- Email: [email protected]
Defining the role of the board
Long Range Planning, Vol. 22, No. 1, pp. 61 to 68, 1989 Printed in Great Britain
Defining Ada Demb, Danielle
the Role Chouet,
0024-6301/89 $3.00 + .OO Pergamon Press plc
61
of the Board
Tom Lossius and Fred Neubauer
Alerted by a recent survey which indicted that several large American companies had developed mission statements for their boards, the authors decided to explore the prevalence of this practice. Seventy large international firms in 17 countries were surveyed to learn how many of them used such statements, and the nature of their content. This article outlines the results of the survey and puts the use of board mission statements in the context of a tool for improving the effectiveness of board activity. ’
Alerted by a recent survey,’ which indicated that several large American companies had developed mission statements for their boards, we decided to explore the prevalence of this practice. Seventy large international firms in 17 countries were surveyed to learn how many of them use such statements, and the nature of their content. This article will outline the results of that survey and put the use of board mission statements in the context of a tool for improving the effectiveness of board activity.
Why Define a Board Mission? The board is one of many resources available to companies to use in pursuing their objectives. The board is a scarce and expensive resource and so should be used carefully for those activities where it can uniquely contribute. The board is also a collective body and therefore, like most groups will require direction in order to focus energy. Most boards, however, do not think of themselves nor manage themselves to take best as groups, of this characteristic.’ advantage One author believes that ‘it is quite possible that CEO’s and their boards . . . engage in less self-examination and less development in being effective members of an
The authors are members of the International Management institute in Geneva. Ada Demb is a Faculty Member, Organizational Systems, Danielle Chouet is a Research Assistant, Thomas Lossius was a former Faculty Member in Corporate Governance and F.-F. Neubauer is a Faculty member in Multinational Corporate Strategy and Planning.
organic unit than any group of corporate personnel’.3 If this were a comment about an R & D team, or a group of design engineers it would not be tolerated for very long. The costs would be too obvious. Inattention to group dynamics does not free the board from its influence. All groups are subject to behavioural tendencies, which can become unconscious. Ignorance of the forces shaping its behaviour makes the board even more susceptible to counterproductive habits that distort its ability to consider and deliberate effectively.4 Norms about the appropriate level of challenge to CEO or management recommendations become established.’ As a group of ‘peers’, directors may experience a level of sympathy for the CEO which further constrains their willingness to challenge Certain individuals may questionable proposals.” dominate discussions.’ Underlying attitudes toward problems-classifying them as threats or opportunities-condition responses to unexpected events prematurely eliminating other courses of action from consideration.* Some chairmen express a clear preference for active directors, specifying among the characteristics they seek ‘. . . the courage to ask questions which might reveal one’s own ignorance; a determination to reject the soft answer and to probe until complete satisfaction is obtained; the willingness to appear (at least temporarily) as a minority of one . . .‘9 Directors could be a great deal more successful in meeting these standards if group norms were created which reduced the level of courage and determination required to explore important issues, and increased tolerance for constructive controversy. For a variety of reasons dysfunctional group dynamics are tolerated all too often at the board level. Leslie Levy describes a board which reluctantly approved an acquisition decision that subsequently proved a poor choice. When asked in interviews how the board came to approve the
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acquisition, six reasons.
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despite their reservations,
22 directors
February gave
(1) They
(the directors) did not discover until later that senior management was opposed since the few comments made by senior managers were positive. (2) They did not fully appreciate the seriousness of the problem associated with the acquisition. They did not realize that other directors shared their (3) negative opinion of the acquisition. (4) They wanted to support the new CEO who seemed to be doing a good job. They wcrc afraid that, if the board turned down the (5) acquisition, the CEO would resign. approval (6) The chief executive’s insistence on immediate made it impossible for them to raise serious doubts about the acquisition without provoking conflict with him _I”
As Leslie Levy concludes: ‘If it seems shocking to suggest that a board with 12 extraordinarily talented and sophisticated outsiders did not know how to induce the CEO to retract this proposal voluntarily, it is important to remember that what was required in this situation was not merely capable individuals, but a capable group.“’ As boards increase the use of committees to review some of their more complex tasks, the matter becomes of even greater importance. There is already some evidence that boards avoid handling unclear, politically complex decisions.‘* Failure to address the boards’ capability for managing and resolving conflicting opinions will increase the tendency to avoid such ‘uncomfortable’ tasks. The consequences could be dangerous: poor decisions, rapid management turnover, in some cases irresponsiblc decisions leading to director lawsuits, and failed companies. The examples and our understanding of wellestablished principles for good team- and groupwork, point to the necessity for the board and management to actively assure that board members consider carefully their goals and purpose, and that the climate and norms governing board interaction facilitate interchange among the members and between directors and management. One mechanism for developing the group’s effectiveness is the articulation of a mission statement which focuses attention on a common purpose. Many companies have mission statements and use them constantly for a variety of purposes. Missions focus attention by defining and limiting the areas the organization wants to consider, and thereby reduce the complexity of the environment to manageable dimensions.” Some mission statements include goals;‘j others, such as the Johnson & Johnson Credo” provide key statements of values.‘” The mission concept was developed in the context of the creation of formal strategic planning frameworks in the 1960s and 1970s. Interestingly enough, military thinking had quite some impact in this
1989 context: the Planning, Programming, Budgeting, eveloped by the U.S. DepartSystems (PPBS), d ment of Defense in the 1960s expressly addressed the ‘mission’ of planning units, probably in parallel to the traditional concept of the missions of a combat unit. In the business literature, writers like Peter and Igor Ansoff” used the mission Druckcr” concept as central themes in their discussions of corporate strategy. As a consequence, carefully worded mission statements were developed (as part of the strategy formulation process) not only for but also for sub-units like overall companics, Strategic Business Units or Divisions. Over the last two decades they gained importance and some writers believe that missions may bc ‘the most factors in organizational powerful of decision-making’.” Thus, the potential for a mission statement to improve the effectiveness of board activity seems quite clear. The greater the degree of attention a board pays to its ability to function as a group, or team, the more effective it will be in considering and dealing with decisions and tasks. Extrapolating from group dynamics research we can suggest that the greater the clarity of and agreement upon the goals of the group and acceptable norms for interaction, the more effective the board will be. Further, it seems reasonable to expect that companies and boards that have developed missions for their boards would be able to utilize the board to greater advantage.
What Should be the Content Mission Statement?
of a
Several sources can bc used to generate the outline of a mission statement for a board. Current thinking about the roles that boards play in relation to corporate activity is one source for generating topics for a mission statement or working procedures. Opinions vary about the roles boards should play, from that of a ‘watchdog’ to ‘trustee’ to actually directing the business, as a ‘pilot’.” These roles are defined by contrast with the roles played by corporate management, and further delineate the scope of activity for the board. Thus, a board mission should speak to the intent, or spirit of the role the board should play for the company, as part of the specification of responsibilities. Another area which is the subject of much discussion deals with the question of ‘to whom’ and ‘for what’ the corporation is held accountable. However, the board and management may choose to play their ultimately the board is held respective roles, accountable for corporate performance in at least two arenas: the return to owners (shareholders) and the acceptability of corporate activity to stake-
Defining holders (often termed legitimacy). In several countries, notably the United States, the discussion of corporate accountability is often conducted in the courtroom, as shareholder and stakeholder alike seek specific interpretations of these dimensions of accountability. Surely a mission statement for a board should provide guidance with respect to the ‘to whom’ and ‘for what’ they believe they should be held accountable. In addition to experience with company-wide mission statements, discussed above, there is an extensive understanding of the factors which make Among the many factors that groups effective. influence the development of an effective group, or team, at least three are central: That the members of the group have developed a clear understanding of the goals of the group and perceive those goals as a common purpose. That each member understands the way in which they can contribute to achieving the goal. That each member understands others to make their contribution
how to assist most effective.
Agreements to general goals are necessary, but by themselves do not cause inspired performance. A mission statement has the power to motivate by creating excitement for those whose participation is sought. 2’ The purpose is to p reduce an ‘aligned’ group-where board members act as part of the whole while recognizing both their individual purposes and their commitment to a significant common purpose.22 Jointly establishing a truly inspiring common purpose for a board should have an effect distinctly different from a simple agreement to a general intent. Within such an aligned board a new potential emerges for the creative exploration of ideas. An aligned board would be anything but a rubberstamp organization. Aligned groups often have more open disagreement and apparent conflict than less aligned groups. ‘In fact, a high degree of alignment is really a necessary condition for creative disagreement, since the quality of interpersonal relationships in a highly aligned organization allows people to argue about ideas without fearing loss of acceptance or damaged relationships.‘23
Table
1. Companies
with board
mission
the Role
of the Board
To achieve the full benefit of this process, the mission would need to be developed, or at least, considered carefully, by all members of the board. It should specify the purpose for the group’s existence, and deal with the mandates for the scope of its activity. Conditions of and expectations for membership as well as the working procedures for the group will also be important to its effective functioning.
What Companies Have Board Mission Statements? The Survey To ascertain how widespread this practice might bc, a letter survey was sent to the corporate secretaries of 70 large, multinational companies in North America (20 per cent), Europe (72 per cent), South America and Asia (8 per cent). All companies are formally affiliated with a major European management institute. Perhaps these companies, who demonstrate a higher degree of concern with management issues through the affiliation, are more likely to use any such device than other companies. For purposes of the exploratory study this factor was considered of less importance. Thirty-six of the companies responded to the survey (52 per cent). Of those, 15 (41 per cent of responding companies) indicated that mission statements or working procedures for their boards had been developed. In all but one case, copies of the mission statements and other materials were provided with the response. Table 1 indicates the geographic spread and size of those with mission statements. While some might anticipate that primarily North American companies use mission statements for their boards, our responses show more than half of the companies (54 per cent) were based in Europe (including Scandinavia and the U.K.) or elsewhere (South America). In analysing the responses and material, care was taken to distinguish articles of incorporation or structural descriptions from board mission ments or working procedures. In three
statements
Size’ Region
50-l
00
North America
I
Rest of Europe Scandinavia U.K. Other Total
‘In U.S. dollars, billions (log).
20-49 1
I
0
1
63
IO-19
5-9.9
4.9-or
less
Total
3
2
1
7
1 2
1 1 1 5
2
; 3 1 15
6
3
statecases,
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companies provided copies of manuals, or the table of contents to manuals, that are used in orienting new directors (especially non-executive directors) to the companies and their roles. Nine of the documents focused expressly (although not necessarily exclusively) on the board and had been developed during the past 15 years. Three more were working papers now under consideration. The remainder had been taken from proxy statements or were in the form of guidelines relayed to us in letter format.
What is in a Mission Statement? The documents provided related to four issues:
were analysed
(1) A statement of mandate or intent (2) An expression of values relating
for content
for the board. to the role or
purpose of the board. of to whom, or for what, the (3) A definition company and board should be held accountable, or answerable. about the quality (4) An expression of expectations of preparation for and the process for conducting board sessions.
Mandute or Intent In order to focus the attention of the board, a mission statement should deal with the purpose and intent of the board. It should permit the board and management to clearly distinguish their respective responsibilities. Almost half of the documents (seven companies) specified a mandate for the board as a whole, in many cases listing areas of responsibilities. One company listed eight such areas; another 38. They included wording which more generally delineated the mandate, and three made explicit reference to avoiding involvement in day-to-day management, such as: The principal concerns of the Board include the broad policies of the Corporation, its general direction, pace and priorities. The Board should not become involved in the details of day-to-day business operations.
The mandates were stated using a variety of descriptors for the role of the board: to control, approve, monitor, direct, take decisions, advise and counsel, initiate strategy, evaluate management. The diversity among this relatively small sample, was the dominant feature. Five companies outlined mandates for the board through its committees. Two more discussed in some detail mandates for individual directors, in one case focusing on special responsibilities for nonexecutive directors. Six of the companies provided lists of decisions which needed to be referred to the after listing eight topics board. One company, which require board attention, added,
1989 It has been agreed by the Board that it is not appropriate to set a monetary guideline for subjects to come before the Board. Some matters above any such guideline figure could be more or less routine while others, below the guideline figure, such as entering into new fields, might well deserve full consideration by the Board.
An Expression of Values This one characteristic allowed us to discriminate immediately between two categories of statements: the degree to which the statements dealt with values or intent, by contrast with procedures, for example: why and how the board should play its role. These statements spoke to the way in which the board and management conduct their business. Six of the 15 statements expressed clear guidance not only for the ‘what’ shall be the responsibility of the board, but also for the purpose of the board’s role by contrast with management. Wording in such cases included specific reference to constituents or stakeholders to whom the board and company felt responsible. considers. policy and practice on questions of mutual concern to the business community and the general public the Audit Committee also reviews . compliance with the Company’s Business Ethics, Conflicts of Interest and Proprietary Information Agreement, which is sent to appropriate managerial exmployees . around the world, and receives reports as to any exceptions. to act as a ‘sounding board’, offering to management on critical and delicate raised in or outside Board meetings
advice and counsel problems whether
the Board is actively and directly involved direction, management and control of the Group. The Board
holds a charter
No member of management director’s Board.
Although dural, it directly Further, number
oftrust for will
in the
the corporation.
serve
on
an outside
this last point may be considered proceis included h ere because it appears to speak to the potential for conflict of interest. it is in contrast to current practice for a of settings and companies.
Accountability: to Whom, for What In some ways this category overlaps with the first two. It includes statements of mandate for the board, and implicitly, incorporates values by defining to whom the company and/or board is responsible. It has been identified as a separate topic area because, notably, only about half the documents (seven) spoke to this point explicitly. To whom. Not surprisingly, those who spoke to the point, named at least three, and sometimes four ‘shareholders’, ‘stakeholders’, ‘communigroups : and once, ‘customers’. There was ties’, ‘employees’, remarkable consistency in wording; most using
Defining language similar as-the following
to-although
not
as dramatic
:
The Board of Directors is, on behalf of the stockholders, the guardian of the interests of all who have a stake in the success ofthe corporation. In addition to stockholders, these include customers, employees, suppliers, the communities in which it operates and society as a whole.
For what. Five companies addressed for what the board and the company should be held accountable. In addition to maintaining the economic viability of the enterprise, several companies mentioned the terms ‘integrity’, and ‘social responsibility’. The company which assigned responsibility to the Audit Committee for compliance with the code of ethics (mentioned earlier), holds this board committee responsible for reviewing company ‘commitment to quality and integrity’. Another company the words of one,
stressed
the term
‘progress’.
In
The Board’s function is to ensure that: (a) our business has acceptable purpose, direction and plan; . (c) the future health is not jeopardized by the risks to which its financial resources, human resources and public image are exposed.
Preparation and Process The board can only respond to the degree that it is informed about the details, significance and consequences of a particular topic or decision. In their materials, five companies specifically addressed the frequency and type of information provided to the board. In one manual, the executive directors were specifically charged with the responsibility for assuring that important matters come to the attention of the board, with adequate preparation. For the most part, the conduct of board sessions was primarily addressed through discussions of procedures. The degree of attention paid to board procedure may be an indicator of many things, not all desirable. Some boards have instituted annual procedures for reviewing the quality of their work;24 others assign the task to a committee or hold individual reviews with directors. Attention to procedure, nonetheless, could be an indicator of the value the company place on this scarcest, and most expensive, of resources. Eight companies, in addition to the six noted in the ‘values’ section, primarily focused on procedural matters. In many cases, these outlined quite specifically the decision topics to be handled at the board level. The original survey letter requested copies of ‘mission statements for boards’ or ‘working procedures’. The eight reported here might best be classified as working procedures. An important question can be raised about their potential to serve the purpose of providing a goal, or common purpose for the board as a group. One company
the Role
of the Board
65
shared with us an extensive, 9 chapter, 102 page manual for the board. In a casual conversation with one author, the CEO questioned whether any of the directors had ever seen the manual, or whether it served any useful purpose. One might ask what purpose it was intended to serve?
Summary Of the 15 companies with mission statements or working procedures, only one provided us with materials that dealt comprehensively with all five of the topic areas identified above. Three others dealt with all but one. These four companies had developed specialized documents which addressed the roles, responsibilities and working procedures for their boards. All had been in existence for some time (up to 15 years) and one had been revised as recently as October 1987. One company provided material on the role of the board which related board responsibilities to a number of other company ‘documents’, including a corporate belief statement. Clearly, the board operates in the context of other company goals and objectives. We recognize the danger that in discussing missions we may step into a trap found also in the case of corporate strategy: there was a point in time when a good number of managers (and academics) felt that the only good strategy was a well-formulated, thoroughly documented strategy statement. Fortunately, it was soon realized that the logical extension of this premise was untenable. If accepted, it would appear that none of the Founding Fathers of large firms had a strategy, which is, of course, an absurd conclusion. When it comes to establishing the direction of an enterprise, there are many ways to Rome. This is probably best captured by Henry Mintzberg*j who distinguishes between ‘intended’ and ‘emergent’ strategies. Intended strategies are carefully formulated, deliberately implemented and, by doing so, realized. NASA’s strategy in the 1960s to put a man on the moon is almost a textbook case of strategy formulation and implementation. (Of course, there are cases where an intended strategy is never executed, resulting in what Mintzberg calls ‘unrealized strategy’.) The second mode Mintberg calls an ‘emergent strategy’. In this case an organization makes a series of relatively important decisions which are woven into a meaningful pattern. To a trained eye the pattern in such a stream of decisions is easily recognized. Mintzberg calls this the process of ‘crafting strategy’ and writes . . craft evokes the notions of traditional skill, dedication, perfection through the mastery of detail. It is not so much thinking and reason that spring to mind as involvement, a sense of intimacy and harmony with the materials at hand,
66
Long Range Planning Vol. 22
February 1989
developed through long experience and commitment. Formulation and implementation merge into a single fluid process of learning, through which creative strategy evolves . .2#*
It seems logical to extend this to missions for boards. There is no doubt that there are consciously created, (‘intended’) missions for boards. Many of them, as this research shows, are realized in a deliberate effort. Although not addressed in this study, we are sure that Mintzberg’s second mode is also operative in the board context, a stream of individual actions and conscious omissions occurring in a board’s work which are recognizable as an ‘implicit mission’. For many boards there are patterns observable in the way the board conducts its work which a detached observer can relatively easily discern and destribe---‘emergent’ mission. Many boards with “impliclt missions’, like the managers who are ‘crafting’ rather than ‘planning’ their strategy, produce excellent work. A word of caution is in order, however. The ‘emergent’ mission mode is unlikely to move a company far from the status quo; bold visonary moves are unlikely to result from this way of proceeding. Further, while the Board chairman may wish to avoid the controversy provoked through discussion of mission statements in order to preserve a complex coalition of forces on the board, it is these disagreements which should be aired and discussed, if not resolved. After all, what Drucker says about a business mission may well hold also for a mission for a board: . . . that business purpose and business mission are so rarely given adequate thought is perhaps the most important single cause of business frustration and business failure .*j
If one replaces the word ‘business’ in the above statement by the word ‘board’, one easily understands why the study described in this paper deals with formal statements of missions for boards of directors. As research continues on this topic, it should seek to place the board more comprehensively within other frameworks which the company uses to define the utilization of its resources. Our survey letter spcciftcally requested copies of ‘mission statements’ dr ‘work&g p;ocedures’&for boards, and might thus have failed to elicit the full range of documentation that impinges on the responsigilitics of the board. And, because we requested documentation, it would not have surfaced sources of other norms, perhaps implicit, which govern the board’s mandate, values or procedures.
Conclusions Great variety in corporate approaches to the roles and missions for boards was uncovered through this exploratory study. Examples ranged from copies of statements in corporate proxy material to special-
ized documents which reflect extensive discussion among directors and management. Forty-one per cent of those responding to this exploratory survey (23 per cent of the sample) had developed either working procedures or mission statements for their boards. This represents extensive attention to the role of their boards, beyond that required by law or even common practice. Further, by the creation of formal company documents which address the role and working procedures of the board, these companies have codified internal standards which would probably become evidence in any legal proceeding brought against the company or the board. Boards and companies would be unlikely to take that risk unless they perceived the board as a resource to the company in the achievement of its goals and objectives. Those companies with mission statements and working procedures have defined mandates for their boards in greater depth and detail than required by law. This action suggests an assessment that there is ‘value-added’ to be obtained through effective board action. Those companies seem to have made a judgment that greater board attention to the mandate, values, procedures, information and questions of accountability will make boards more effective in contributing to the achievement of corporate goals. More attention -both managerial and research-is due this area. Boards are a scarce and expensive resource. To use them inefficiently, or ineffectively, is wasteful. Boards which do not examine and develop their capabilities as a purposeful group are unlikely to succeed in dealing with the critical issues facing corporations today. The creation of a shared mission at the board level, supported by working procedures, may be a route =to unle&hing the creative and robust role that boards can play.
Recommendations 1. The deve~o~~e~t of u clear avtd soused ~4~~e~s~un~ing of its mission should be a ~r~~~~rygouger the board and top ~~u~age~~entofa ~o~~a~y. A common understanding and ownership of goals are prerequisites for the effective functioning of any group. In the turbulent environment in which major companies are now operating, the short timeframe for many crucial decisions, the uncertainty of impacts and the nature of the choices require that all those who are party to the decisions understand their respective roles and responsibilities. These goals should be formulated in a way which enables progress towards them to be measured. Unless the adoption of a mission statement influences the behaviour of a board, it will have little value. 2. The process should be explicit. Our data are suggestive, rather than conclusive, with respect to
Defining the influence of a written statement by contrast with an emergent understanding. Research of a different nature is required to distinguish the relative value. The board and top management, from our perspective, may choose to develop a written statement of mission for the board, or may choose to explore the facets of the mission through focused discussion. A board committee, perhaps with the aid of the Corporate Secretary, might prepare a discussion document which highlights key aspects of the roles and relationships between the board and top management. The understanding which results from an explicit consideration of these dimensions of board activity should improve the capability of both. 3. As a minimum, the mission discussion should address: the overall mandate or intentfor the hoard; an expression of values relating to the various roles; a dejnition of to whom andfor what the company and board should be held accountable; and an expression of expectations about the quality of the preparation for and the process of conducting board business. Each of these topics has both an ‘external’ and ‘internal’ dimension. The board is a pivot point for company relations with the external environment, both in defining strategies and evaTo play its roles well, the luating performance. board must interact effectively with top management and must handle its own group, decision processes effectively. So, the mandate for the board should address both how the board functions in the roles which support the relationship between the company and the external environment, and how the board relates to corporate management. What values should govern board decisions about corporate behaviour, strategy and performance? What does the board recognize as governing its relationship to top management? In defining the elements of accountability, it is natural to focus externally, perhaps using stakeholder expectations as a yardstick. In addition, the board should ask: for what do we hold ourselves accountable? How does the board (and management) define the bottom line for evaluating its own performance? The fourth topic speaks primarily to the norms that are established vis-a-vis the internal management of board activity-the quality and sources of information the board expects, the robustness of board involvement in reviewing, and analysing important decisions and policies.
of the Board
67
statement may be the lever that permits the board to change from an uncritical ‘gentleman’s club’ to a significant and potent force in corporate management. Certainly, by engaging in the discussions necessary to develop a clear and shared understanding of the board’s mission, directors and management will have begun to establish norms to guide their behaviour.
(1) Touche Ross,
Corporate
Today, Touche
Directorship
in the Takeover
Climate of
Ross & Co., New York (1987).
(2) Clayton P. Alderfer, The invisible director on corporate boards, Harvard
Business
Reforming 70-74
Review,
64 (6).
board reform, Harvard
38-52 (1986). Leslie Levy, Business Review, 59 (11).
(1981).
(3)
Edward Golden and John P. Callahan, Molding CEO-board relationship, Directors & Boards, (1987).
(4)
Alderfer, op. cit.
(5)
William R. Boulton, Effective board development: five areas for concern, Journal of Business Strategy, 3, 94-100, Spring (1983). Edward Golden and John P. Callahan, Molding a harmonious CEO-board relationship, Directors & Boards, pp. 4344, Winter (1987).
(6)
Aarch Patton and John C. Baker, Why won’t directors rock the boats?, Harvard Business Review, 65 (6), 1 O-l 8 (1987).
(7)
Hillel Schmid, decision-making
(8)
Jane E. Dutton and Susan E. Jackson, Categorizing strategic issues; links to organizational sction, Academy of Management Review, 12 (I ), 76-90 (I 957). Robert J. Haft, Business decisions by the new board: behavioural science and corporate law, Michigan
(9) (IO)
a harmonious p. 43, Winter
Pamela Dodd and John E. Tropman, Board in human service organizations, Human Systems Management, 7 (2), 155-I 61 (1987).
law
Review,
80, l-67
(1981).
Sir Leslie Smith, How the board works at BOC, The Director, pp. 34-36, March (1982). Leslie Levy, Reforming board reform, HarvardBusiness 71 (1981).
Review,
59 (II),
p. 72.
(11)
Ibid.,
(12)
Marjorie A. Lyles, Defining strategic problems: subjectivecriteria of executives, Organization Studies, 8 (3). 263-279 (1987).
(13)
Frank T. Paines and William Naumes, Strategy and Policy W. B. Saunders Co., Philadelphia, PA (1974).
Formation,
(14) (15)
John K. Ryans Jr and William L. Shanklin, Strategic Random House Inc., New York (1985). Quoted inevitable,
4. Monitoring the performance of the board infulfilling its mission should be a regular and scheduledpart of the board agenda. This activity, undertaken as a group or in individual discussions with the Chairman, provides an opportunity to pinpoint both effective and ineffective behaviour. The mission statement provides a yardstick against which performance can be evaluated. Undertaken on an annual, or biannual basis, it offers a legitimate forum in which to review the input and process of the board as a whole, and of individual contributions. In this context, the mission
the Role
Planning,
in Steven Fink, Crisis Management: Planning p. 217, AMACOM, New York (1986).
for the
(16)
John C. Camillus, Strategic Planning and Management Control, Lexington Books, Lexington, MA (1986). George A. Steiner, Top Management Planning, Macmillan, London (1969).
(17)
Peter F. Drucker, Management, York (1974).
(18)
H. lgor Ansoff, (1965).
(19)
Camillus, op. cit., p. 47.
(29)
Haft, op. cit.
(21)
Russell L. Ackoff, Management Sons, New York (1986).
Corporate
Chap. 7-l 0, Harper & Row, New
Strategy,
McGraw-Hill,
New York
in Small Doses, John Wiley &
Long
68
Range
Planning
Vol.
February
22
(22) Charles F. Kiefer and Peter M. Senge, Metanoic organizations: experiments in organizational innovation, Innovation Associates, Framingham, MA (1987). (23)
Charles F. Kiefer and Peter M. Senge, op. cit., p. 6.
(24)
John Harvey-Jones, (1988).
(25)
James Brian Quinn, Henry Mintzaberg and Robert M. James (Eds), The Strategy Process, p. 15, Prentice-Hall, Englewood Cliffs, NJ (1988).
(26)
Making
It
Chilton,
Happen,
1989
United Kingdom
18.9% ,
- --
, Scandinavia
_.
London ,‘.*jy
Henry Mintzberg, Crafting strategy, Harvard July/August (1987).
Business
16.2%
\/Other
8.1%
Review,
65 (4), 66-75, (27)
Drucker, op. cit., p. 78. Europe 32.4% 12 .
Appendix : Sample and Responding Companies Figures la and lb show the geographic distribution of the sample and of those companies responding. The figures split Europe into three sub-regions: rJnited Kingdom, Scandinavia
Figure 1 b. Geographic (37 companies)
distribution
of respondents
and (Continental) Europe. Law and social custom create different models for board structures in these regions, and so the data have been divided to indicate the distribution of companies among them. The sample provides a representative distribution among all the regions of the world in terms of numbers of multinational corporations, with the exception of Japan and the Far East.
United Scandinavia
Table 2 shows the distribution of the sample and companies responding to the survey by size (annual 1986). The data show that we are deahng with relatively companies.
18.6%
Table
2. Company Sales U.S.Sbn
25
Figure la. Geographic sample (70 companies)
distribution
’ of whole
(1 Og)
50-I 00 20-49 10-19 5-9.9 I-4.9
those sales, large
size Whole sample companies 4 6 11 13 25 5 6
Responding companies 3 1 9 7 12 5
Defining Ada Demb, Danielle
the Role Chouet,
0024-6301/89 $3.00 + .OO Pergamon Press plc
61
of the Board
Tom Lossius and Fred Neubauer
Alerted by a recent survey which indicted that several large American companies had developed mission statements for their boards, the authors decided to explore the prevalence of this practice. Seventy large international firms in 17 countries were surveyed to learn how many of them used such statements, and the nature of their content. This article outlines the results of the survey and puts the use of board mission statements in the context of a tool for improving the effectiveness of board activity. ’
Alerted by a recent survey,’ which indicated that several large American companies had developed mission statements for their boards, we decided to explore the prevalence of this practice. Seventy large international firms in 17 countries were surveyed to learn how many of them use such statements, and the nature of their content. This article will outline the results of that survey and put the use of board mission statements in the context of a tool for improving the effectiveness of board activity.
Why Define a Board Mission? The board is one of many resources available to companies to use in pursuing their objectives. The board is a scarce and expensive resource and so should be used carefully for those activities where it can uniquely contribute. The board is also a collective body and therefore, like most groups will require direction in order to focus energy. Most boards, however, do not think of themselves nor manage themselves to take best as groups, of this characteristic.’ advantage One author believes that ‘it is quite possible that CEO’s and their boards . . . engage in less self-examination and less development in being effective members of an
The authors are members of the International Management institute in Geneva. Ada Demb is a Faculty Member, Organizational Systems, Danielle Chouet is a Research Assistant, Thomas Lossius was a former Faculty Member in Corporate Governance and F.-F. Neubauer is a Faculty member in Multinational Corporate Strategy and Planning.
organic unit than any group of corporate personnel’.3 If this were a comment about an R & D team, or a group of design engineers it would not be tolerated for very long. The costs would be too obvious. Inattention to group dynamics does not free the board from its influence. All groups are subject to behavioural tendencies, which can become unconscious. Ignorance of the forces shaping its behaviour makes the board even more susceptible to counterproductive habits that distort its ability to consider and deliberate effectively.4 Norms about the appropriate level of challenge to CEO or management recommendations become established.’ As a group of ‘peers’, directors may experience a level of sympathy for the CEO which further constrains their willingness to challenge Certain individuals may questionable proposals.” dominate discussions.’ Underlying attitudes toward problems-classifying them as threats or opportunities-condition responses to unexpected events prematurely eliminating other courses of action from consideration.* Some chairmen express a clear preference for active directors, specifying among the characteristics they seek ‘. . . the courage to ask questions which might reveal one’s own ignorance; a determination to reject the soft answer and to probe until complete satisfaction is obtained; the willingness to appear (at least temporarily) as a minority of one . . .‘9 Directors could be a great deal more successful in meeting these standards if group norms were created which reduced the level of courage and determination required to explore important issues, and increased tolerance for constructive controversy. For a variety of reasons dysfunctional group dynamics are tolerated all too often at the board level. Leslie Levy describes a board which reluctantly approved an acquisition decision that subsequently proved a poor choice. When asked in interviews how the board came to approve the
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despite their reservations,
22 directors
February gave
(1) They
(the directors) did not discover until later that senior management was opposed since the few comments made by senior managers were positive. (2) They did not fully appreciate the seriousness of the problem associated with the acquisition. They did not realize that other directors shared their (3) negative opinion of the acquisition. (4) They wanted to support the new CEO who seemed to be doing a good job. They wcrc afraid that, if the board turned down the (5) acquisition, the CEO would resign. approval (6) The chief executive’s insistence on immediate made it impossible for them to raise serious doubts about the acquisition without provoking conflict with him _I”
As Leslie Levy concludes: ‘If it seems shocking to suggest that a board with 12 extraordinarily talented and sophisticated outsiders did not know how to induce the CEO to retract this proposal voluntarily, it is important to remember that what was required in this situation was not merely capable individuals, but a capable group.“’ As boards increase the use of committees to review some of their more complex tasks, the matter becomes of even greater importance. There is already some evidence that boards avoid handling unclear, politically complex decisions.‘* Failure to address the boards’ capability for managing and resolving conflicting opinions will increase the tendency to avoid such ‘uncomfortable’ tasks. The consequences could be dangerous: poor decisions, rapid management turnover, in some cases irresponsiblc decisions leading to director lawsuits, and failed companies. The examples and our understanding of wellestablished principles for good team- and groupwork, point to the necessity for the board and management to actively assure that board members consider carefully their goals and purpose, and that the climate and norms governing board interaction facilitate interchange among the members and between directors and management. One mechanism for developing the group’s effectiveness is the articulation of a mission statement which focuses attention on a common purpose. Many companies have mission statements and use them constantly for a variety of purposes. Missions focus attention by defining and limiting the areas the organization wants to consider, and thereby reduce the complexity of the environment to manageable dimensions.” Some mission statements include goals;‘j others, such as the Johnson & Johnson Credo” provide key statements of values.‘” The mission concept was developed in the context of the creation of formal strategic planning frameworks in the 1960s and 1970s. Interestingly enough, military thinking had quite some impact in this
1989 context: the Planning, Programming, Budgeting, eveloped by the U.S. DepartSystems (PPBS), d ment of Defense in the 1960s expressly addressed the ‘mission’ of planning units, probably in parallel to the traditional concept of the missions of a combat unit. In the business literature, writers like Peter and Igor Ansoff” used the mission Druckcr” concept as central themes in their discussions of corporate strategy. As a consequence, carefully worded mission statements were developed (as part of the strategy formulation process) not only for but also for sub-units like overall companics, Strategic Business Units or Divisions. Over the last two decades they gained importance and some writers believe that missions may bc ‘the most factors in organizational powerful of decision-making’.” Thus, the potential for a mission statement to improve the effectiveness of board activity seems quite clear. The greater the degree of attention a board pays to its ability to function as a group, or team, the more effective it will be in considering and dealing with decisions and tasks. Extrapolating from group dynamics research we can suggest that the greater the clarity of and agreement upon the goals of the group and acceptable norms for interaction, the more effective the board will be. Further, it seems reasonable to expect that companies and boards that have developed missions for their boards would be able to utilize the board to greater advantage.
What Should be the Content Mission Statement?
of a
Several sources can bc used to generate the outline of a mission statement for a board. Current thinking about the roles that boards play in relation to corporate activity is one source for generating topics for a mission statement or working procedures. Opinions vary about the roles boards should play, from that of a ‘watchdog’ to ‘trustee’ to actually directing the business, as a ‘pilot’.” These roles are defined by contrast with the roles played by corporate management, and further delineate the scope of activity for the board. Thus, a board mission should speak to the intent, or spirit of the role the board should play for the company, as part of the specification of responsibilities. Another area which is the subject of much discussion deals with the question of ‘to whom’ and ‘for what’ the corporation is held accountable. However, the board and management may choose to play their ultimately the board is held respective roles, accountable for corporate performance in at least two arenas: the return to owners (shareholders) and the acceptability of corporate activity to stake-
Defining holders (often termed legitimacy). In several countries, notably the United States, the discussion of corporate accountability is often conducted in the courtroom, as shareholder and stakeholder alike seek specific interpretations of these dimensions of accountability. Surely a mission statement for a board should provide guidance with respect to the ‘to whom’ and ‘for what’ they believe they should be held accountable. In addition to experience with company-wide mission statements, discussed above, there is an extensive understanding of the factors which make Among the many factors that groups effective. influence the development of an effective group, or team, at least three are central: That the members of the group have developed a clear understanding of the goals of the group and perceive those goals as a common purpose. That each member understands the way in which they can contribute to achieving the goal. That each member understands others to make their contribution
how to assist most effective.
Agreements to general goals are necessary, but by themselves do not cause inspired performance. A mission statement has the power to motivate by creating excitement for those whose participation is sought. 2’ The purpose is to p reduce an ‘aligned’ group-where board members act as part of the whole while recognizing both their individual purposes and their commitment to a significant common purpose.22 Jointly establishing a truly inspiring common purpose for a board should have an effect distinctly different from a simple agreement to a general intent. Within such an aligned board a new potential emerges for the creative exploration of ideas. An aligned board would be anything but a rubberstamp organization. Aligned groups often have more open disagreement and apparent conflict than less aligned groups. ‘In fact, a high degree of alignment is really a necessary condition for creative disagreement, since the quality of interpersonal relationships in a highly aligned organization allows people to argue about ideas without fearing loss of acceptance or damaged relationships.‘23
Table
1. Companies
with board
mission
the Role
of the Board
To achieve the full benefit of this process, the mission would need to be developed, or at least, considered carefully, by all members of the board. It should specify the purpose for the group’s existence, and deal with the mandates for the scope of its activity. Conditions of and expectations for membership as well as the working procedures for the group will also be important to its effective functioning.
What Companies Have Board Mission Statements? The Survey To ascertain how widespread this practice might bc, a letter survey was sent to the corporate secretaries of 70 large, multinational companies in North America (20 per cent), Europe (72 per cent), South America and Asia (8 per cent). All companies are formally affiliated with a major European management institute. Perhaps these companies, who demonstrate a higher degree of concern with management issues through the affiliation, are more likely to use any such device than other companies. For purposes of the exploratory study this factor was considered of less importance. Thirty-six of the companies responded to the survey (52 per cent). Of those, 15 (41 per cent of responding companies) indicated that mission statements or working procedures for their boards had been developed. In all but one case, copies of the mission statements and other materials were provided with the response. Table 1 indicates the geographic spread and size of those with mission statements. While some might anticipate that primarily North American companies use mission statements for their boards, our responses show more than half of the companies (54 per cent) were based in Europe (including Scandinavia and the U.K.) or elsewhere (South America). In analysing the responses and material, care was taken to distinguish articles of incorporation or structural descriptions from board mission ments or working procedures. In three
statements
Size’ Region
50-l
00
North America
I
Rest of Europe Scandinavia U.K. Other Total
‘In U.S. dollars, billions (log).
20-49 1
I
0
1
63
IO-19
5-9.9
4.9-or
less
Total
3
2
1
7
1 2
1 1 1 5
2
; 3 1 15
6
3
statecases,
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companies provided copies of manuals, or the table of contents to manuals, that are used in orienting new directors (especially non-executive directors) to the companies and their roles. Nine of the documents focused expressly (although not necessarily exclusively) on the board and had been developed during the past 15 years. Three more were working papers now under consideration. The remainder had been taken from proxy statements or were in the form of guidelines relayed to us in letter format.
What is in a Mission Statement? The documents provided related to four issues:
were analysed
(1) A statement of mandate or intent (2) An expression of values relating
for content
for the board. to the role or
purpose of the board. of to whom, or for what, the (3) A definition company and board should be held accountable, or answerable. about the quality (4) An expression of expectations of preparation for and the process for conducting board sessions.
Mandute or Intent In order to focus the attention of the board, a mission statement should deal with the purpose and intent of the board. It should permit the board and management to clearly distinguish their respective responsibilities. Almost half of the documents (seven companies) specified a mandate for the board as a whole, in many cases listing areas of responsibilities. One company listed eight such areas; another 38. They included wording which more generally delineated the mandate, and three made explicit reference to avoiding involvement in day-to-day management, such as: The principal concerns of the Board include the broad policies of the Corporation, its general direction, pace and priorities. The Board should not become involved in the details of day-to-day business operations.
The mandates were stated using a variety of descriptors for the role of the board: to control, approve, monitor, direct, take decisions, advise and counsel, initiate strategy, evaluate management. The diversity among this relatively small sample, was the dominant feature. Five companies outlined mandates for the board through its committees. Two more discussed in some detail mandates for individual directors, in one case focusing on special responsibilities for nonexecutive directors. Six of the companies provided lists of decisions which needed to be referred to the after listing eight topics board. One company, which require board attention, added,
1989 It has been agreed by the Board that it is not appropriate to set a monetary guideline for subjects to come before the Board. Some matters above any such guideline figure could be more or less routine while others, below the guideline figure, such as entering into new fields, might well deserve full consideration by the Board.
An Expression of Values This one characteristic allowed us to discriminate immediately between two categories of statements: the degree to which the statements dealt with values or intent, by contrast with procedures, for example: why and how the board should play its role. These statements spoke to the way in which the board and management conduct their business. Six of the 15 statements expressed clear guidance not only for the ‘what’ shall be the responsibility of the board, but also for the purpose of the board’s role by contrast with management. Wording in such cases included specific reference to constituents or stakeholders to whom the board and company felt responsible. considers. policy and practice on questions of mutual concern to the business community and the general public the Audit Committee also reviews . compliance with the Company’s Business Ethics, Conflicts of Interest and Proprietary Information Agreement, which is sent to appropriate managerial exmployees . around the world, and receives reports as to any exceptions. to act as a ‘sounding board’, offering to management on critical and delicate raised in or outside Board meetings
advice and counsel problems whether
the Board is actively and directly involved direction, management and control of the Group. The Board
holds a charter
No member of management director’s Board.
Although dural, it directly Further, number
oftrust for will
in the
the corporation.
serve
on
an outside
this last point may be considered proceis included h ere because it appears to speak to the potential for conflict of interest. it is in contrast to current practice for a of settings and companies.
Accountability: to Whom, for What In some ways this category overlaps with the first two. It includes statements of mandate for the board, and implicitly, incorporates values by defining to whom the company and/or board is responsible. It has been identified as a separate topic area because, notably, only about half the documents (seven) spoke to this point explicitly. To whom. Not surprisingly, those who spoke to the point, named at least three, and sometimes four ‘shareholders’, ‘stakeholders’, ‘communigroups : and once, ‘customers’. There was ties’, ‘employees’, remarkable consistency in wording; most using
Defining language similar as-the following
to-although
not
as dramatic
:
The Board of Directors is, on behalf of the stockholders, the guardian of the interests of all who have a stake in the success ofthe corporation. In addition to stockholders, these include customers, employees, suppliers, the communities in which it operates and society as a whole.
For what. Five companies addressed for what the board and the company should be held accountable. In addition to maintaining the economic viability of the enterprise, several companies mentioned the terms ‘integrity’, and ‘social responsibility’. The company which assigned responsibility to the Audit Committee for compliance with the code of ethics (mentioned earlier), holds this board committee responsible for reviewing company ‘commitment to quality and integrity’. Another company the words of one,
stressed
the term
‘progress’.
In
The Board’s function is to ensure that: (a) our business has acceptable purpose, direction and plan; . (c) the future health is not jeopardized by the risks to which its financial resources, human resources and public image are exposed.
Preparation and Process The board can only respond to the degree that it is informed about the details, significance and consequences of a particular topic or decision. In their materials, five companies specifically addressed the frequency and type of information provided to the board. In one manual, the executive directors were specifically charged with the responsibility for assuring that important matters come to the attention of the board, with adequate preparation. For the most part, the conduct of board sessions was primarily addressed through discussions of procedures. The degree of attention paid to board procedure may be an indicator of many things, not all desirable. Some boards have instituted annual procedures for reviewing the quality of their work;24 others assign the task to a committee or hold individual reviews with directors. Attention to procedure, nonetheless, could be an indicator of the value the company place on this scarcest, and most expensive, of resources. Eight companies, in addition to the six noted in the ‘values’ section, primarily focused on procedural matters. In many cases, these outlined quite specifically the decision topics to be handled at the board level. The original survey letter requested copies of ‘mission statements for boards’ or ‘working procedures’. The eight reported here might best be classified as working procedures. An important question can be raised about their potential to serve the purpose of providing a goal, or common purpose for the board as a group. One company
the Role
of the Board
65
shared with us an extensive, 9 chapter, 102 page manual for the board. In a casual conversation with one author, the CEO questioned whether any of the directors had ever seen the manual, or whether it served any useful purpose. One might ask what purpose it was intended to serve?
Summary Of the 15 companies with mission statements or working procedures, only one provided us with materials that dealt comprehensively with all five of the topic areas identified above. Three others dealt with all but one. These four companies had developed specialized documents which addressed the roles, responsibilities and working procedures for their boards. All had been in existence for some time (up to 15 years) and one had been revised as recently as October 1987. One company provided material on the role of the board which related board responsibilities to a number of other company ‘documents’, including a corporate belief statement. Clearly, the board operates in the context of other company goals and objectives. We recognize the danger that in discussing missions we may step into a trap found also in the case of corporate strategy: there was a point in time when a good number of managers (and academics) felt that the only good strategy was a well-formulated, thoroughly documented strategy statement. Fortunately, it was soon realized that the logical extension of this premise was untenable. If accepted, it would appear that none of the Founding Fathers of large firms had a strategy, which is, of course, an absurd conclusion. When it comes to establishing the direction of an enterprise, there are many ways to Rome. This is probably best captured by Henry Mintzberg*j who distinguishes between ‘intended’ and ‘emergent’ strategies. Intended strategies are carefully formulated, deliberately implemented and, by doing so, realized. NASA’s strategy in the 1960s to put a man on the moon is almost a textbook case of strategy formulation and implementation. (Of course, there are cases where an intended strategy is never executed, resulting in what Mintzberg calls ‘unrealized strategy’.) The second mode Mintberg calls an ‘emergent strategy’. In this case an organization makes a series of relatively important decisions which are woven into a meaningful pattern. To a trained eye the pattern in such a stream of decisions is easily recognized. Mintzberg calls this the process of ‘crafting strategy’ and writes . . craft evokes the notions of traditional skill, dedication, perfection through the mastery of detail. It is not so much thinking and reason that spring to mind as involvement, a sense of intimacy and harmony with the materials at hand,
66
Long Range Planning Vol. 22
February 1989
developed through long experience and commitment. Formulation and implementation merge into a single fluid process of learning, through which creative strategy evolves . .2#*
It seems logical to extend this to missions for boards. There is no doubt that there are consciously created, (‘intended’) missions for boards. Many of them, as this research shows, are realized in a deliberate effort. Although not addressed in this study, we are sure that Mintzberg’s second mode is also operative in the board context, a stream of individual actions and conscious omissions occurring in a board’s work which are recognizable as an ‘implicit mission’. For many boards there are patterns observable in the way the board conducts its work which a detached observer can relatively easily discern and destribe---‘emergent’ mission. Many boards with “impliclt missions’, like the managers who are ‘crafting’ rather than ‘planning’ their strategy, produce excellent work. A word of caution is in order, however. The ‘emergent’ mission mode is unlikely to move a company far from the status quo; bold visonary moves are unlikely to result from this way of proceeding. Further, while the Board chairman may wish to avoid the controversy provoked through discussion of mission statements in order to preserve a complex coalition of forces on the board, it is these disagreements which should be aired and discussed, if not resolved. After all, what Drucker says about a business mission may well hold also for a mission for a board: . . . that business purpose and business mission are so rarely given adequate thought is perhaps the most important single cause of business frustration and business failure .*j
If one replaces the word ‘business’ in the above statement by the word ‘board’, one easily understands why the study described in this paper deals with formal statements of missions for boards of directors. As research continues on this topic, it should seek to place the board more comprehensively within other frameworks which the company uses to define the utilization of its resources. Our survey letter spcciftcally requested copies of ‘mission statements’ dr ‘work&g p;ocedures’&for boards, and might thus have failed to elicit the full range of documentation that impinges on the responsigilitics of the board. And, because we requested documentation, it would not have surfaced sources of other norms, perhaps implicit, which govern the board’s mandate, values or procedures.
Conclusions Great variety in corporate approaches to the roles and missions for boards was uncovered through this exploratory study. Examples ranged from copies of statements in corporate proxy material to special-
ized documents which reflect extensive discussion among directors and management. Forty-one per cent of those responding to this exploratory survey (23 per cent of the sample) had developed either working procedures or mission statements for their boards. This represents extensive attention to the role of their boards, beyond that required by law or even common practice. Further, by the creation of formal company documents which address the role and working procedures of the board, these companies have codified internal standards which would probably become evidence in any legal proceeding brought against the company or the board. Boards and companies would be unlikely to take that risk unless they perceived the board as a resource to the company in the achievement of its goals and objectives. Those companies with mission statements and working procedures have defined mandates for their boards in greater depth and detail than required by law. This action suggests an assessment that there is ‘value-added’ to be obtained through effective board action. Those companies seem to have made a judgment that greater board attention to the mandate, values, procedures, information and questions of accountability will make boards more effective in contributing to the achievement of corporate goals. More attention -both managerial and research-is due this area. Boards are a scarce and expensive resource. To use them inefficiently, or ineffectively, is wasteful. Boards which do not examine and develop their capabilities as a purposeful group are unlikely to succeed in dealing with the critical issues facing corporations today. The creation of a shared mission at the board level, supported by working procedures, may be a route =to unle&hing the creative and robust role that boards can play.
Recommendations 1. The deve~o~~e~t of u clear avtd soused ~4~~e~s~un~ing of its mission should be a ~r~~~~rygouger the board and top ~~u~age~~entofa ~o~~a~y. A common understanding and ownership of goals are prerequisites for the effective functioning of any group. In the turbulent environment in which major companies are now operating, the short timeframe for many crucial decisions, the uncertainty of impacts and the nature of the choices require that all those who are party to the decisions understand their respective roles and responsibilities. These goals should be formulated in a way which enables progress towards them to be measured. Unless the adoption of a mission statement influences the behaviour of a board, it will have little value. 2. The process should be explicit. Our data are suggestive, rather than conclusive, with respect to
Defining the influence of a written statement by contrast with an emergent understanding. Research of a different nature is required to distinguish the relative value. The board and top management, from our perspective, may choose to develop a written statement of mission for the board, or may choose to explore the facets of the mission through focused discussion. A board committee, perhaps with the aid of the Corporate Secretary, might prepare a discussion document which highlights key aspects of the roles and relationships between the board and top management. The understanding which results from an explicit consideration of these dimensions of board activity should improve the capability of both. 3. As a minimum, the mission discussion should address: the overall mandate or intentfor the hoard; an expression of values relating to the various roles; a dejnition of to whom andfor what the company and board should be held accountable; and an expression of expectations about the quality of the preparation for and the process of conducting board business. Each of these topics has both an ‘external’ and ‘internal’ dimension. The board is a pivot point for company relations with the external environment, both in defining strategies and evaTo play its roles well, the luating performance. board must interact effectively with top management and must handle its own group, decision processes effectively. So, the mandate for the board should address both how the board functions in the roles which support the relationship between the company and the external environment, and how the board relates to corporate management. What values should govern board decisions about corporate behaviour, strategy and performance? What does the board recognize as governing its relationship to top management? In defining the elements of accountability, it is natural to focus externally, perhaps using stakeholder expectations as a yardstick. In addition, the board should ask: for what do we hold ourselves accountable? How does the board (and management) define the bottom line for evaluating its own performance? The fourth topic speaks primarily to the norms that are established vis-a-vis the internal management of board activity-the quality and sources of information the board expects, the robustness of board involvement in reviewing, and analysing important decisions and policies.
of the Board
67
statement may be the lever that permits the board to change from an uncritical ‘gentleman’s club’ to a significant and potent force in corporate management. Certainly, by engaging in the discussions necessary to develop a clear and shared understanding of the board’s mission, directors and management will have begun to establish norms to guide their behaviour.
(1) Touche Ross,
Corporate
Today, Touche
Directorship
in the Takeover
Climate of
Ross & Co., New York (1987).
(2) Clayton P. Alderfer, The invisible director on corporate boards, Harvard
Business
Reforming 70-74
Review,
64 (6).
board reform, Harvard
38-52 (1986). Leslie Levy, Business Review, 59 (11).
(1981).
(3)
Edward Golden and John P. Callahan, Molding CEO-board relationship, Directors & Boards, (1987).
(4)
Alderfer, op. cit.
(5)
William R. Boulton, Effective board development: five areas for concern, Journal of Business Strategy, 3, 94-100, Spring (1983). Edward Golden and John P. Callahan, Molding a harmonious CEO-board relationship, Directors & Boards, pp. 4344, Winter (1987).
(6)
Aarch Patton and John C. Baker, Why won’t directors rock the boats?, Harvard Business Review, 65 (6), 1 O-l 8 (1987).
(7)
Hillel Schmid, decision-making
(8)
Jane E. Dutton and Susan E. Jackson, Categorizing strategic issues; links to organizational sction, Academy of Management Review, 12 (I ), 76-90 (I 957). Robert J. Haft, Business decisions by the new board: behavioural science and corporate law, Michigan
(9) (IO)
a harmonious p. 43, Winter
Pamela Dodd and John E. Tropman, Board in human service organizations, Human Systems Management, 7 (2), 155-I 61 (1987).
law
Review,
80, l-67
(1981).
Sir Leslie Smith, How the board works at BOC, The Director, pp. 34-36, March (1982). Leslie Levy, Reforming board reform, HarvardBusiness 71 (1981).
Review,
59 (II),
p. 72.
(11)
Ibid.,
(12)
Marjorie A. Lyles, Defining strategic problems: subjectivecriteria of executives, Organization Studies, 8 (3). 263-279 (1987).
(13)
Frank T. Paines and William Naumes, Strategy and Policy W. B. Saunders Co., Philadelphia, PA (1974).
Formation,
(14) (15)
John K. Ryans Jr and William L. Shanklin, Strategic Random House Inc., New York (1985). Quoted inevitable,
4. Monitoring the performance of the board infulfilling its mission should be a regular and scheduledpart of the board agenda. This activity, undertaken as a group or in individual discussions with the Chairman, provides an opportunity to pinpoint both effective and ineffective behaviour. The mission statement provides a yardstick against which performance can be evaluated. Undertaken on an annual, or biannual basis, it offers a legitimate forum in which to review the input and process of the board as a whole, and of individual contributions. In this context, the mission
the Role
Planning,
in Steven Fink, Crisis Management: Planning p. 217, AMACOM, New York (1986).
for the
(16)
John C. Camillus, Strategic Planning and Management Control, Lexington Books, Lexington, MA (1986). George A. Steiner, Top Management Planning, Macmillan, London (1969).
(17)
Peter F. Drucker, Management, York (1974).
(18)
H. lgor Ansoff, (1965).
(19)
Camillus, op. cit., p. 47.
(29)
Haft, op. cit.
(21)
Russell L. Ackoff, Management Sons, New York (1986).
Corporate
Chap. 7-l 0, Harper & Row, New
Strategy,
McGraw-Hill,
New York
in Small Doses, John Wiley &
Long
68
Range
Planning
Vol.
February
22
(22) Charles F. Kiefer and Peter M. Senge, Metanoic organizations: experiments in organizational innovation, Innovation Associates, Framingham, MA (1987). (23)
Charles F. Kiefer and Peter M. Senge, op. cit., p. 6.
(24)
John Harvey-Jones, (1988).
(25)
James Brian Quinn, Henry Mintzaberg and Robert M. James (Eds), The Strategy Process, p. 15, Prentice-Hall, Englewood Cliffs, NJ (1988).
(26)
Making
It
Chilton,
Happen,
1989
United Kingdom
18.9% ,
- --
, Scandinavia
_.
London ,‘.*jy
Henry Mintzberg, Crafting strategy, Harvard July/August (1987).
Business
16.2%
\/Other
8.1%
Review,
65 (4), 66-75, (27)
Drucker, op. cit., p. 78. Europe 32.4% 12 .
Appendix : Sample and Responding Companies Figures la and lb show the geographic distribution of the sample and of those companies responding. The figures split Europe into three sub-regions: rJnited Kingdom, Scandinavia
Figure 1 b. Geographic (37 companies)
distribution
of respondents
and (Continental) Europe. Law and social custom create different models for board structures in these regions, and so the data have been divided to indicate the distribution of companies among them. The sample provides a representative distribution among all the regions of the world in terms of numbers of multinational corporations, with the exception of Japan and the Far East.
United Scandinavia
Table 2 shows the distribution of the sample and companies responding to the survey by size (annual 1986). The data show that we are deahng with relatively companies.
18.6%
Table
2. Company Sales U.S.Sbn
25
Figure la. Geographic sample (70 companies)
distribution
’ of whole
(1 Og)
50-I 00 20-49 10-19 5-9.9 I-4.9
those sales, large
size Whole sample companies 4 6 11 13 25 5 6
Responding companies 3 1 9 7 12 5