Research confirms Boards have significant issues when addressing disruption (- but most of them are internal)

A recent study of Board leadership has highlighted a number of issues that should be of interest to all business leaders, senior managers and Board members.

The study – conducted by global operations, performance improvement and value creation specialists, Alvarez & Marsal, in conjunction with Henley Business School, and supported by input from more than 70 Executive and Non-Executive Boards Members – was commissioned to provide insights into the reasons why so many organisations have struggled to deal with recent increases in complex disruptions and shareholder activism.

In his foreword, head of the Steering Group for the survey, Sir Peter Gershon, Chairman of Tate & Lyle and National Grid plc, states: ‘Well-proven leadership approaches are often less appropriate in these situations, and many management teams are unsure about the best approaches to identify and then respond to these challenges.’

And in his introduction to the report, Malcolm McKenzie, Managing Director of Alvarez & Marsal, states that: ‘These challenges are unique rather than routine, involve multiple internal and external stakeholders, are triggered by major internal or external events and have no obvious solution. (They are) are in effect extraordinary disruptions, with recent examples including Volkswagen, FIFA and the sharp decline in oil prices. They could be instigated by new entrants, senior conflicts or misconduct, a hostile bid, shareholder activists pushing for radical improvements or significant regulatory change.

‘Many Boards are arguably not currently equipped to deal with major or extraordinary disruptions and discontinuities, and are often found to be unaligned with their management team and not effective in addressing the most pressing issues. Previous research has shown that as many as 30 percent of top management teams in the U.K., 39 percent in the U.S., and 56 percent in the Australian Public Service recognise that fundamental divisions exist within their top teams when considering future planning and direction.’

The research found there to be four distinctive types of extraordinary disruption:

Transformational: where the disruption is planned and internal, such as turnarounds or strategic transformations;

Reputational: where the disruption is unplanned and internal, as seen in cases of fraud, misconduct, management conflict, product integrity and safety;

Hostile: in which the disruption is unplanned and comes from an external source, e.g. the credit crunch, hostile bids, cyber-attacks or active investors;

Creative: here the organisation itself is the disruptor; examples include start-ups disrupting established players.

The survey concluded that each type of disruption demands a different style and source of leadership, and that large disruptions can evolve from one category of disruption to another (e.g. from reputational to transformational).

Having established the range of disruptions, the research analysed the role of Boards – and Board members – in identifying the issues at an early stage and taking the appropriate leadership approaches to minimise the disruption. It suggests, for example, that ‘In most unplanned situations it is often the Chairman who takes the lead; when the disruption is planned and requires strong execution, the CEO should often lead the response.’

The report defines four specific characteristics which underpin the ideal leader in any extraordinary disruption scenario:

1. Particularly high levels of emotional resilience
2. Exceptional communications skills
3. High levels of IQ, EQ (emotional quotient) and XQ (execution quotient)
4. Integrity

and it goes on to list the disciplines that must be applied in order to bring about a greater likelihood of success, including constructive top-level relationships, articulating the purpose of any action, basing decisions on clear evidence, getting the right people in place, ensuring effective stakeholder management and maintaining strategic alignment and engagement between the Board and the management team.

Based on this, the research team formulated a framework for successfully navigating an extraordinary disruption, and this can be summarised thus:

The research concluded that

• Understanding the context and discontinuity being faced is vital as these factors determine the type of leader and leadership style required to address the disruption. Different types of disruption require not only different leaders, but also leadership from different roles (e.g. CEO or Chairman). The role and contribution of the CEO, Chairman, management team and Board will vary considerably according to the type of discontinuity and its severity.
• Leadership is crucial, and the most effective leaders apply distinct disciplines and possess very high degrees of personal attributes of intelligence, savviness, resilience and drive. These attributes are required to a much higher degree and in a different balance when leading through extreme disruption than at other times.
• There is a broad approach that successful leaders use when addressing disruption, but the way it is applied varies and is not prescriptive. However, it is always iterative, as facts are often uncertain and situations change quickly.
• The interactions between Executive and Board at these times are critical and are necessarily very different. Moreover, emotions are high and personal reputations at stake. Most current Board guidance focuses on the steady state or incremental change. In fact, one of the most important roles of the Board is to call out these critical discontinuities. Successfully recognising and managing through these discontinuities is one of the biggest drivers of the success of the enterprise.

The final point of the conclusions is symptomatic of many of the problems I’ve seen during my own research.

Along with my wife, Professor Nada Kakabadse, I have been conducting a global study into misalignment and disengagement amongst top teams for the past two decades.

Whilst external factors have been increasingly disrupting organisations over the past few years, my belief is that the internal factors are a greater influence. And in particular, what I’ve observed is that in rapidly changing markets, those internal discontinuities seem to dominate even more.

In so many cases, the disconnection between the top team and the Board is the single biggest threat the organisation has to deal with, and in turn, this misalignment causes significant emotional tensions that are very difficult to overcome. And when issues include personal differences, it invariably leads to over-sensitivity, which only exacerbates the problem further.

We have documented many examples of company failures that could have been avoided were it not for the intransigence or inertia of their most senior people. Their unwillingness to face up to the realities of the situation has cost countless millions of pounds and put tens of thousands of people out of work. In other cases, those whistle-blowers who have had the courage to speak out, have been sacked for their allegedly negative attitude.

So why don’t most leaders speak up? In many cases they bury their heads in the sand because they don’t know how to deal with the issue, or fear they will be judged. Occasionally it’s down to arrogance or greed. Whatever the cause, if left unchecked, these issues rarely resolve themselves, and usually get worse with time.

The truth is that in mature markets, the real differentiators between competing organisations tend to be the internal ones, and often this equates to how capable the leadership is of identifying – and debating – differences of opinion on company direction, operations, values, strategy or resources.

So if you want to gain a sustainable advantage moving forward, consider how aligned and engaged your most senior people are, and whether you need to stand up, be brave, and face the issues head on.

The research was drawn from in-depth interviews, discussions and case studies over an 18-month period with more than 70 senior business leaders, including Chairmen, CEOs, CFOs, directors and founders from organisations as diverse as Aviva Plc, Arcadia Group, BAE Systems, Balfour Beatty, Barclays, Barratt Developments, BP, Credit Suisse, Deloitte, Endemol, Ford UK, GlaxoSmithKline, ITV, Lastminute.com, Mothercare, Ofcom, Rolls Royce, Shroders, Sony Ericsson, SSE, Thomas Cook PLC, Skype Technologies, Vodafone and many others.

To read the full research report, click here

For full details of the Henley Business School Board Directors’ Programme click here