Transformational Leadership for Boards (and Senior Executives)

Dr. Ramon B. Segismundo, FICD

Institute of Corporate Directors

(This article is being written as a preview of the forthcoming Institute of Corporate Directors Masterclass Session on Transformational Leadership for Boards and Senior Executives” this October 30, 4 pm to 6 pm via Zoom.)

How do you strengthen corporate governance by transforming board directors to become active strategic leaders from being mere passive monitors or ceremonial placeholders?

Board members, who demonstrate active strategic leadership, are fully aware of when to take charge, when to partner with management and when to stay out of the way.  This was the central point of Ram Charan in his 2013 book “Boards that Lead”.  

I suggest that there are six areas (other than the conventional governance areas) where the board should lead:  strategy and culture; succession planning; building a leadership pipeline; strategic performance-based rewards; identifying and selecting the CEO; managing a failing CEO; and recruiting directors who build value. The Chair and the CEO will have to work together to ensure that these areas are in the board’s operating rhythm and annual calendar of agenda items.

STRATEGY AND CULTURE

It is usual that an organization’s central idea in terms of its mission, vision, values and strategy to be presented and discussed at the board level.  In the same way that boards need to lead in reviewing and approving the strategy (the what), directors need to have a hand in shaping and designing the culture (the how). This is an opportunity that could not be left with management, otherwise, a culture may evolve that is not aligned with the strategy. Culture building and development will be acts of leadership by the board and shape the organization’s future success.  Great companies have great cultures that could be intentionally and deliberately crafted with board leadership.  

SUCCESSION PLANNING

Boards spend time in planning funding and resources for their CAPEX and big-ticket projects. But how much time does it allocate to planning how their CEOs and CXOs can become better? Succession planning of CEOs/CXOs is a board vehicle to answer this question.

In most of the previous companies that I have worked with, succession planning is in the board’s annual timetable.  Board directors are presented with the key roles (CEO/CXO positions) with the current incumbents and the corresponding candidates who are ready now, ready in 1 year, 1-3 years, 3-5 years and >5 years. The wisdom and experience of board members will add value and greatly enhance this analysis, and their networks (it is possible to look at external candidates in addition to the internal pipeline) might even provide a broader pool of candidates to the organization. Actions are taken to accelerate the readiness of candidates through organizational moves, training and development, project work, secondments, etc.  Career mobility fuels talent development and the adage “To stand still is to be left behind” rings true when developing talent.

BUILDING A LEADERSHIP PIPELINE

Succession planning focuses on the CEOs, CXOs, and critical roles but what about the rest of the leadership cadre in terms of senior-level leaders, mid-level leaders, and first-level leaders?

The board has a leadership role to play in ensuring that there is a pipeline of leaders that will continuously upgrade the organization’s capabilities.  In challenging times, spending on leadership development is often reduced or even defunded. It is then the responsibility of the board to ensure that investments in leaders continue in good times or bad. Organizations could partner with educational institutions, both here and abroad, to unleash the potential and maximize the performance of the key talents of the organization.  Companies have taken steps to ensure an application orientation and contextuality to such leadership development programs, and this is where coaching, mentoring, and action learning could be pushed and advocated by both board and management. In the age of AI, gone are the days when leadership development was conceptual and theoretical. These days, implementation and change management are key competencies that must be built and developed in every leader.

STRATEGIC PERFORMANCE-BASED REWARDS

Boards need not be content with reviewing and approving the merit increase budgets for the following year and the bonus payouts for the succeeding performance year.  The Chair and CEO, with the support of the Board, could work together in designing rewards programs that will maximize the performance of every member of the organization and facilitate organizational quantum leaps in performance. As examples, long-term incentive programs, stock options, stock grants, and their equivalents could be explored.

IDENTIFYING AND SELECTING THE CEO

I have seen organizations suffer “buyer’s remorse” after appointing a new CEO.

Of course, it is not every day that an organization selects and appoints its CEO.  But when it does, the board needs to make the right call. To achieve this, it should advocate and promote a logical, systematic, and thorough process as a wrong decision can be significantly costly and oftentimes organizationally damaging.

The process usually starts with an agreement of the CEO competency model. Such model outlines the requirements and specifications, in terms of the required knowledge, skills, abilities, styles, and mindsets, for the CEO to fully succeed.  To ensure a level playing field, the candidate evaluation process is communicated, in an open, honest, and transparent way, to key stakeholders and viable candidates.  Aside from ensuring that we identify and select the best possible candidate, equal consideration will have to be provided to factors such as “fit with the role” and company chemistry and cultural considerations.

MANAGING A FAILING CEO

This is the hard part that requires board leadership.  The best time for the board to prevent a failing CEO situation is way before the signs of failure appear.  A good practice is for the chair to coach and mentor the CEO.  Viable options include having a senior director to do the coaching and mentoring or a baggage-free independent executive coach and/or mentor from the outside.  

When the CEO starts to show performance issues, the chair must have a heart-to-heart talk with the failing CEO.  As with performance issues, remedial objectives need to be set with an articulation of the key results to be delivered within a specified time.  We have seen failing CEOs that recover and eventually succeed.

However, when the boom must be really lowered, the board plays a leadership role by enabling a graceful exit for the CEO and thereby sending a signal to the outside world that there is continuity and that such move is being taken for the greater interest of the organization.

RECRUITING DIRECTORS WHO BUILD VALUE

We have seen organizations recruit directors because of their supposed business “celebrity” status or because of the extensive networks that they bring.  This is a situation that calls for board leadership as there are other considerations in recruiting board directors. Firstly, what is the business value that the board requires and does the new candidate deliver on it?  Secondly, does the candidate provide the board diversity and break the danger of board groupthink?  Thirdly, is the candidate willing to roll up his sleeves and work with the rest of the board and management if necessary? (We do not need trophy directors.) Finally, does the candidate provide an innovative and open mindset which propels the organization into the future rather than bringing it back to its past?  Nevertheless, the director recruitment process needs to be rigorous and disciplined and led by the Chair (or a Board Committee) in partnership with the Board Directors and CEO.  

Yes, we need board directors (and senior executives) that lead in a transformational way.  Perhaps the above areas are good places to start.

Register today for the Masterclass on “Transformational Leadership for Board Directors and Senior Directors” this October 30, 4 pm to 6 pm, via this link:

(Dr. Ramon Segismundo, FICD is an International Management Consultant, CEO Coach, Strategic Advisor and Corporate Governance Advocate.  He could be reached via rbsegismundo@icloud.com and +639285064742)