”My aim is in some 7 minutes to convince everyone that it is vital to have a good Board of Directors in place in the transition from grown up to scale up”, Jorma Eloranta started his speech in Kaski 16 event on Tuesday 8th of November 2016.
The owners have a major impact on the Board’s role and working methods, its composition, and the degree of ambition of the whole company. So it must be. The most important task of the owners is to elect a good Board and set guiding principles for it. There is no one correct method or silver bullet for successful Board work. But there are several corporate governance concepts that are bad and just plain wrong. In order to avoid them, I will point out ten aspects of corporate governance that support fast growing company’s success.
Business and Board work are easy: with the right strategy and a good CEO in place, the rest is a piece of cake.
- The Nordic corporate governance model is a good one. According to a BCG analysis, over the last five to fifteen years, Nordic listed companies have delivered better total shareholder return than companies in the USA, Continental Europe or the UK. Bad corporate governance, like poor Board work, can ruin a company, but good governance is worthless if the business isn’t competitive.
- A company can be a success story when it has the right strategy and when it effectively implements it. So, fundamentally, business and Board work are easy: with the right strategy and a good CEO in place, the rest is a piece of cake.
- A good board reviews strategic issues in every meeting. Some general strategic fundamentals – like mission, vision, values, customer promise, code of conduct and so on – may remain the same for years, but creating and retaining a competitive advantage needs continuous debate and challenges. But at the end of the day, the core of a good strategy should fit on one PowerPoint slide.
- The most important strategic decision is to decide which businesses the company should operate in – and which businesses are not for the company. Giving up something we have developed or changing our business model entirely may be easier when the Board assesses the situation with less emotional attachment.
- World class. What does world-class performance mean in our business? A good Board is able to assess whether our ambitions are truly high enough but achievable. If you don’t know what is needed for world-class performance, ask world-class customers. If you don’t know who the world-class customers are, you’d better stay home. The key to success and growth is to satisfy your customers, the most demanding customers in particular.
One of the big challenges in the business world is to find the right balance
- The right balance. One of the big challenges in the business world is to find the right balance between growth and profitability, processes and creativity, management and leadership, visionaries and doers, risk appetite and risk tolerance. The list is endless. Finding the right balance is part of the Board’s strategic work and depends on company’s own situation, the business environment, the risk appetite of the owners, and the experience of the Board members.
- Growth needs to be financed. An experienced Board expands the range of available finance and increases trust with debt and equity financiers.
- There is no way to save a well-performing company. The biggest mistakes are often made when everything looks good and there are many successes. Hubris can be a fatal sin. Too much cash is like fire: a good servant but a bad master. A good Board doesn’t let cash burn in the company’s pockets, and it says no to non-strategic, opportunistic acquisitions.
- There are three important prerequisites to success in business: people, people and people. The success of a company depends in the longer term entirely on leadership. A competent Board adds a lot of value when assessing the skill or competence gaps in the company and successors for senior management. An ambitious strategy is worthless without good, competent leaders.
- The Board is part of a company’s leadership system. A good Board member encourages and inspires, tolerates controlled mistakes, focuses on important business issues, does not have a defensive attitude, respects and listens to all the other Board members and the management, and – above all – understands the key strategic business challenges the company faces. A Board member may also add value by opening doors through contact with customers, suppliers, academia, governments, regulators and the like.
To summarize: The owners should elect a competent Board and a Chair to lead the Board work. The Board of Directors needs to get the strategy right and have a good CEO and leadership team to support the CEO to lead the company.
But remember also what Winston Churchill is reputed to have said: “However beautiful the strategy, you should occasionally look at the results.”