Are the risk-averse and number-crunching old boy networks of our boards of directors the best protection in this Age of Disruption or do we need to rethink the system before it’s too late?
I want you to visualize two things. First, think of your typical board of directors. You see serious middle-aged or older men (sometimes a few women) in a suit, right? You are looking at seasoned experts with awe-inspiring curriculums. They are advisors with analytical minds and they mostly talk about strategy, governance, risk and finance. Now, think about your current environment. You will see markets changing at the blink of an eye. Business models that lasted for decades crushed in a few months by digital platforms from geeky 25-year-olds. Revenue brought down because suddenly people decided to share everything, rather than buy.
The latter is all because of technology, of course. Digital used to be nice. Once upon a time, it was there to help us work more efficiently and flawlessly. Remember that? Today it has turned dangerous and nasty. It has become a weapon in the hands of the brilliant kids who grew up with it. And it is pointing directly at you. I want you to be honest: can your board protect you against that?
I serve on multiple boards myself, so I am familiar with how they function. They are focused on the now. And whenever they look forward, they project existing products and services into the future in a very linear manner: not quite fit for the complexity surrounding us. They applaud incremental innovation, because it is associated with better prices and better margins. They zoom in on measurable real-time performance, operational cost-cutting, efficiency and standardization. “Hey, if the public likes product X, they will definitely like product Y, a shinier and more expensive version of X, right?” They basically stimulate 2 things: less risk and more revenue. We all know where that train of thought will end today: at the cemetery of “Good Ideas Past”.
This obsessive risk-aversion of most boards is often a horrendous match with the reality of their industries. The only way to survive today is to be radical. Organisations have to be able to flip together with their market, and even better: steer it in a different direction themselves. They need disruptive innovations, on top of sustainable ones. Boards, on the other hand, are truly terrified of anything unconventional. They need numbers, pie charts and exponential curves that will show them a golden future. What they want are solid predictions. But you need loads of data - showing patterns - to make those. And if disruptive innovations lack one thing, it is data. As Malcolm Gladwell explains in “The Tipping Point”, you can only see a tipping point looking backwards.
The reason for the typical short-termism of boards is quite prosaic. Boards report to shareholders. And the shareholders – who can blame them – want their money,… yesterday. You cannot expect them to be partial to delayed revenue or long term financial gain. This goes directly against their nature. On top of that, regulations like the Sarbanes-Oxley Act try to keep boards in check, by threatening them with large fines and prison sentences. Mistakes cannot be tolerated in such a menacing environment.
I am sure that several amongst you still believe that innovation – radical or not – is not the “job” of the board but of the management, because a lot of its aspects are operational. I do not agree. First of all, today innovation is as much strategic as it is operational. In a VUCA world, where nothing is certain and change is the only constant, being able to perpetually transform is the only viable competitive advantage. That is why a growing number of organisations see aligning business and innovation strategy (20%) and building select innovation capabilities (18%) as the most important priorities for innovation success over the next decade. Second, I’m 100% with MasterCard’s Chief Innovation Officer, Garry Lyons when he says that “innovation is everybody’s job”. It does not belong to the very top of management, nor should it be hidden away in clever little R & D labs. Putting innovation in a silo will have one result only: kill it fast. It should flow through every level of the organisation and that certainly includes the board.
In light of all the above, it is no wonder that many of us are dissatisfied with their boards. 39% of investors surveyed by PwC don’t think boards really understand the emerging risks that can affect a company. 19% of the respondents worried about the board’s ability to understand the company’s risk appetite. So what then, should we ditch the board? No. At least not yet. Watchdogs do have their use. Good boards are there to challenge, ask annoying questions, put decisions in a different perspective or see rookie mistakes through their years of cumulated experience. But there is a thin line between a quality inspector and an obstacle to transformation and a long-term perspective.
It is encouraging to see how organisations are increasingly looking for solutions to the innovation hazard that most boards are. Some hire young go-getting CEOs who are as digital savvy as they are dynamic and forward-looking. The problem is they will probably keep them from implementing drastic ideas that are full of potential but which might not immediately result in solid revenue. Others – like Proctor and Gamble as well as specialty-chemical maker Clariant - go one step further and set-up an Innovation and Technology committee.* However, in most cases, these actions are not profound enough to weigh in against the “old boy networks” of our boards.
I do believe our boards are in need of some disruption themselves. They could use a fast, flexible and renegade innovation “peninsula” (still attached to the board, but strong and independent enough to push it in a different direction). One that will form the perfect counterbalance to our essential but often overly careful Audit Committees, obsessed with factsheets and statistics.
Boards need a Disruption Committee that understands that incremental or sustainable innovation alone is a slow but virulent poison. It will be the voice of dissent against the complacency that is plaguing many boards. They need a club of challengers, right-brainers, creative pioneers and daredevils with a Licence to Thrill. They will be the ones to encourage radical turns and be annoyed when they are not happening.
The Disruption Committee will teach the board that a profoundly different business model with lower margins is sometimes the only ticket to survival. They will train them to look beyond that painfully overused term ‘core business’ and always keep their minds open for other unobvious opportunities. Like Visteon did: an auto parts company that – on the eve of a 3-D printing disruption - cleverly decided to investigate services related to connected cars. The Disruption Committee will evangelize about the importance of making fast decisions. They know that when an employee comes up with a potentially brilliant idea, it is dangerous to smother it to death with Analysis Paralysis. They will challenge their boards to say yes to experiments and teach them that small scale trials are the best way to minimize risk when one is looking into a deep-seated innovation.
Just think of it as yin and yang. As with everything, you need balance, and that goes for boards as well: left brain thinkers that are there to check and guard – with the Audit Committee as their epitome – as well as right brain thinkers that love to turn the world upside down and shake it up until something useful falls down.
The way I see it, NOT taking any risks is the real risk today. And as long as your board does not understand this, the only way is down. Because when you choose Not Losing – which is what avoiding any risk is actually all about - as your goal instead of Winning, your industry will eventually get the better of you.
* How Boards Can Innovate, Michael Useem, Dennis Carey & Ram Charan, HBR, May 21 2014.
Photo credits: Brian K