All Above Board

Creating The Ideal Corporate Board

U. Lindgren

• Publisher: Palgrave Macmillan
• Year: 2013
• ISBN:
  9781137264268
• Topic: Commerce
• Subtopic: Stratégie commerciale

Based on unique access interviews with leading chairmen and senior executives, All Above Board examines the key functions of the ideal 21st century board, how and why badly led boards fail, and what changes can be made to improve board behavior and efficiency for best practice.

CHAPTER 1

All Above Board

The board is a vital part of all corporations and it is the ultimate leader of the organization. The board has been appointed and represents the owner as well as the shareholders. It has been assigned a key role in all forms of corporate governance as defined by law, codes of conduct, and by practice in all countries around the world.

Strong leadership should be exhibited by the board and is imperative for success. Many times, we look at the CEOs and their management teams when discussing leadership of a company.

However, we know that the board is another layer of decision making and governance that impacts the strategy and structure of the business. The board sets long-term strategic direction for the business. It allocates the key resources to the core, formulates strategy, and is responsible for implementing corporate governance. It appoints and removes the Chief Executive Officer.

The Chairman is leader of the board. He/she is the ultimate leader of the corporation. As such, I am of the firm belief that the role and leadership of the board could be enhanced to become even more focused on value creation. The board should lead the company to reach its full potential. This is the key role of the board.

This book is about how the board and its members could better define its role and focus its tasks and modus operandi to achieve its core goal.

The book deals with how boards work or do not work in large corporations around the world. It also shows how excellent corporations have defined the role and work processes for their boards.

I have had the opportunity to meet and discuss with some of the heads of industry in some of the world’s leading corporations. I have shared their experiences and developed new ideas and themes for how we could improve and enhance corporate governance and the role of the board. In this book, I have aimed at summarizing the essence of such experience sharing discussions. Hopefully, these experiences could work as input for other corporations when designing and implementing the framework for launching a new and value-focused board.

If this is possible, my work has been worthwhile.

And above all, All Above Board!

Reality case

All Above Board: Steve Jobs and the change at Apple

This is the story of the change process at Apple as it has been told to me, because I did not have a chance to meet Steve Jobs during my research, although I would have loved to do so. I did have the privilege of meeting Steve Jobs on a previous occasion when discussing a possible sale of one of my portfolio companies to Apple.

I am still impressed by his vision and insights that we discussed during our meeting. With his premature death, the world has lost a great businessman, visionary person and leader. But let us study the way he used Apple’s board at the time of his return to the company in 1997. The following events and story are based on studies of other sources, especially from the book Steve Jobs by Walter Isacsson (Isacsson, 2011).

As we all know, Steve Jobs was more or less forced out of Apple by a group of executives and board members under the leadership of Gil Amelio, who eventually became the CEO of the company. Apple went through very hard times and Jobs was asked by the board to come back to rejoin Apple in 1997. In the beginning, he was not asked to become the new CEO to replace the outgoing (replaced by the board) Gil Amelio. Instead, Jobs took on the role of an advisor. However, with the goal of rejuvenating Apple and getting it back from the brink of collapse, Steve Jobs needed to secure full degrees of freedom to act without the restrictions of a board that might not have fully supported him.

Thus, before even starting out on his task as the new advisor to Apple, Steve Jobs understood that he needed to completely change the board. Not just a few individuals, but in fact the entire board with the exception of just one board member by the name of Ed Woolard. It was Woolard who had taken the initiative to persuade Steve Jobs to return to Apple and possibly save the company from a total disaster. He was to engage as an advisor and also as a board member. The latter position was to become an imperative to initiate and control the forthcoming reorganization of the Apple board.

Woolard’s first request was that the board should fire Gil Amelio, the CEO. It has been said that Steve Jobs was the mastermind behind this decision, even if it was left to Woolard to be the ‘Messenger Man’ who delivered the news to Amelio.

Once he had come onboard, Steve Jobs became more and more involved in the strategic management of Apple. But his priorities remained with getting two cornerstones of governance in place; first, he secured the loyalty and commitment of the senior management team by restructuring the old and worthless stock option program through a repricing of the strike price of the options. (This was legally possible at the time). Having been reluctant to approve of this controversial action, the board eventually approved of the new scheme.

The immediate next step from Steve Jobs was to request a total restructuring of the entire Apple board. In fact, Jobs made it clear to Woolard, that unless all board members with the exception of Woolard himself immediately resigned, he himself would leave Apple again. The board members reluctantly agreed to leave, but requested that Gareth Ghang, one director stay behind.

In July of 1997, the board formally resigned, just one month after the initial request of Steve Jobs for the complete overhaul of the existing board. This also marked the time for bringing new board members on as directors. One of these new board members was Larry Ellison of Oracle. Others were Bill Campbell, former Apple marketing manager and at the time CEO of Intuit and Jerry York, CFO of IBM. He also met and discussed but never engaged a significant number of potential candidates.

Over the coming years, Steve Jobs would bring on some very prominent and respected people to the Apple board, such as Eric Schmidt from Google, Genetech’s Art levinson and Al Gore. But the initial moves when coming back to Apple proved to be decisive for his ability to implement the fundamental change program that Steve Jobs had in mind for the business.

Having reorganized the corporate governance and management structures, Jobs could then go on to take Apple through one of the most fundamental and successful change processes that any corporation has ever undergone. A change program that has seen the events of the launch of the iPhone, the iPad, iPod, the new Mac Notebook series and other product success stories.

From when Amelio was asked to leave in July and until Steve Jobs took control in August 1997, the stock price doubled. This was to mark the beginning of a value creation process that the capital markets have rarely seen before. Today the Apple stock price is close to $600 per share, that is, it has increased by a factor of over fifty times since Steve Jobs started his change program by designing a new board and governance structure.

The lessons to be learned from the story of Steve Jobs’ return to Apple are many. For the purpose of this book, however, we stay with the issues related to how he used corporate governance and the board as the key platforms for the launch of his forthcoming change program.

He realized that not only did he have to get rid of the existing board members, after the forced departure of the CEO, but he also needed to build a new board with the right composition of skills and backgrounds to support him and management in building in what was to become one of the most successful companies ever seen.

Lessons to be learned

Reality Case: ‘Steve Jobs & Apple’

•A major change program requires a full commitment from and support by the board.

•The composition of the board must be designed to meet the specific requirements for and needs of the corporation at a given point in time, not at least in times of major change.

•A CEO must have been given the full mandate from the board before launching a major restructuring and change program.

CHAPTER 2

The board of the future

The board of directors: the ‘hidden asset’

Should the boards of Lehman Brothers, Bear Stearns, General Motors, Northern Rock, Saab Automobile, Beyond Petroleum and others have been able to avoid the disasters that subsequently hit these corporations? Could their boards have been much more proactive at an earlier stage so as to lead the companies into different and more sustainable strategic avenues and business models?

Although it is obvious that the boards alone cannot be blamed for these crises, we can debate whether they should have been able to guide the corporations into strategic actions and paths to prevent it from occurring in the first place.

In many corporations, the Board of Directors are simply not performing to their full potential. Observing the corporate board composition of most large companies around the world, it is clear that they consist of very prominent and experienced members, often with vast personal contact networks, management experience, customer inroads and indisputable skill sets. Why is it that this ‘Hidden Asset’ is not used to deliver the results it surely has the potential for?

Are shareholders not paying enough attention to the performance of the board? Or are there built-in flaws in the internal procedures of the board itself that keep it from performing to its full potential? Perhaps the boards simply focus on the wrong things, too much on regulatory and legal issues, financial reporting and compliance issues versus too little focus on strategy and value creation, and challenging the CEO and his/her top team’s strategy and goals.

One team

In the ideal world, if we were free to design and find the optimal Board Team, we would look to a set of imperatives when making the selections:

•Boards would appoint members who complement each other, bring key skills and expertise to the board and enhance quality and accuracy of decision making. Cultural and gender diversity should also be part of the profile definition.

•Boards must make everyone understand that they all serve the interest of the Company; they are not selected to look after self and factional interests, and they must be committed to giving the CEO and his team their full support.

•Boards must avoid involving members who cannot listen and/or who like to listen only to themselves. How many times are boards forced to sit in and listen to the ‘Monologue of Director X’ who can go on forever until another director or the chairman forces him/her to stop?

•Boards must avoid drawing on the ‘Old Boys Network’. This network, when it exists, is often biased towards one industry, gender, geography, and so on. The board must stay clear from the ‘club atmosphere’ and develop high standards of professionalism and effectiveness. It also should stay free from ‘I’ll scratch your back if you scratch mine’ syndromes.

•The relationship between the CEO and the chairman is a key imperative for all boards to promote; without a well-functioning chairman to CEO interaction, the board’s work is doomed to fail. Bearing in mind that the CEO reports to the chairman, as well as the fact that the ultimate responsibility of the board and thus its chairman, is to hire and fire the CEO, this requires that the roles and tasks of these two ‘captains’ must be clearly defined and executed upon.

•Chairman and CEO should never be the same person. They must be assigned to two people with complementary skills and profiles, and with a personal chemistry that benefits their relationship. Finally, it is ultimately the task of the chairman to promote the ‘One Team’ spirit and modus operandi. By setting the standards and following up on individual board member performance, he/she can actively promote and build a board consisting of team players who set the Company’s interests first and their own aspirations and objectives later.

Agenda and strategy

Far too often, board meetings are spent on issues far removed from what is of strategic importance to the Company. Meetings become filled up by operational items and with legal and compliance issues, and so on. Sometimes a whole board meeting can be devoted to presentations by many (sometimes all) of the top executives of the firm. These ‘Powerpoint Waterfalls’ can prove to be destructive for strategic decision making. Too many times the agenda is drawn up in haste without any strategic focus in mind. How many times are the same agenda items from the last meetings just copied over to be used for the next one?

Many formal issues can be circulated and subsequently dealt with beforehand, such as legal and financial reporting issues. Here the board must require more proactive work from the CFO and the Chief Legal Officer respectively.

The chairman seems to have the task to put together an agenda with a strategic focus, perhaps assisted by the President/CEO. However, it is important to stress that the chairman must not ‘abdicate’ the task of driving the agenda-setting process. The agenda determines the content and the quality of the board meeting, and thus is imperative for the entire functionality of the board. This is a factor that is often overlooked and forgotten. The chairman must be prepared to say ‘no’ to requests for putting various non-strategic and legal issues on the agenda. This enables the board to sta...

Table of contents

• Cover
• Title
• 1  All Above Board
• 2  The board of the future
• 3  Enhancing the chairmans value
• 4  Chairman and CEO: tandem at the top
• 5  The owner and the board
• 6  The one team board challenge
• 7  Leading through times of change and disruption
• 8  Value creation through innovation: the role of the board
• 9  Boosting peak performance
• 10  Setting strategic agendas
• 11  Summary and conclusions
• 12  Research methodology
• Notes
• Index