Education

Ensure that the management is challenged

D. Murali | Updated on February 16, 2011 Published on February 16, 2011

BL16BOOKSOF_ACCOUNTS



Governance will only work if we all take responsibility for bringing it to life, says Rupert Merson in ‘ Rules Are Not Enough: The art of governance in the real world' ( > www.vivagroupindia.com). The responsibility is on ‘every individual involved in management,' he emphasises.

Calling for the throwing away of the cult of business leaders as heroes, the author cautions that self-styled business heroes will not be able to acquire new habits of modesty and self-restraint if left to themselves. “When times go well, they are heroes; their strategies are written up as business school case studies, and they are paid huge sums of money. When times turn bad, it seems they can do no right – and too many are accused of being tyrannical bullies, surrounding themselves with ‘yes men'…”

The role of the Chief Executive Officer in a big business is as challenging a role as any, placing significant demands on its holder, physically, mentally, and emotionally, concedes Merson. He notes, however, that individuals can make mistakes. “Good governance is in great part about ensuring that capable people focus their skills and energies in the right ways on the right problems, and such focus is far more likely to be achieved through structure, process, accountability and discipline – and by a preparedness to see the power of any one individual circumscribed.”

Take decisions

Yet, it is important that the structures within the organisations do not slow down and stiffen decision-taking processes and render them less fit for the fast-moving modern world, advises the author. And, interestingly, to those who visualise business organisations as democracies, the author reminds that it cannot be so, because difficult and unpopular decisions will still need to be taken.

Adding that a bad decision in many ways is better than no decision at all, Merson argues that if the consequence of governance is that decision-taking is slowed down to the extent that decisions are not taken, then governance will have also failed us. “A bad decision can be followed by a good one. The absence of a decision takes an organisation nowhere.”

But decision-takers need to accept and appreciate the value of robust challenge and debate, and afford space to these in their decision-taking processes and mechanisms, the author counsels. “Decision-takers also need to accept that they will be wrong on occasion and will need to back down.”

Institutionalise disagreement

While governance is about compliance and discipline, what governance failures highlight is the importance of ensuring that the management is challenged. For, as the book elaborates, good governance is also about the ability to tell the management what it does not want or choose not to hear.

It is easy to see how challenges might come from independent outsiders such as non-executives or representatives of other stakeholder groups, but the best-informed individuals will always be insiders, and an important form of challenge to management will always come from inside, instructs Merson. Hence he warns those charged with good governance to be wary of the common human tendency of looking for evidence to defend their own points of view and being blind to evidence that suggests alternative options that might be better.

“The more serious the decisions the more important it is that challenge is institutionalised. Good decision-taking processes therefore will find room for identifying and evaluating as many alternative courses of action as possible.”

Of great value is the insight in the book that organisations should be aware of the pitfalls inherent in the decision-taking process, by knowing who the most important decision-takers are, and how their predilections and biases can taint the decision on hand.



Challenge and debate

A section in the book is titled ‘Board behaviour' and it lists the key characteristics of ‘good boards' – such as, that they challenge. A good board is one that is not be packed with peopled primed to agree with the executives, writes Merson. “A board that challenges needs people with qualifications, experience and guts. A good board will see challenge as a good thing, not a time-consuming obstruction.”

Another feature of good boards is that they debate. The author alerts directors to steer clear of the tendency to act merely as sounding boards. “The sounding-board function is best discharged by directors as individuals. When acting collectively as a board, directors need to debate – which means actively engage and wrestle with the issues that matter.”

Effectiveness of boards is also a function of whether they are initiating strategy rather than merely rubber-stamping someone else's. While it is true that the CEO takes a leading role in shaping the future direction of the company, it is more likely that the future of the company will be safeguarded when it is recognised that the responsibility for that direction is the board's, not the CEO's, reasons Merson.

Delusion of deciding

Too many boards suffer from the delusion that they are deciding, when in reality it is the executives who do the deciding, the author frets. He sees a parallel in courtrooms that have juries. One learns that juries tend to fall into two types, viz. the evidence-based and the verdict-based. “Evidence-based juries usually do not take a vote until after assessing the evidence. Jury members say what they think before taking a decision. Verdict-based juries on the other hand vote first, then do the discussing afterwards.”

The difference may seem innocuous, but what is critical is that the verdict-based juries are inclined to spend time eliminating the dissenters, rather than spend time improving the quality of the decision – a trap, as Merson sees could be comparable to board processes.



Meeting efficiency

An educative section in the book is about ‘meeting efficiency,' where the author rues that one of the reasons for many business people to get impatient with meetings is that too many take too long to discuss the blindingly obvious. “Indeed many meetings are characterised by interminable discussions, with boredom being the only reason for passing from one agenda item to another.” A simple suggestion he offers is ‘twice round the table,' with each agenda item introduced by an individual and – after the team is satisfied that the tabled issue has been understood – each member of the team taking it in turn to comment uninterrupted on the issue, raising concerns and questions. Once everyone has had their say, the individual responsible for the item will then summarise, and restate the issue as revised by the discussion, and if needed table a draft conclusion or decision, explains the author.

Imperative study.

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Published on February 16, 2011
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