve observed is that in rapidly changing markets, those internal discontinuities seem to dominate even more.
In so many cases, the disconnection between the top team and the board is the single biggest threat the organisation has to deal with, and in turn, this misalignment causes significant emotional tensions that are very difficult to overcome. And when issues include personal differences, it invariably leads to over-sensitivity, which only exacerbates the problem further.
We have documented many examples of company failures that could have been avoided were it not for the intransigence or inertia of their most senior people. Their unwillingness to face up to the realities of the situation has cost countless millions of pounds and put tens of thousands of people out of work.
In other cases, those whistle-blowers who have had the courage to speak out have been sacked for their allegedly negative attitude. So why don’t most leaders speak up? In many cases they bury their heads in the sand because they don’t know how to deal with the issue, or fear they will be judged. Occasionally it’s down to arrogance or greed. Whatever the cause, if left unchecked these issues rarely resolve themselves, and usually get worse with time.
The truth is that in mature markets, the real differentiators between competing organisations tend to be the internal ones, and often this equates to how capable the leadership is of identifying – and debating – differences of opinion on company direction, operations, values, strategy or resources. So if you want to gain a sustainable advantage moving forward, consider how aligned and engaged your most senior people are, and whether you need to stand up, be brave, and face the issues head on.
You can read the full research report here.
Find out more about the Boardroom Skills programme.