One of the three areas of responsibility for board of director’s has intensified since 2002—governance of fiduciary matters. This has made more transparent the corporate financial facts and figures for the purpose of fostering accountability. The Securities Act of 1933 protected CEOs from legal responsibility for the accuracy of financial statements. The Sarbanes-Oxley Act, signed into law July 30, 2002, reversed this. If any violations are found in financial statements, the CEO could personally face many years in jail. This fiduciary component requires CEOs and boards directors to use resources and comply legally and ethically with the guidelines of Sarbanes-Oxley. As a result, directors allocate most of their time and attention to fiduciary governance.
A board’s second area of responsibility, however, involves strategic governance. Here, the directors hopefully work with senior management, asking questions about market share, market positioning, a company’s advantage over the competition and outside challenges. Strategic governance involves setting priorities, reviewing strategic plans and monitoring performance of senior management against expectations. Unfortunately, strategic governance often gets less attention than fiduciary governance, although directors will say they should be spending more time on strategy.
The question is how to do that? The answer is by ensuring that directors engage in the third area of responsibility: generative thinking.
Generative thinking strengthens the purpose and presence of a board’s governance and provides an opportunity for board directors to operate as a source of leadership in strategic decision-making. Generative thinking involves three requirements:
- A willingness to steer the board culture toward shared governance
- The ability to set aside and replace personal preconceptions for organizational needs
- A willingness to practice three kinds of generative thinking processes
Shared Governance in Board Culture
When boards set up a culture for generative thinking, they are asking the questions that come before fiduciary and strategic questions, such as:
- Who decides where the board puts its attention?
- Do we have shared governance? Does the board allow the CEO to govern? Are the board and the CEO in a forward-thinking role? Does the board impose most decisions on the CEO and the company? Is there shared governance where the CEO and the board actively engage?
- How are emergent problems or issues framed and who frames them?
- What process is used to decide if a given problem or opportunity deserves attention?
- Who has the most influence in determining what goes on the board’s agenda?
- When the board decides to put an item on the agenda, what are the first steps during which all board members explore the agenda issue with full consideration?
- Is there enough time set aside to do some generative thinking in board meetings?
- Is there an expectation to physically meet when a conference call will do to job?
- Does the board have a culture of openness to new ideas and a willingness to suspend judgment when the board is in idea-generation mode?
- Can board members tolerate time invested in generative thinking?
Setting Aside Personal Preconceptions
Breaking with preconceptions that restrict generative thinking requires honestly answering these questions:
- Can directors suspend their tendency to soften their message (in an effort to only look good) and instead say what they are thinking at board meetings?
- Can directors monitor and manage their feelings of defensiveness, anxiety and nervousness when sharing thoughts and channel that energy into clearly presenting ideas each considers of value to the organization without worrying about receiving approval?
- During the times when the board is practicing the shared governance of generative thinking, can the CEO operate without feeling a loss of control or power?
- Can the CEO and all board directors accept the value of generative thinking in preventing disengagement and polarization?
Three Kinds of Generative Thinking
Generative thinking involves inventive ways to produce ideas from board directors. The board uses these ideas in its leadership role of deciding what to decide. Generative thinking tackles habits of thinking that hold us back from making good strategic decisions.
There are three nonjudgmental ways of creative thinking that allow directors to produce good ideas and explore subsequent decisions. They are:
- Generate a large quantity of ideas to solve a single problem without judgment of the ideas until all the ideas have been posted.
- Generate a variety of ideas outside of logical, already established approaches.
- Generate focused and detailed improvement of one idea or solution.
Only with all three areas of governance responsibility—fiduciary, strategic and generative—can boards care for the organization, its employees, customers and investors. Generating ideas in the three ways just described enhances the functioning of the fiduciary and strategic components of the board for true shared governance.
Editor’s note: Peter Dean’s post is very timely as Wharton Executive Education has created a new two-day program around the new dynamics around board work, Boards that Lead: Corporate Governance that Builds Value. Find more information at the Wharton Executive Education site.