Why is engagement crucial for boards operating in increasingly demanding and competitive environments? Andrew Kakabadse, Professor of Governance and Leadership at Henley Business School considers the question.
'It’s all about engagement!' exclaimed the chair of a major multi-national presiding over the decline and imminent collapse of his company.
In fact, 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 central to the function and sustainability of any organisation. Through their governance, the company will either thrive or fail. Are the interests of shareholders the priority? Which broader stakeholders need to be appeased?
Boards have one critical responsibility, which is to exercise governance while having full oversight of the assets in their care. In so doing, boards have to utilise two essential levers in order to successfully achieve their task: compliance and stewardship.
An analysis of major governance scandals and financial collapses, ranging from Baring’s Bank to the recent Post Office scandal, 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 to raise and address uncomfortable issues. Many are afraid that the insensitive discussion of known concerns will significantly damage relationships and create irreparable divisions.
This distinct limitation means that under pressure, boards and management impose increasing controls and procedures in the belief that following such disciplines will lift the organisation and allow it to plough through any challenges.
The lesser-used alternative to compliance is stewardship which, employed effectively, involves leadership being completely in tune with the sentiments, experiences, frustrations and actions of staff, management and key stakeholders.
Stewardship surfaces shared, or even unshared beliefs, as to the purpose, mission and function of the organisation. When sensitively and appropriately applied, stewardship strengthens the commitment of staff and management to the organisation’s strategy and addresses the operational challenges that stand in its way.
Having the courage and ability to address existing and known challenges is a problem for well over 66% of the world’s organisations which is maddening given the growing understanding that engagement is the most critical feature of leadership and governance.
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. Our global research shows that only 18% of boards are able or willing to exercise engagement as a prime component of their governance and leadership activities.
The most effective chairs create a diversity mindset through thinking about how to integrate people, interactions, structures, strategy and business opportunities to realise competitive advantage.
Highlighting 'practical wisdom', the Greek philosopher, Aristotle, referred to working through sensitivities while maintaining relationships as being the greatest form of knowledge.
This they do through embedding a culture of engagement throughout the organisation. The chair takes on the task of establishing an independent mindset and a culture of resilience.
Outstanding boards do this through 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 in a way that positively differentiates and delivers value.
Chairs who contribute successfully combine IQ with or EQ. It is imperative for them to intelligently analyse and work through challenges while also appreciating the sensitivities and concerns of those involved.
Once this balance of intellect and facilitation is realised, it generates a positively infectious mindset that spreads through the board, management and onto other key stakeholders. This in turn, provides shareholders with confidence that the governance and leadership of the company is worthy of their continued investment.
Learn more about our Boardroom Skills programme delivered by Professor Andrew Kakabadse locally in Finland.