Managing risk and allowing innovation to flourish are two sides of the same coin.
Today’s organisations need board directors who understand the complementary nature of risk taking and risk mitigation and are able to create an environment that rewards both. That was the consensus view of a panel of seasoned boardroom executives brought together at the TCS Summit Europe 2016.
Our panel members included:
– Guy Elliott, Deputy Chairman of the Board of Directors, SABMiller; Member of the Board of Directors, Royal Dutch Shell
– Sir Howard Davies, Chairman of the Board of Directors, Royal Bank of Scotland; Member of the Board of Directors, Prudential
– Stine Bosse, Member of the Board of Directors, Allianz and TDC; Chairman of the Board of Directors, BankNordik, Tele Greenland and Nunaoil
– Rita Clifton CBE, Member of the Board of Directors Nationwide and ASOS; Senior Independent Director Ascential plc; Chairman of BrandCap and Populus Limited
Moderated by Andrew Minton, Managing Director, Criticaleye – the peer to peer Board Community
THESE WERE THE KEY LESSONS THEY SHARED WITH THE INVITED AUDIENCE IN BERLIN:
1. THE BOARD MUST ENABLE INNOVATION
“Let’s be realistic. The board’s role in innovation is unlikely to be as leader and creator,” said one panellist. “Indeed, if you are depending on your board for brand new product ideas you’ve got a problem.” Instead it is the board’s role to “create an environment in which innovation is valued and supported – and in which people feel self-confident enough to take appropriate risks. Risks within a framework of control.”
2. THE BOARD MUST SET THE TONE
“Stale, pale and male” has become a boardroom caricature. And it’s one that is too close to reality, said several panellists. “These things are important symbols for the organisation as a whole,” said one. “It’s really important for the board to set the tone as well as have the processes in place.” That means boards must better reflect society as a whole and the customers they are targeting – greater diversity across gender, ethnicity and age. However, one panellist cautioned against fetishising the young. “If we think youth is a synonym for innovation, we’re making a mistake,” he said pointing out that it was often the role of the innovators to understand the needs and motivations of the old. Think financial services, for example, where innovation is about ensuring older customers are attuned to “doing things digitally”.
3. DESIGN AGAINST RISK SHOULD BE USEFUL
According to one panellist risk has now overtaken audit as the committee board members would least like to
sit on. “There’s an architecture and process with audit. With risk it’s not so clear,” he explained before urging those charged with managing, monitoring and mitigating risk to ensure that it has a purpose. “Risk has got to be action oriented,” he said, suggesting that after identifying potential risk, board executives working with the management team must ask how they might take advantage of a scenario or how they might minimise the disruptive effects of a new market entrant. This must be done while applying “hard-nosed” financial calculations against each option. “You can hedge risk.” Another panellist added: “I’d go further and say you need innovative people on the risk committee. You need to think the unthinkable. And then you can calibrate and mitigate.”
4. GOOD RISK MANAGEMENT IS GOOD BRAND MANAGEMENT
Because where once an organisation’s culture, systems and processes operated “under the water”, now everything is visible. In the age of digital, transparency is the only option. Why? Because where once an organisation’s culture, systems and processes operated “under the water”, now everything is visible. “There is no water line anymore,” noted one panellist. “Good risk management is good brand management because it means making sure that everything everyone does every day is the right thing.”
5. CYBER SECURITY REMAINS A “BLACK BOX” FOR MANY
In other words, appropriate action would only be taken in some organisations once a breach had occurred. Board members “still feel anxious” when facing up to the threat of cyber attacks on the businesses they oversee. Cyber remains a mysterious “black box” for many people on the board, said one panellist who described it as “a really big issue that we haven’t properly got under our management”. Minds would only be focused “by example”. In other words, appropriate action would only be taken in some organisations once a breach had occurred.
6. THE CIO MAY HAVE TO WAIT
While a depth of IT knowledge is desirable – essential, perhaps – board members must know what it’s like to “run a P&L.” Given the skills required to be an effective board member, most panellists agreed that a senior IT professional without the experience of running a business would have to wait before taking his or her place around the boardroom table. While a depth of IT knowledge is desirable – essential, perhaps – board members must know what it’s like to “run a P&L.” Another panellist added: “Just having pure functional experts doesn’t really work.” Better, it was suggested, to hire a former or current CEO of a technology firm.
7. A BOARD MEMBER MUST BE…
…a policeman, a therapist, a fox (but certainly not a hedgehog) and most definitely t-shaped. According to our panellists these metaphors help define the qualities board executives ought to possess. The policeman provides governance. The therapist helps guide future change. The fox, unlike the single-minded hedgehog, offers broad knowledge and expertise. And t-shaped people? “They have deep expertise in one thing – marketing, technology, finance and so on – coupled with general experience of running a business, an understanding of the world around them and an ability to relate to other human beings.”