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22 May. 2018 | Comments (0)
On Governance is a series of guest blog posts from corporate governance thought leaders. The series, which is curated by the Governance Center research team, is meant to serve as a way to spark discussion on some of the most important corporate governance issues.
(This is part of a two-part series on the philosophy of filling boards with competent directors, making them more effective, and rebuilding them when necessary.)
“Do I have a board that is capable of bringing competitive advantage to my business and respected advice to the executive team?”
Most every chair we engage acknowledges that board composition is the foundation for competitive advantage; in their belief, the mix has to be right or nothing much good can happen. We work with the board chairs and governance committees to get the mix right as the business evolves and as director replacements are required.
In performing professional development work for boards, we engage in private conversations with chair and Governance Committee leadership about the qualifications of each director and C-Suite leadership. We typically confirm that most board directors and corporate officers possess notable credentials, qualifications and experience. The real work of director assessment and board development begins when the chair is asked, “How much foresight does a director bring to your board?” Our conversations often begin with blank stares and then the realization by the chair that consideration of a directors’ visioning capability---hindsight, insight, and foresight ---is critical to strategy planning and overall governance.
We discuss how vision capability brings useful decision-making perspective to board governance, deliberation, and future focus. However, when one vision capability either dominates or goes missing at critical times, a board loses balance and its deliberative process is derailed. Then, not much good is likely to happen. Vision capabilities are:
- Hindsight: The capability to reflect and learn from the past.
- Insight: The capability to interpret and respond to the present.
- Foresight: The capability to anticipate and prepare for the future.
Board Effectiveness Results from a Blend of Vision Capabilities
Does one vision capability dominate your board at its most critical moments of deliberation and decision-making?
Every director operates in all three facets of vision – not all the time and not with the same level of proficiency. Which focus directors rely on most [or least] will have far-reaching implications for how they engage in board deliberation, the decisions they shape, the risk they will take, the board cultures they allow to emerge, and the organizations they build.
How a board blends directors’ vision capability is largely the job of the chair through processes including director appointment, evaluation, refreshment, coaching, and good board leadership. Not every board will be well-endowed in director hindsight, insight or foresight, and no board will be equally balanced. But balance of these three capabilities is important to the longevity of an organization’s mission. With the governance literature largely silent on the impact of director foresight, this article describes how individual directors differentially use their hindsight, insight and foresight to contribute---some more effectively than others.
Hindsight: Boards need hindsight—this is not casual, “off-the cuff” recall.
“Board historians” with accurate and thorough hindsight who are willing to speak up with clear descriptions of past actions and decisions are invaluable. They supply lessons of experience and details of past decisions that are independent from skew and bias---- facts and fair-minded perspective, please. Directors skilled in hindsight are not just story tellers---they educate other directors more so than persuade them.
Hindsight directors tend to emphasize the value of experience and evidence. Directors dominated by hindsight tend look at the future through the eyes of the past. They accurately describe what happened in past. It is worthwhile making a commitment to develop hindsight; after all, by monitoring experience, roadblocks, disappointments, accomplishments, problems, and mistakes, a board will be better able to adjust its course of action.
“Thinking outside the box” is not a strength for directors dominated by hindsight. Future-focus may seem perilous.
According to a 2016 McKinsey report, boards still spend the bulk of their time on hindsight matters---quarterly reports, audit reviews, budgets, and compliance—70 percent is not atypical. Of course, the question of how much attention a board will invest in the past and ignore or delay matters crucial to the future prosperity and direction of the business is the focal point of this article? Some of the answers to this question is determined by the collective focus of directors…is their attention and interests on matters of hindsight, insight or foresight?
Insight. Directors with strong insight are often eye-openers for other members of the board. They uncover the “a-ha” moment. They connect the dots.
Directors strong in insight help boards see what other directors might not see—they help a board to be aware of the true and full-scope nature of the situation the business is in. These directors can bring compelling wisdom to the board.
Insight is developed over time as directors conduct their analytical work using current events and/or trends to formulate a deeper understanding of a complicated problem or situation. They are skilled in detecting cause-effect relationships, connecting the dots, limitations, and patterns. These directors can accurately pinpoint why an event occurred — its causes and the effect; its patterns. Directors operating in insight mode tend to value tactical solutions to real world problems or opportunities and live in the current reality of the business. These directors also earn the reputation of being sound and trusted thinkers and communicators.
Insight begets wisdom--the ability to distinguish and judge which aspects of one’s knowledge base is factual, stable and meaningful.
Insight offers clear benefits including ingenuity, innovation, and vision, Directors with insight foster the board’s ability to think critically. Sound insight opens the way for an accurate understanding of people, opportunities and threats. In a nutshell, insight helps a board see the big picture.
Directors operating in insight mode are not spending a lot of time looking backwards, but they’re also not spending much time looking ahead. The focus becomes about answering “why “questions. These directors bring a practical “here and now” sense to board discussion.
Foresight: A board’s role is to look further into the future that anyone else in the company including the CEO. And. every company’s future begins with sound director foresight.
Foresight is the activity of analytically looking forward, logically assessing options for action and evaluating the impact of those options, then developing a forward pathway. Better endowed directors have the ability to grasp what is probable to happen in the future and to shape action that leads to value creation and reputation management. Directors who are proficient in foresight lead the board coalition toward the future.
Directors with strong foresight capability are vital in a changing business environment. They are thoughtful, yet novel thinkers firmly grounded in the lessons learned from the past operating with accurate and well developed insight. Foresight uses strategic planning, scenarios and critical thinking to anticipate what opportunities or threats are coming over the horizon. These are not “blue sky” thrill seekers.
They are unique in identifying broad forces of change, anticipate the impact of change on the organization’s future, and “sell” a factually convincing picture of the future to the board. Although they are able to reflect on the past and operate in the present, they are much more invested in preparing for the future. These thinkers help a board envisage what might go right, and what could go wrong.
Foresight brings a measure of risk. If the board is overly focused only in the future, it will have learned little from prior events and may ignore the present where business opportunities present themselves—the board may miss the here and now options while placing high-risk bets on the future. This results in either a flawed vision of the future, or little ability to accurately time when the correct picture they have in their heads might actually come to realization. Dream too big and a company can miss its goals because plans were unrealistic or unreachable or because unanticipated trends thwarted their success. In both of these cases, foresight may actually be lacking.
The more competent directors qualify as futurists; less competent might be termed thrill seekers whose forward-looking ideas and gambits may knowingly or not will put the business at risk if not managed by prudent directors and board leadership. Yet, their energy and enthusiasm can lead a board down a high risk poorly, conceived pathway. Prudent board leadership is essential when dealing with foresight matters.
The views presented on the Governance Center Blog are not the official views of The Conference Board or the Governance Center and are not necessarily endorsed by all members, sponsors, advisors, contributors, staff members, or others associated with The Conference Board or the Governance Center.