Why is engagement crucial for boards operating in increasingly competitive environments, and how does compliance and stewardship factor in to make organisations successful? Nada Kakabadse, Professor of Policy, Governance and Ethics at the UK’s Henley Business School considers the issues.
‘It’s all about engagement!’ exclaimed the chair of a major multi-national presiding over the decline and imminent collapse of his company – just one anecdote from hundreds of hours of interviews our team has conducted with board members and C-level executives over the past decade.
Our research into thousands of organisations highlights an inescapable fact – it is engagement, not alignment that needs to be the primary concern of boards.
Boards are the guardians of their enterprise. They have to consider big questions, such as: Should the enterprise be dismantled? Should it be dissected and sold as separate parts? Are the interests of shareholders the priority? Which broader stakeholders need to be appeased?
In addition, boards have to utilise two essential levers in order to successfully achieve their task: compliance and stewardship.
Compliance. An analysis of major governance scandals and financial collapses, ranging from Baring’s Bank to Enron, indicates that compliance is the most favoured lever.
Our ongoing research indicates that management and the board are intimately aware of the obstacles they face but rarely act on these challenges because they are too inhibited from raising and addressing uncomfortable issues.
This distinct limitation means that under pressure, boards and management impose increasing controls and procedures in the belief that such disciplines will lift the organisation and allow it to plough through any crisis.
However, caution must be exercised as pushing for more controls in isolation does little to stave off the potential for decline and collapse.
Stewardship. The lesser-used alternative to compliance is stewardship. This involves leadership being completely in-tune with the sentiments, experiences, frustrations and actions of staff, management and key stakeholders – all of whom shape the future of the company.
Stewardship surfaces shared, or even unshared, beliefs about the purpose, mission and function of the organisation. When sensitively applied, stewardship can strengthen the commitment of staff and management towards the organisation’s strategy and addresses the operational challenges that stand in its way.
Ultimately the chair’s skill balances compliance with engagement, giving management and staff ownership to pursue the best way forward.
Engagement. Ultimately the chair’s skill balances compliance with engagement, giving management and staff ownership to pursue the best way forward. The chair’s facilitation of engagement enables high performing boards to work through internal and external differences and lay the foundation for high performing organisations.
There is still a long way to go with only 18% of boards being willing or able to exercise engagement as a prime component of their governance and leadership activities. The chief reason behind this is the challenge of establishing a diversity mindset on the board and management team.
The way forward. Outstanding boards aim to embed a culture of engagement throughout the organisation, while the chair takes on the task of establishing an independent mindset and a culture of resilience, utilising sensitive interactions within the board and across the wider organisation to do so.
Simply put, engagement is not just about people; it is about determining a sustainable business
Engagement is about showing sensitivity towards others, having an awareness of context, and also knowing how to work through misalignments and using these to the advantage of the organisation that positively differentiates and delivers value.
Once this balance of intellect and facilitation is realised, it generates a positively infectious mindset for the board, management and other key stakeholders. This gives shareholders confidence that the governance and leadership of the company are worthy of their continued investment.
Simply put, engagement is not just about people; it is about determining a sustainable business.
Kakabadse, A. and Kakabadse, N. (2008) Leading the Board: The Six Disciplines of World-Class Chairman, Palgrave, London