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New era puts pressure on corporate boards, Boston Global Consulting

Posted on May 14, 2017

In the face of disruptive technology, globalization, and a volatile marketplace, leading companies are committing to a new kind of transformation—one that is putting boards under new kinds of pressure and demanding that they become active and interventionist, stepping in to guide the process.

Instead of pursuing transformation as a one-time, crisis-driven initiative—and instead of focusing primarily on cost cutting—companies are committing to “always on” transformation, which requires that they profoundly change their strategy, business model, people, and processes on an ongoing basis in order to stay ahead.

For boards, this means taking on new roles, expanding their responsibilities, and changing their culture, says a new e-book published by The Boston Consulting Group (BCG).

Boards must get actively involved by hiring the right CEO, then stay involved by helping the CEO drive change.

Boards of directors need to play a critical role starting at the beginning and all the way through the transformation journey.  The e-book draws on the firm’s work on more than 400 transformations that generated a median annual impact exceeding $340 million through cost cuts, revenue levers, the application of capital efficiency levers, and improvements in organizational performance.

Boards must embrace the concept of always-on transformation, and embrace change as an everyday way of operating—not as a one-off event. The first step is to get comfortable with it, to abandon the idea that you can be a one-time cost cutter or acquirer and start addressing the fundamental transformation of the business on an ongoing basis. This affects every aspect of the board’s work.

Finding and Hiring the Right CEO

For the board, selecting the right CEO is a tall order. Many CEOs are still focused on cost and efficiency. But what firms need now is growth. It’s always easier to trim and optimize and cut costs than to figure out something new.

In the past, boards looked for leaders who were strategic and good with people or markets, but now they also need CEOs who are gifted at transformation.

Effective CEOs today can read and understand disruption, set ambitious goals, and motivate people to make fundamental changes in the way they operate.

Four More “Must-Dos” for Boards

Four other imperatives for boards in the new era of always-on transformation are these:

Look “around the corner” to understand and preempt key trends.The board should identify the trends that affect the company and work with the CEO to adjust the company’s strategy before the trends alter the business landscape. Listening to customers and workers is essential if the company is to spot trends before competitors do. You need to be paranoid about how the world is changing.

Align with the CEO—at least in public. The organization needs to know that the board fully supports the CEO and that both the board and the CEO support the company’s new direction and execution plan. And it needs to be clear that the CEO, not the board, makes all the operational decisions. But the chair can and should act as the CEO’s “sparring partner,” pushing back appropriately outside of formal situations.

Commit time, make good use of it, and ensure that the board composition is right. During transformations, boards need to meet as often as weekly, and the chair might be required to be involved several times per week. The board also needs a small and dedicated team that can devote adequate time and be available on short notice for critical decisions. Board composition also matters: it will probably be necessary to recruit a chair or board member with transformation experience, bring in experienced external advisors, and create a transformation task force.

Make themselves always-on. After two or three years of transformation efforts, many CEOs and leaders have a hard time continuing to turn things upside down. Boards can and should step in at times like this to make sure the transformation process continues and that the leadership team isn’t getting set in its ways.

Fundamentally, boards that succeed will be those that accept the new reality of transformation, accept that transformation is for leaders rather than laggards, adopt the right leadership style, and commit to bold action. The imperative to change is a given. The open question is how CEOs, boards, and leadership teams will respond.

Lars Fæste and Jim Hemerling are senior partners at BCG and co- editors of Transformation: Delivering and Sustaining Breakthrough Performance. For more information contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.