Standing Still is Risky for Timid Boards

by | Mar 23, 2020

There’s no shortage of narrative about how businesses and industry organisations need to be more agile today, given the scale and intensity of change reshaping industries. However, all the talking is not matched by action and visible transformation.

Achieving transformative change is a confronting challenge for boards.

In a recent media interview with former Dow Chemical Company CEO Andrew Liveris, he described the nature of the change happening in American boardrooms as ‘tectonic’. The shift is reflected in the US Business Roundtable decision in 2019 that the purpose of a company is now to ‘promote an economy that serves all Americans’. It is a radical change from the past doctrine of profit maximising for shareholders.

Organisations can only transform in the direction and urgency that boards demand. It puts a spotlight on what makes a modern board successful.

The literature tells us that about 80 per cent of change efforts fail to deliver expected benefits. Even that ratio could be optimistic for achieving transformative change.

For example, a 2019 McKinsey & Co article describing their research across 2,393 firms revealed that over the period of a decade only 8 per cent or one in 12 firms managed to jump from the middle to the top of the economic profit ‘power curve’.

It all suggests that only one or two in 10 organisations succeeds with far-reaching innovation. If this ratio holds true for businesses, then successful transformation by industry service organisations will be lower again – perhaps it’s more like one in 20? Or worse?

The boards style and risk appetite essentially shape management behaviour. Constantly transforming and evolving can now be regarded as the modern equivalent of business as usual.

It is standing still that has become a major risk.

Modern boards will need to be more global in their mindset and more challenging to management about long term value creation. They will need to be bold.

We might start seeing transformation as a standing agenda item for more boards.

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