Shaping Board Strategy

This article, based on a discussion at Egon Zehnder’s Directors Development Program, explores a thought-provoking discussion on the evolving role of board members in shaping organizational strategy, enhancing board effectiveness, and ensuring personal efficacy in a rapidly changing business environment. M D Ranganath, former CFO of Infosys, and Ireena Vittal, Independent Director on boards of Godrej Consumer Products, Asian Paints, Diageo Plc and Maruti Suzuki, led the discussion. 

M D Ranganath, Chairman of Catamaran Ventures LLP and former CFO of Infosys, emphasized the critical role of board members in continuously evaluating and adapting corporate strategies to meet the dynamic business environment. He highlighted the exponential pace of change in the last decade, particularly in the financial services sector, driven by innovations like UPI and fintech, as well as generational shifts in consumer expectations. Ranganath stated, "The board member’s role has evolved rapidly, and the expectations of stakeholders have immensely changed. Boards must spend adequate time shaping and evaluating strategies to remain relevant."

Ranganath elaborated on the importance of understanding the rapid changes in the business environment. He noted, "What we have seen in the last five or ten years is probably an exponentially faster change in the business environment than in the previous 30 years." This rapid change necessitates that board members continuously evaluate the competencies of their corporations to adapt effectively. He stressed that while governance, internal controls, and succession planning are essential hygiene factors, the real value comes from shaping and evaluating the strategy in the context of a rapidly changing environment.

He also touched upon the delicate balance that independent directors must maintain, stating, "The role of directors, especially the independent directors, becomes somewhat tricky in the sense that where does one stop, where is that boundary line? Is it a grey line? Yes, we all understand. But when should boards intervene in strategy execution, and when should they not?" This balance is crucial for ensuring that the board adds value without overstepping its boundaries.

Ranganath highlighted the critical role of the chairman in this process. "The role of the chairman becomes super critical. How does the chairman, who's literally the bridge between the management and the board, make this dialogue constructive but at the same time challenging in terms of strategy evaluation and execution?" He emphasized that the quality of information flowing from management to the board is vital for effective decision-making.

Ireena Vittal, an expert in strategy and risk management, echoed similar sentiments, stressing the importance of board members bringing insights and asking the right questions. She noted, "One of the big jobs of the board is to sense externally what is around the corner and what patterns are emerging, as management teams are often deeply involved in daily operations."

Vittal emphasized the importance of pattern recognition and external sensing. She stated, "A great CEO and a great management team usually are in the weeds because that's where they focus to deliver. And it's the board that has to keep bringing them out of the weeds and say, have you thought of this pattern, can you imagine this is what the regulator is going to do when you're down the line as technology becomes useful, or have you thought about how you're going to handle this kind of a competitor which today is very small but might be large tomorrow?" This ability to recognize patterns and anticipate changes is crucial for effective board oversight.

She also highlighted the importance of alignment insight, explaining, "How does a board get a sense of how the management is buying into the discussions at the board, how are they sequencing the initiatives, because there's always a lot more for management to do than they have capacity?" Ensuring that the management's mindset is reflective of tomorrow and not of yesterday is vital for successful strategy execution.

The discussion also delved into the role of individual board members in making the overall board effective. Ranganath shared his experience from the technology sector, advocating for a digital factory approach to attract new tech talent and meet customer expectations. He remarked, "Each board member should leverage their unique experiences and sharpen them in the context of the organization to add value."

Ranganath provided a specific example from his experience, stating, "In the case of any bank, the fintechs have brought in a new dimension to how financial services are delivered, whether it is speed, simplicity of apps, or the speed of execution. Since I have worked a fairly long time in technology services, that brings me some new perspectives as to whether the bank is fully equipped to take on the speed with which the fintechs are changing the expectation of customers." He emphasized the importance of adapting to customer expectations and attracting new tech talent through a separate organizational structure.

Vittal added that the effectiveness of a board depends on the roles and personas adopted by its members. She explained, "Board members need to decide whether they will be specialists, experts, disruptors, or the glue that keeps everyone together. Understanding these roles helps in contributing effectively beyond insights."

Vittal elaborated on the different roles board members can play, stating, "If you're a chairperson, you play a huge role in influencing the board by helping think through who should be on the board, what is the skill matrix, how do you get the board mood and tone to be right? The chairman decides so much of the dynamic of a board." She also highlighted the importance of chairing committees effectively and ensuring that the mandates of the committees are reflective of current needs.

She emphasized the importance of understanding the dynamic and context of the board, stating, "For me, it's been very important to give myself the permission to stay quiet for 3/4 board meetings and not feel the desire to say something just to do class participation or to say, hey, I've arrived." This approach allows new board members to build credibility and understand the nuances of the board before contributing.

Looking ahead, both underscored the importance of continuous learning and staying current with industry trends. Ranganath suggested periodic upskilling through specialized programs and involving external experts to provide fresh perspectives. He stated, "We should not hesitate to learn new aspects and bring in external expertise to upskill the board."

Ranganath emphasized the importance of staying current with technological advancements, stating, "Technology is going to play a very big role in financial services. That's already visible and it's going to accelerate, especially in the customer standpoint. The customer expectations are no longer about waiting for you to do this, but about being delighted and having other options." He highlighted the need for board members to periodically upskill and bring in external experts for meaningful discussions.

He also addressed the changing regulatory landscape, noting, "The regulatory pieces are changing very, very fast. If you look at the Related Party Transaction Guideline of SEBI which has come out recently, that's far-reaching." He emphasized the importance of sharing new learnings within the board and ensuring that committee discussions are communicated effectively to the entire board.

Vittal emphasized the need for board members to understand their fellow members deeply and demonstrate empathy for CEOs navigating challenging times. She advised, "To remain effective, board members must learn continuously, understand each other’s judgment calls, and show empathy for the CEO." She also elaborated on the importance of continuous learning, stating, "The difference from 10 years back to now is one has to learn a lot more to remain current, one has to understand fellow board members at a deeper level of trust to be able to understand their calls, and then the level of empathy for the CEO that we have to demonstrate in these tough times has to go up significantly." She emphasized the need for board members to engage with external sources, meet with other companies, and stay updated on industry trends.

The session also addressed the unique challenges faced by executive directors, especially in government organizations. One participant highlighted the challenge of balancing operational responsibilities with the need to stay updated and being perceived as the lowest rung in the board hierarchy. Ranganath acknowledged these challenges and suggested focused training programs and informal pre-board discussions to validate perspectives. Vittal recommended leveraging informal sources of power and trusting independent directors to shape the agenda.

"Once in several years, take about two weeks’ time and go for a very specialized intense training or knowledge acquisition session in a very focused way in the context of the organization," Ranganath stated, also highlighting the importance of informal discussions prior to board meetings to ensure that executive directors can validate their perspectives and contribute effectively.

Vittal suggested leveraging informal sources of power, stating, "Power is not given, power is taken. In your case, you have so much of power because you have insights by being an insider. The question is, who do you trust on the board between your CEO, your chairman, and other members of the board, to be able to reach out and frame this as an issue that’s worth debating or an agenda item that's worth looking at."

The discussion concluded with actionable insights for board members to enhance their effectiveness. Ranganath advised, "Don't succumb to the urge to make comments without understanding the context." Vittal recommended, "Have one school day every month to stay current."

In summary, the expert panel discussion provided valuable insights into the evolving role of board members in shaping organizational strategy, enhancing board effectiveness, and ensuring personal efficacy. The importance of continuous learning, understanding the dynamic and context of the board, and leveraging informal sources of power were emphasized. As the business environment continues to change rapidly, board members must stay current, engage with external sources, and demonstrate empathy for CEOs navigating challenging times. The actionable insights provided by the panelists will help board members enhance their effectiveness and contribute to the success of their organizations.