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The New Director's chair

For the Board, Leadership is a Risk Factor

September 12, 2016

Why that matters now more than ever

Leadership is the “how” of strategy. It is not merely an enabler, but a critical component that requires companies to make leadership their business, fit it to their purpose, and produce leaders as part of their strategy to win. Embracing that notion at the board level has emerged as a key responsibility for corporate directors. In an age of accelerated disruption, shifting business models and a shrinking globe, strategy without the right leadership throughout the organization is just a slide deck.

Traditionally, boards approach their relationship to company strategy in multiple ways, but with a shared motivation: minimize risk while increasing shareholder value. No single board-level approach is right or wrong. Yet in recent years, strategic roadmaps have changed. Plans have shortened from five-year outlooks with 10-year aspirations, to 12-18 month views with 36-month horizons. Macro-conditions have shifted, but what have not shifted are board-level conversations about the importance of leadership within strategy.

As a director from one of the five largest US banks told one of our colleagues this summer, “Our last strategic planning session was good. They’re always good. But we talked about the same things, the same competitors, the same risks. We’re driving looking out the rearview mirror. We need to be looking out the windshield.”

Looking out the windshield must include a broader look at leadership, an item that rarely makes the board agenda today. What focus does occur often centers upon CEO or C-Suite succession. The more important conversation is: are we producing enough of the right kinds of leaders to win? Yet almost nobody asks that question, and bypassing it increases shareholder risk and misses an opportunity to create sustainable value.

This is a leadership moment for the board.

 

A Wicked Problem World

 

This spring, we sat down with a former Fortune 100 CEO and Chairman who serves on three boards – two for Fortune 25 companies. “There’s a lot of chatter about complexity lately. Is leadership really any different,” we asked, “than when you were chief exec?”

He immediately shook his head. “No,” he said. “Sure, the pace of technological disruption has gotten a little faster. And the regulatory landscape is more intrusive…and it’s uncertain what end point that’s driving toward.” He paused to reflect. “Employee populations are more fluid. Geopolitics have gotten more volatile, and our government – either party – isn’t helping globalize business. Generally, you’re under attack more these days – activists, new business models, the environment itself…cyber-threats. And with social media any whisper is immediately public domain.” He shook his head again, grinning this time. “Maybe it is different.”

This is a leader who is used to complex, global, and real-world problem-solving. Yet his gut reaction was: same leadership problems, different business day. Only when he stopped and scanned the horizon did he register a shift.

Modern businesses are extraordinarily adept at solving complicated structural problems. Unfortunately, an increasing number of the challenges facing business aren’t merely complicated and structural: They’re wicked.

That’s not Boston colloquial. Wicked problems have specific characteristics:

1) They have a nearly infinite number of variables, some of which cannot be known and all of which change over time

2) They offer no fixed “solutions,” only better and worse responses

3) Every interaction with a wicked problem changes the problem itself

4) Simple application of past templates is insufficient and often detrimental

5) Wicked problems depend upon relationships, not hierarchy – think of the org chart of ISIS compared to a state military structure

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The Implications for Leadership as Business Strategy

 

The leader best equipped to effectively face wicked problems is collaborative, thoughtful, empathetic – and disruptive. She is capable of comprehending contradiction, encouraging dissent, reflecting on complexity, and dealing with uncertainty. At present this leader receives 5,000 pages of emails and data every week – a volume that will only grow. Rather than seeking certainty, however, she uses a network of relationships to parse that data for the patterns that matter, to make fast moves and recalibrate constantly as problems shift and change over time.

That’s not how our corporate systems or our MBA programs have prepared our leaders, but it’s precisely the leadership our businesses require at multiple levels today. As with any other critical supply chain component, building-in the development of that kind of leader as a day-to-day “product” of the organization is a strategic imperative. That starts with the question: What does leadership look like for us to win here, on our timeline, within our context?

To be clear, this is a heavy lift. It is a mindset shift. It won’t be comfortable for many senior leaders.

 

So What’s the Board’s Role in All of This?

 

How confident are boards that management can create leaders who will ensure the company becomes a disruptor and not the disrupted? Over the past nine months we have discussed this with several dozen members of large public and private boards. Increasingly, board members know they should explore this. But they’re not sure how. It is not a subject where most have deep experience. The triangular relationship between CEO, CHRO, and board is also complex. Some CEOs don’t want the board asking these questions – it feels meddlesome. Some CHROs are not prepared to facilitate this discussion.

This brings the board to the “how” of its own leadership moment. The first thing directors have to do is put leadership on the agenda – not isolated to annual succession reviews, but as part of a broader discussion on strategy. Prioritizing the time and support for management to think through the requirements for winning today and tomorrow models exactly the type of collaboration required of leaders of the future. Second, start with the assumption that leadership is itself a wicked problem – that means there will be no off-the-shelf “right” answer one can simply borrow from another company. Third, determine what problem-set you’re solving for.

The structure of such conversations is deceptively simple – it’s the discipline of having them that’s difficult. CEOs already raise some of the variables that will impact their business tomorrow, so start small. What demands will those variables place on what it means to lead effectively in our business context? What are we doing well today and what do we need to do differently, and is that enough to win tomorrow? Do our business leaders develop other leaders? How could we better measure that?

The most difficult thing about this conversation, aside from having it for the first time, is that it’s not a one-time topic. As with any other aspect of strategy, hitting this year’s numbers does not lessen the need to keep looking ahead, keep challenging, keep assessing for new risks. Velocity has picked up for boards, too.

 

The Board as a Catalyst

 

CEOs and CHROs sense that this change is upon them. But it’s not always a comfortable topic to raise with one’s board, in part because it offers few tidy solutions. Yet, not discussing leadership introduces significant risk into the company’s present and future, and bypasses a wealth of opportunity.

Boards have a mandate to force the conversation – to help create the conditions for success. The answers won’t be canned and may not be convenient, but the discussions, while messier, will be pragmatic, contextual, and strategically defining.