This article has been produced in conjunction with the RelyOn podcast with Kristy Fotiadis on Boards, Governance & Data.
In the RelyOn podcast, we discussed the notion of Boards being on the ‘balcony’ with a view of the dancefloor, to gain a full perspective of what might be happening across the organisation.
The primary role of the board is governance. Boards help steer the organisation through growth, decline and the associated risks. But to successfully navigate the way forward, boards need to see everything (the view from the balcony) without being mired in the detail (the dance).
This means Boards put their trust in management to tell the full story, often lacking in detail, which makes it impossible for Boards to steer in the right direction. It’s imperative for Directors to be curious, ask pertinent questions and try to uncover what they might not be being told, to ensure they have the best possible view.
Poor insight leads to poor governance
We have seen many recent cases in the media where Boards have been caught out because they failed to ask ‘What’s really happening here? Can you show me?’.
A lack of scrutiny from the Board was highlighted in the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
Employees were incentivised to sell financial products to people who couldn’t afford them (pensioners), understand them (the intellectually disabled) or in some cases, to people who were no longer alive. A deep dive into the numbers might have warned the Board the bank was on an ethical crash course.
But it’s not just the banking & finance sector. A recent spate of wage scandals has revealed employees working long hours to produce the dollars with the true costs, financial and psychological, obfuscated.
Boards traditionally tend to focus on the dollars and more recently, conduct and culture risks, like bullying and harassment. The board reports usually include monthly finance reports, health & safety incidents and periodically, an annual culture audit.
However, historical reports contain lag indicators, coming after the fact. After we have secured a contract, after we have sold a product, after we have conducted as survey that has taken three months to collate the results and after the Board has the chance to question poor decision-making.
Historical reports tend to provide a single-minded perspective, ‘We are making the dollars, we should all be happy right? Wrong!
How can Boards use better data for better governance?
What differentiates top performing and trusted organisations from the laggards is the ability to turn data into meaningful insights, and then to take decisive action.
A ‘rear-view mirror’ perspective is great for self-reflection, allowing Boards to ask ‘How did we perform? (last month, quarter, year). However, it significantly limits a Board’s ability to understand what’s really going on, and act accordingly.
1. Take a balanced scorecard approach to capturing metrics across your organisation. Consider the customer, operational, people and of course the financial lens. Go beyond this and consider the market lens too.
2. Ask yourself if you are biased, based on who reports the information. For example, do you think this person is a great individual and therefore, are you more likely to believe what you are hearing? What questions would you ask if you didn’t know/like/trust this person?
3. Evaluate whether the data you’re reviewing is a lagging or leading indicator. Try to get more leading indicators, such as conduct and culture issues, which can be a red flag for other types of misconduct.
4. Analyse trends and determine the next best action. Does the data suggest a deviation from the norm or usual performance. For example, if sales have increased by 300%, rather than rushing to bring out the champagne, ask where are these sales coming from? Is it a few big customers and, if so, what are they buying?
5. Ask ‘what’s missing’? See no evil, hear no evil doesn’t always mean there is no evil. In fact, research supports issues such as bullying and sexual harassment are chronically under-reported, as was the case for Rio Tinto and Chevron. Just because issues aren’t reported to the Board, doesn’t mean they aren’t lurking in the shadows.
6. Broaden your sources of information. Relying on the income statement, balance sheet and past safety incidents doesn’t give you any leading indicators. Consider broadening the sources of data to include sick leave, excessively high staff utilisation, customer satisfaction, whistleblowing disclosures and reports of conduct and culture issues. Reviewing these data points will deepen your understanding of what’s going on.
7. Look at individual and group metrics. For example, you may have a sales team where person A is beating their target by 400% and person B is only at 30% of target. Rather than assuming A is a star and something is wrong with B, probe a little further. How are customer referrals being divided amongst the sales team, how are cross referrals happening in an organisation and how is A overachieving the target?
To gain a true perspective from the balcony, it’s imperative to analyse data from a broad range of sources, have healthy sense of scepticism, continually ask ‘What is really happening here. Can you show me’?
About the author
Kristy Fotiadis has spent 18 years working with boards, executive and leaders. She is the Founder and Director of Strategy Coach, assisting organisations to design strategy, transformation programs and leadership workshops that create and realise value.
- Listen to the RelyOn podcast with Kristy Fotiadis.
- Read this article on Cybersecurity and whistleblowing – underreported issues that pose big risks
- Download our Key Stats on Global Conduct and Culture Risks and learn which red flags to watch out for in the c-suite