Boards must behave differently to seize credit crisis opportunities
by: Prof. Colin Coulson-Thomas
A revolution in boardroom practice and membership is required if boards are to cope with current challenges and exploit unprecedented opportunities.
|Boards must be more open and positive according to Prof. Colin Coulson-Thomas speaking in London to the ninth International Conference on Corporate Governance: “Too many boards are battening down the hatches when they should be seizing once in a lifetime opportunities. They are playing it safe when they should be bold. Financial crises, economic downturns and recessions often create possibilities that can only be dreamt of in more stable conditions. Those who are flexible, prepared and act quickly can acquire the best bits of failing competitors at knockdown prices. They can snap up good people who are laid off.”
Coulson-Thomas, author of ‘Developing Directors’ a handbook for building effective boardroom teams, believes: “Many boards are so concerned with playing it safe, avoiding risks and longer term planning that they fail to quickly respond when exciting possibilities suddenly appear. When a situation is unexpected and precedents few and far between a company led by an entrepreneurial, canny and pragmatic board is at a huge advantage. Confident directors who can act without long investigations and consultants reports can steal a march on competitors who cower behind prison bars of their own creation.”
The professor who is himself an experienced director examines the approaches of different boards to determine what the more effective of them do differently: “The inhibited and muscle bound are those who become dependent upon experts who encourage them to engage in activities and esoteric practices they do not fully understand. The nimble are those who keep their feet on the ground and remember the realities of business. A dodgy debt is a dodgy debt however it is packaged, passed around and moved offshore.”
Coulson-Thomas emphasised that an economic downturn can create unprecedented opportunities for a competent board that is quick to react: “In normal market conditions financial institutions have to work very hard to secure quite modest gains of market share. Yet the proposed acquisition of HBOS by Lloyds TSB illustrates the scale of good fortune that can arise in crisis conditions. Favourable circumstances can be created when normal rules of the game are set aside. Boards need to ensure the activities of competitors are monitored and they have the flexibility to act quickly and decisively as and when exciting and strategic possibilities arise.”
According to Coulson-Thomas, “The credit crunch has exposed the inadequacy of many directors. The scale of public intervention required to prevent meltdown reflects a failure of boards to question and read the road ahead. Chief executive officers (CEO) and their senior executive teams have not been challenged or held to account. Prior to Lehman Brothers filing for bankruptcy certain of the US investment bank’s non-executive directors had been on its board for so many years that it would have been difficult for them to be independent.”
Coulson-Thomas finds: “Many directors go with the flow and turn a blind eye to activities they do not fully understand. Billions have been written off the value of banks around the world because directors did not appreciate their company’s exposure to US mortgage loan defaults. Anyone who did not understand the nature of a derivative or the implications of slicing and dicing debt should have raised their hands and asked for clarification. Certain implications and future scenarios should have been foreseen. Directors stood by while huge sums were paid out as bonuses and commissions for bringing what would prove to be time bombs into their organisations. ”
Coulson-Thomas believes the membership of many boards needs to change: “Long experience of looking the other way and following the herd should no longer be a requirement for further board appointments. Directors who serve as a loyal supporter of the CEO appear to be in demand, when the emphasis should be upon curiosity and courage – the curiosity to question and the courage to challenge. A new generation of directors are required, selected from people of integrity who have their feet on the ground and think for themselves.”
The most and the least successful directors and boards react very differently to an economic downturn. Coulson-Thomas explains: “The main aim of struggling boards is to survive. New initiatives are avoided, and their focus is almost exclusively upon internal restructuring, cutting costs and related layoffs. Cutbacks tend to be hurried and indiscriminate. Headcount culls fail to distinguish between low and high performers. Valuable knowledge and experience is lost, and these companies become trapped in a spiral of decline.”
In contrast, Coulson-Thomas’s investigation reveals the more successful directors and boards adopt a different approach: “The focus is external and upon re-positioning and securing competitive advantage. They seek improved efficiency, productivity and performance. Strategic areas and high performers are identified, protected and better supported. The know-how and superior approaches of superstars are captured and shared. They make it easier for their people to cope with difficult situations, respond quickly and excel at key corporate activities.”
Directors of over 4,000 organisations from smaller firms to major corporations and public bodies have participated in Prof. Coulson-Thomas’ research programme which identifies critical success factors and successful approaches to the challenges faced by directors and boards. His books ‘Developing Directors’ and ‘Winning Companies; Winning people’ set out the different approaches of those who are most and least successful. Both are published by Policy Publications and can be ordered from: http://www.policypublications.com and http://www.coulson-thomaspublications.com.
Lessons from the investigations are incorporated into twenty five courses for directors and boards on particular activities that are vital for corporate success. Further information can be obtained from http://www.adaptation.ltd.uk and http://www.colincoulson-thomas.com.
Boardroom consultant Prof. Colin Coulson-Thomas is the author of ‘Developing Directors’, ‘The Knowledge Entrepreneur’, ‘Developing a Corporate Learning Strategy’ and ‘Winning Companies: Winning People’. He has reviewed the processes and practices for winning business of over 100 companies, helped over 100 boards to improve board and/or corporate performance, and spoken at over 200 national, international and corporate conferences in 35 countries. He can be contacted via http://www.colincoulson-thomas.com or http://www.coulson-thomas.com.