News & Insights

Directors Governance Center

March 28, 2017

Does Your Board Lead or Spectate When It Comes to Strategic Transformation?

In March 2017, The Conference Board published an article written by Patrick Dailey (founder of BoardQuest) and JoelKoblentz (founder of The Koblentz Group)discussing the boards role in strategic transformation. Messrs. Dailey and Koblentz begin by pointing out that while, in todays world, boards and management instinctively recognize that change is unavoidable and transformation is compulsory, McKinsey & Co. estimates that 70 percent of transformations fail to achieve their objectives. Historically, boards have taken the back seat to management in the strategy and implementation of transformational change, responding primarily to crises, rather than taking on a more proactive role. Messrs. Dailey and Koblentz posit that this may be in part due to boards valuing historians over more forward-looking individuals with a taste of prudent risk. Observation has shown, however, that decision-making and execution of strategy have become increasingly important qualities of a board. As such, Messrs. Dailey and Koblentz offer a series of suggestions to improve boards ability to govern strategic transformations, while maintaining what they refer to as a nose in but finger out philosophy:**Assemble a board with diverse experiences and varying perspectives* In order to effectuate meaningful transformational change, diversity in business experience, perspective and philosophy among directors is essential. Messrs. Dailey and Koblentz differentiate between board members who are historians (those who tend to take opportunities for change and move them towards familiar choices and game plans) and futurists (those who are more adaptable and forward looking; the corporate explorer). Without a cadre of futurists on your board, true transformation will be difficult to achieve, as the leap of transformation requires courage and persistence.

**Read the faint signals in the marketplace* The boards most effective at leading transformation are those that define their role as listening for and subsequently assessing and testing faint signals in the market, rather than simply reacting to managements decisions and perceptions. Messrs. Dailey and Koblentz note that studies show that focusing only on the short-term results in lower shareholder value. It is therefore critical that boards realize that even seemingly small changes can have meaningful impacts in the long-term, leading to sustainable future value. As such, having board members willing to break from traditional models of corporate bureaucracy is crucial to identifying and carrying out strategic changes.

**Gauge if executive leadership is up to managing transformational change* Equally important to the board having the right members and mindset to effect change, is the relationship between the board and executive leadership. Ideally there should be open and clear channels of communication between the board and the CEO as to where and how resources are being allocated. The ability of the board and executive leadership to have a candid debate and exchange views provides the best opportunity to evaluate the many small steps involved in managing transformational change and minimize the risk of failure.

Similar to the need for futurists on the board, the board must also evaluate whether executive leadership has the necessary personalities and abilities to plan and execute a transformation, even when unplanned events arise. Notably, Messrs. Dailey and Koblentz caution that a boards willingness to participate in the process of managing transformational change cannot make up for or replace a management team that is unwilling or unable to successfully start, manage, and land the transformation. They suggest that a board cannot compensate for any lack of managerial competency.

To see the full article click here.