En tomate.club® estamos convencidos que lo que “la lleva” en nuestro siglo, son las relaciones. Las organizaciones están formadas por personas y, dentro de su individualidad como seres humanos, debemos potenciar su desarrollo, entendimiento, formas relacionales; en definitiva, lo humano.
The Board of Directors is responsible for setting the tone of the companies’ culture so to leverage its capabilities and establishing the scope of its possibilities.
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It is quite amazing to see Federer 2017 play, not only because of his actual staying power, but because he is playing differently, maybe better than ever, surprising his opponents. He moves a few meters further inside the court something that allows him to use his right and backhand with notable fluidity, and struck the ball continuously during its bouncing back path. The SABR in English, that means “Sneak Attack By Roger”, was the shy prelude of its new way of playing, in particular when he attacks his rival’s second serve. Is what we call “anticipation”.
What is this “anticipation” based on? Just as in other spaces such as management techniques, anticipation requires to adopt “good practices” and also those that we call “new practices”.
Among the “good practices” from Federer are: (a) the choice of the best trainer possible for his current strategy. Today, it is the Croatian Ivan Ljubicic, successor of the talented Stefan Edberg; (b) to expand the diameter of his tennis racket in almost 15 centimetres, allowing him to connect with greater precision with the impact area; (c) having had some operations made to his back to ease his pains; and (d) having a good quality physical and mental rehabilitation.
Among the “new practices” - that exist only when the right emotion is expressed - have been, I believe, curiosity and being able to observe him reflectively, without needing the approval of others for his new way of living tennis.
Beyond the great tennis level that Roger Federer has given us for almost two decades, his sport career perfectly reflects what a human being is able to achieve if he uses the correct emotion. A wider potential that all good management should also consider when anticipating the opportunities, is to avoid risks, to create value and give stimulus to the General Manager in the achievement of the proposed goals.
The road traced by this great champion reveals, as well, that as the years go by, it is possible to contribute with a wider and sometimes wiser vision of things. They say that the character of young Roger showed a very low tolerance to frustration, giving him repeated tantrums, even making him not to want to take his rackets for weeks or months.
It has been said that the great fear of a human being is not related to his shadows but to his bright side: “It is our light, not our darkness what scares us most (...) We were made to be able to shine, to manifest the glory within us” (Nelson Mandela). For this reason, even though age is not a necessary or unique requirement to form a good corporate government, board members are, in general, people that are older.
June Singer writes: “A wise person once said the goal of the masculine principle is perfection and the goal of the feminine principle is completion. If you are perfect, you cannot be complete, because you must leave out all the imperfections of your nature. If you are complete, you cannot be perfect, for being complete means you contain good and evil, right and wrong, hope and despair”. Perhaps what we need is balance.
I grew up in the eighties when the available role models for a women leader were still very limited… we had few women in politics, few women leading companies, just a handful in leadership positions. Margaret Thatcher, the iron woman, was the iconic female figure of the moment, who was admired for being strong and hard, highly identified with more masculine principles.
I studied Civil Engineering where I also learned to cultivate more masculine aspects of my identity, such as a strong problem-solving capacity, analytical skills and the need to achieve.
If I could bring an image of the characteristics that I cultivated at that time, I would say they were those of Disney´s character Mulan, a young girl who masquerades as a man to be considered an equal among the Samurai. Perhaps many women had to do the same thing to enter the business world at that time, disguising feminine aspects of themselves that seemed of little use: such as emotional connection and empathy.
I wonder how much feminine talent is being wasted on these disguises… especially when companies so desperately need empathy nowadays.
After working a few years in Chile, I traveled to the United States to get my Master´s Degree. The advantage of living in a country with less discrimination and more female role models is that you also stop underestimating yourself, and go for the challenges once others look at you as an equal. Working in the United States I honed my competitive edge and learned very quickly that it was better to ask forgiveness than permission, otherwise you will get behind. It´s interesting how many women willingly accept to follow rules that didn’t invent for them and are not even in their favor.
However, when you only enhance masculine aspects of yourself (something that also happens to men), leaving behind all the feminine aspects, there is a risk of becoming a character that even doesn’t seem human. Somehow I got the message that in order to be appreciated as a professional I must become the perfect version of myself, knowing all the answers, and above all not showing any weakness, especially if you aspire to be a “leader” of some sort.
Leaders with so much desire for perfection are exhausting for themselves and for the rest. It is as if they were walking with glasses that only see what is missing. You look at your partners and what stands out most is what they do wrong. You are almost incapable of giving positive feedback, not because you don’t want to but because you can hardly see the positive in somebody. We meet once a year only to complain of our performance gaps, with a single focus on numbers (17% of loss, 80% of KPI completion, numbers only) and forget to celebrate how much we have learned.
We are not going to have better leadership if we have such narrow views of what leadership is all about. To see beyond the unique style of leadership, we need the feminine that opens up our way of seeing the world to include other ways of leading. The reason we have the same type of leaders in almost all organizations, is because they get chosen among the same pool of people, they give each other awards of leadership achievements, and the inbreeding continues, so we produce the same results of the past and perpetuate the status quo.
For the old world that was less complex, more linear, the traditional model of leadership had its usefulness. But for the world that is unfolding now, it is incomplete. The old model lacks a lot of humanity and balance, lacks empathy and relationship, and lacks inclusion and care for the collective, the ecosystem, and life itself. In short, it lacks the feminine aspects of life. And I do not necessarily mean more women in leadership positions, which is a first step, but a new way of thinking and feeling for women and men in leadership where everyone takes care of results and people, where there is a balance between caring for the environment and business, where you go seeking external achievements and also enhancing your freedom to measure your own principles.
Many of the failures that have surprised markets concerning boards of directors being considered professionally solid and well reputed, may be explained, I believe, by the superlative dimension given to the materials and information processes, neglecting the primary gear by excellence: the process of people.
More than four decades ago, Peter Drucker pointed out that boards of directors did not work. The verdict – state his followers – encouraged changes, initially attacked by the corporate establishment, which allowed the development of meeting spaces for the different hierarchical levels of the organizations.
In the crisis the companies are experiencing today, there is an element that is repeated: the resistance of their boards to integrate the process of people in their power structures, considering, perhaps through ignorance, that they would seriously affect their authority. They fear, definitively, sharing part of their jurisdiction with the vision of people hierarchically dependents. But the interaction among the directors, executives and employees gives sense to the process of people, preponderant factor in the culture of a company.
Are not the procedures or rules that motivates human behavior, but the meaning each individual gives to his own action. We proceed according to our own interpretation of what is pertinent and valid to do given each situation. Thus, what inspires and gives sense to the individual and/or collective actions in an organization, are the consistent practices of its board members; and these, at the same time, reveal the priorities of the board of directors, later transformed into culture. Those values constitute the principles guiding the
employees, under such parameters they adequate their actions and behaviors. For this reason, there are organizations in which corruption manifests and not in others.
Industrial and cyber engineering are necessary to control machines and data, but are insufficient to rule people. When the corporate power structure is based on the reverential obedience and this, for different reasons, loses its force, only hope of preserving what there is… until it drops. Then, it often appears, short term quick wins pondering above sustainable results.
It is the board of director’s task to “set the tone” with which the company relates with itself, with its clients, suppliers and competitors; the way of building and destroying alliances, and its way of doing businesses. The already mentioned, in accordance with the basic definitions of its company culture, changing all that is alien or extemporaneous to it.
Just then, we will be taking charge of the processes of people with visibility and focus to create actual economic and effective value. This process involves quality time and resources. But, previously, it demands introspection, the willingness to change and the conviction of its huge business and corporate benefits. t.
By definition, B Corps have a three-dimensional DNA, being concerned not only with economic results, but also with social and environmental matters.
Traditional boards of directors assume a fiduciary duty that is related with loyalty and care: loyalty, by treating every shareholder in equal conditions; and care, by safeguarding their economic interests. Therefore, the success of a traditional company is measured by the economic value provided its shareholders or owners.
On the other hand, B Corps measure success using a wider array of long-term indicators, since elements relating to social and environmental welfare are incorporated into the economic variable and their impact necessarily becomes apparent over a longer period of time. Here, the demand for loyalty and care must explicitly integrate those three dimensions and their boards of directors are responsible for incorporating a particular tone in the culture of the managed organization and ensure consistency with the principles involved.
¿How can this purpose be achieved?
B Corps have structured their boards of directors in the traditional manner. They are made up of five to nine members who meet every month and whose agendas do not differ from the common corporate practices. In addition, they share the common belief that making a good board of directors considers habitual standards, beyond the fact that the company they manage declared as their purpose to not only maximize shareholders’ profits but to leave their mark at the social and environmental levels as well.
Now then, the functioning of a board of directors is measured by its ability to safeguard the particular purpose of the company and to orient its strategic decisions. This exercise is done in a collegiate manner in order to input multiple points of view and foster interaction of its members through foresight capabilities, which are complementary to those of the general manager, oriented to action. The understanding of the functioning of the board of directors as a high performance team, obliges its members to interact in such a way that each one must personally know from where the other board member speaks and observes and where the reciprocal confidences allow to share their points of view to anticipate. In this space of conversation personal vulnerability becomes an attribute for creating collective intelligence.
To achieve this kind of functioning, a board of directors requires time and resources. Accordingly, I believe that the directors of B Corps that, generally are not abundant in resources, must consider having a reduced number of board members.
Today this is far from reality since the B Corps, the same as many traditional companies, have transformed the own space of the board of directors for convoking professional with the ability to generate networking, relationships or to gather financing, for example, changing the scope of the corporate government for executive committees that respond to short term needs.
The coherence of being a B Corp gives more responsibility to its board members who, apart from being legally accountable to their shareholders in relation with the financial results, must take care that the organization generate a strong impact socially and environmentally.
2015 is shaping up to be a year where boards, once again, will be under intense pressure and scrutiny to get it right. Here is a list of trends and key issues, along with what boards are or should be doing in response.
1. Greater Director and Advisor Independence
A director or professional advisor can be formally independent, and yet captured inside the boardroom. Forms of capture reported to me include social relationships, donations, jobs or contracts for friends, perks, vacations, office use, director interlocks, supplier or customer relations, and excessive tenure and compensation. Look for more regulators implementing term limits and moving towards an objective standard of director independence. Look for activists going into the background of directors to demonstrate the capture. Look for investors focusing on the origination of each director and service provider, which is to say how he or she came to be proposed, to address social relatedness.
Boards can protect themselves by terminating any director or professional advisor who cannot be reasonably seen, by directors themselves and more importantly by an outsider, to be independent from management in their oversight and assurance roles. Assume what boards know internally is what is or will become known externally. This trend towards tighter independence standards will continue: For example, internal oversight functions should also now be independent from senior and operating management, and that includes the risk, compliance and audit functions, who now should report functionally to the committees and board. Any director or external or internal advisor to the board or a committee should be, in law and in fact, independent of all reporting management or any other adverse interest, in order to be free to make recommendations that run counter to that of management. A board fully protecting itself would also require a third party anonymous review of director and advisory independence annually, and acting on the results. Directors know who is captured and there should be a mechanism for this to come through.
2. Better Board Composition and Diversity
Regulators are moving towards prescribed competency matrixes; the production of curriculum vitae (not perfunctory short bios); and interviews with directors and oversight functions to determine whether these individuals are fit for purpose. Activists are searching director backgrounds and track record to determine alignment between competencies and the business model and strategy of the company. Regulators are legislating board renewal and diversification, through quotas or the production of measureable objectives covering recruitment to retirement.
Competency, diversity and behavior matrixes should: flow from the purpose of the board and the strategic and oversight requirements of the company; be established by the nominating committee; and be independently designed and validated to ensure recent and relevant expertise is possessed by each director. The diversity policy should extend the prospective director pool to previously unknown directors and who may be joining their first board (80% of directors are on one board only). Tenure limits and excessive directorships (beyond two) should now be policed and capped (the average board position is 300 hours). Robust matrix analysis and director evaluation should occur by the nominating committee and its independent advisor, not management. The board should extract directors who do not possess relevant and recent competencies or desired behaviors. (See boardroom dynamics, below, for a separate discussion of director behavior.)
3. Risk Governance
Plaintiff’s investor lawsuits and proxy advisory firms are targeting directors at risk for oversight failure. Regulators are imposing onerous risk coverage requirements on directors that require oversight of internal controls, risk-takers and limitations. Lack of understanding of social media, bring your own device, and cyber security are contributing to enormous investor loss and brand impairment, as an example of technology risk. Recent risk failure by boards also includes sexual harassment, safety, security, technology, bribery, fraud and reputation.
Boards should now have directors possessing risk expertise, as regulators are requiring this. The identity of these directors should be disclosed. Every company should board-approve a risk appetite framework, including internal control reporting and independent, coordinated, assurance over controls mitigating each risk and their interactions. Directors using technology dashboards should oversee risks prospectively. Hiring of risk, compliance and audit functions should occur, reporting to the audit and risk committee. Known limitations should cascade throughout the organization, and back up to the board, with ease, including within each market in which the company operates, and to key suppliers. Annual third party reviews should occur, reporting directly to the board and audit and risk committees. Board and committee charters should have coverage over each material risk, financial and non-financial. Audit committees that oversee substantive non-financial risks may be a red flag. There will need to be significant investment and restructuring of reporting relationships for the foregoing risk governance regulation to occur.
4. Compensation Governance
Media and public pressure over the quantum and alignment of executive pay have resulted in regulation over: compensation committee and advisor independence; say-on-pay; proxy advisors; and pay ratios; but not over pay-for-performance (most important) and clawbacks, yet. Certain public regulators have become more aggressive, targeting the quantum of pay. Financial regulatory focus is on the delivery and alignment of pay. There is a modest, but will be a growing movement once full regulation occurs, moving from (i) short-term, quantitative, financial pay metrics, relying on comparator inter-company benchmarking, which exacerbates pay unrelated to performance, to include (ii) long-term, qualitative, non-financial pay metrics, with customized, risk-adjusted pay delivery commensurate with internal value creation and shareholder return.
Boards should engage directly with long-term, major shareholders on their pay plans, without management influence. Clawbacks should be restructured or implemented based on risk management and ethical failure, not fraud, using an independent advisor not the company lawyer or management-retained counsel. Boards should approve key performance metrics based on an explicit full business model invoked from the strategy. 75% of the performance metrics reflecting the firm value chain should be leading and non-financial indicators. Peer benchmarking should be balanced with the foregoing pay principles and long-term alignment with the product cycle of the company (five to seven years, not three). Non-financial leading metrics such as innovation, value and quality, and financial metrics such as balance sheet and capital treatment and returns, should be incorporated into pay plans that have a line of sight to management performance, without any unjust exogenous enrichment. There is much work to be done here, and more regulation is expected in 2015 and 2016.
5. Greater Shareholder Accountability
Look for activism to grow unabated, and institutional shareholder and even regulatory support of proxy access in 2015, giving greater control to shareholders over director selection and removal. Look for further shareholder assertion of rights and coordination over the targeting of below-average management supervised by complacent boards. Look for shareholder focus on director mindset, track record, and lack of management capture or self-interest. Look for continued attack on entrenchment devices by management and their retained advisors to insulate under-performers.
Camera-ready boards should implement private, candid, executive session meetings with long-term shareholders to discuss governance, risk, pay, and value creation. Investors and boards should focus on company performance in comparison to peers, and superior governance that exceeds the minimal. This includes background of directors. Independent governance auditors should be retained to provide an activist point of view, ahead of a possible attack. Any advisor to the board on shareholder engagement should be independent of management.
6. A Focus on Strategy and Value Creation Focus
Activist and, increasingly, good board focus is on the value creation plan, monitoring, and holding management responsible for its achievement. Complacent or inexperienced boards incapable of directing an under-performing, ineffective or inefficient management team are being targeted. Weak or legacy chairs and directors are also targeted. Excessive or non-performance based compensation is a red flag for governance intervention.
Good boards are becoming engaged, focused, results-oriented and disciplined. Agendas and committee structures are being revised to focus on strategic primacy and value creation. Robust debate and review of the plan is the primary board agenda item each meeting, and strategic practices are adopted, such as, among others, that at least one presentation each meeting from key personnel below the senior level, on that person’s role in the value maximization plan, and a full discussion of progress to date in that regard. However, board renewal is not reflecting this structural and deeper board focus, yet. Ill-chosen directors are still unable to add value strategically, my applied research suggests. There remains ample opportunity for activist intervention.
7. Information Technology Governance
Rapid technology advancement has created opportunity and risk. There is profound technological ignorance by many or most boards that is creating an inability to direct and oversee management. Cyber security, bring your own device, and social media are just three IT risks that, reviews indicate, have deficient or non-existent internal controls, which in turn causes privacy breach, reputational damage, and significant investor loss. Plaintiff’s lawyers are suing boards, correctly alleging breach of duty of care. Regulation is not keeping up with cyber-threats and hacker advancement.
Boards should be IT literate, agree on the standard and platform, and direct management to have an action plan and target date for implementation, covering crown jewels; assuming penetration; and including internal controls over behavior and human error. Boards should control the budget, talent, resources, reporting and assurance of IT risk as part of broader ERM (enterprise risk management) and strategic risk. Scenario testing, mock attacks, and expert assurance should be board-reported. If management resists third party validation, this is a red flag for any board.
8. Board Performance Audits
Regulation, activist, technical and public pressures are augmenting the objective standard of care for directors. Director action (or inaction) will be visible and risk liability or other loss post failure. Resourced and sophisticated investors are a particular threat, as are regulators. Complying with basic practices is no longer adequate assurance or protection for boards, as capture, entrenchment, self-dealing, complacency and non-performance have all been shown to occur within existing governance frameworks. Governance failure, including bribery, corruption, cyber and under-performance, has occurred at companies whose governance has been said to be exemplary.
Good boards and regulators are moving towards independent, internal and deep reviews over the board, risks and internal controls, similar to financial audits. Just as management cannot assure its own work, neither can boards assure a self-review. A well-chosen third party or independent internal auditor provides boards with advance warning on precisely where their vulnerabilities and weaknesses are. An expert audit within an activist and emerging regulatory framework is a wise use of time and resources.
9. Tone at the Top – and Now in the Middle
Long arms of regulators are now able to hold boards vicariously responsible for fraud, bribery and other forms of corruption at deep levels within and even interacting outside their organization. The distraction, assets put at risk, and reputation damage can be significant. “Tone in the middle,” culture, and imprudent risk-taking are the new warning signs on which sophisticated boards are requesting concrete assurance, to ensure directors are not the last to know.
Resourced boards are instituting: confidential and incented whistle-blowing procedures; audits of internal controls over culture and reputation; and amnesty, among other best practices, to ensure bad news rises. Explicit and monitored thresholds for the board-approved risk appetite framework are being instituted, along with a line of sight by the board that compensation is not driving bad behaviour. Due diligence, climate, values, spot audits, and the code of conduct are all being independently reviewed and reported to committees and boards, without interference or funneling of reporting management. Good boards are much less tolerant of ethical lapses or management blockage.
10. Boardroom Dynamics
Lastly, the board must gel as a team, and, as a team, control management. Any behavior gap – undue influence, reliance, dislike, dysfunction, or even contempt – by one or more directors or managers, introduces information and oversight asymmetry that can and does lead to governance failure. Every seat at and reporting to the board table matters. The pressure here is a toxic or under-performing director who refuses to resign out of self-interest, or a board allowing integrity breaches and leadership shortcomings by an officer to continue.
Good boards: have behavior matrixes and performance reviews that define and rate behaviors at the board table; have peer reviews and mentoring that develops and refines behaviors; and act on the results regardless of profile or tenure. Due diligence, background checks, interviews, and assessments are all becoming commonplace. Personality testing is also developing.
There has been more governance change occurring in the last five years than in a generation. Enron, WorldCom and other implosions in 2001-02 are very different from the global financial crisis of 2008-09, which: was systemic, involved banking, and required broad government intervention. There is a regulatory and investor appetite for broad and deep governance change. The above ten changes and responses are touch-points for where governance change is happening the most. Boards and management teams are only about 40% through digesting all of the above reforms, and there are more to come in 2015.
*Richard Leblanc is a governance lawyer, academic, speaker and independent advisor to leading boards of directors. He can be reached firstname.lastname@example.org or followed on twitter @drrleblanc.
tomate, represented by its partner Sergio Guzmán, participates in the XI Human Management Congress in Argentina to be held on August 5th at the Teatro San Martin in Buenos Aires. In the panel “The Dark Side of Commitment”, he will present the relevance the matureness of the Board of Directors of a company has with the commitment the employees have in their organization.
The Dark Side of Commitment The fish rots from the head, Chinese expression that stands out that the Board of Directors, as head of the organization is key to have a culture that promotes compromise among people working their; on the contrary, the company will not stand for long. Commitment is the result of a tacit or formal agreement among people agreeing on a given delivery in a specific timing and form. Commitment is what he or she (or they) asks for or offers and he or she (or they) accepts to receive what is committed in the right time frame and form and that appraisal judgments will be made reciprocally in relation with what is committed by both parties. The commitment involves both parties, since who asks for or who receives the offer must state his or her judgments in time as well, and reward the fulfilling or compensate for and repair should he had not kept in force the validity of the request. As a result of these judgments there may be compensations and the trust capital for future commitments of the company will improve or decrease. For this process to occur, the commitment of the interlocutors required:
- Recognize each other and act as equals in the negotiation of what has been committed; the other party as a valid me. Freedom through the bargaining process to get the commitment is key to have a valid compromise from each part.
- To understand that what you want to keep is not the committed, but the trust relationship between both parts, that underlies the commitment.
- The ability of both sides to ponder, that is to say, to have the state of emotion to put in common the certainties each party has. The negotiation of both parties requires the necessary abilities and distinctions: knowing how to listen to others and listening to oneself; asking and wondering; observing and observing oneself.
- A culture that legitimizes these practices and the corporate value involved. That is to say, the culture of the company will be that culture supporting the commitment of each person with his company.
Is the Board of Directors who definitively sets the tone of the culture in the company, whether by act or omission? The practices of how the Board of Directors functions will develop more or less a culture where people are committed. If the relationship among the directors is not the adequate; if the coordination, focus and architecture of the information the Board of Directors counts on corresponds to an immature organization; if the relationship between the Board of Directors and the CEO is not supported by this reciprocal commitment approach, where both parties concur with the differences we have stated; if mistrust prevails; if the style is more purposeful than investigative; if definitely the commitment does not exist in this angular relationship, the rest of the company would not be able to obtain a high level of commitment of its collaborators.
COLLABORATION WITH THIRD PARTIES
tomate® has developed collaboration relationships with persons and companies that, sharing basic styles and tenets, complement our value offer for the development of the corporate governance practices.
The Paradigma Commitment [TPC] is a company based in Monterrey, Mexico. The company started operations in 2000 with the following areas of expertise:
- Strategic alignment and mobilization
- Redesigning business processes and value networks
- Executive leadership and development
- Administrating innovation