High Performance Boards

Didier Cossin, Lausanne, Switzerland, is the founder and director of the IMD Global Board Center and the originator of the Four Pillars of Board Effectiveness methodology. In his work with boards, Professor Cossin helps them enhance organizational performance through strategy involvement, best-in-class decision making, enhancing board culture and general governance (including board restructurings). Professor Cossin is an advisor and/or executive teacher with the United Nations, the central banks of several countries, ministries as well as sovereign wealth funds and supranational organizations (including the European Central Bank, IFC, IOC), the boards or executive committees of corporations, financial institutions and funds in Europe, Asia, the Americas, Africa and the Middle East. He has worked extensively with the oil and gas industry (Schlumberger, Shell, Sinopec, Saudi Aramco, Qatar Petroleum, and others) and the banking industry (HSBC, Bank of America, Goldman Sachs, ICBC and others), but also with many other industries, including media, luxury goods, retail, shipping, and asset management. He also advises some leading non-profit organizations (UNICEF, the Red Cross) on governance issues. Didier is a member of the Risk Who's Who Society, the American Finance Association, the Eastern Finance Association, and the European Finance Association.IMD, Lausanne, Switzerland, is an independent university institute with campuses in Lausanne and Singapore. For more than 75 years, IMD has been a pioneering force in developing leaders who transform organizations and contribute to society. IMD has been ranked in the top three of the FT's Executive Education Rankings (combined ranking for open & custom programs) since 2012. It has also been in the top four for 18 consecutive years.Since 2004, IMD has sustained the premier "triple-crown" of AACSB, European Foundation for Management Development EQUIS, and AMBA accreditations, and, in 2022, IMD earned Swiss institutional accreditation, confirming IMD's commitment to delivering the highest quality teaching, research and services.

• About the Author xiAcknowledgements xiiiPreface xvPart I: The Four Pillars of Board Effectiveness 1Joanne Marker and Board Service 3Chapter 1 The Four Pillars of Board Effectiveness 9The First Pillar: People Quality, Diversity, Focus, and Dedication 11The Second Pillar: Information Architecture 13The Third Pillar: Structures and Processes 14The Fourth Pillar: Group Dynamics and Board Culture 16Chapter 2 Governance Challenges around the World 19Scientific Lessons from Natural Selection 21What is Transformational Leadership? 22Should We Trust Leaders? 23The Governance DNA 24Chapter 3 The Successful Director: Values and Character 27Duty of Care 29Duty of Loyalty 30Duty of Compliance (or Obedience) 31Integrity: A Key Characteristic of Board Directors 31Chapter 4 The First Pillar: People Quality, Diversity, Focus, and Dedication 35Quality and Diversity 35Focus 38Dedication 39Chapter 5 The Second Pillar: Information Architecture 43How Complete is Your Information? 44Chapter 6 The Third Pillar: Board Structures and Processes 51Processes 52Committee Structure 53Board Secretary 54Lead Director or Vice Chair 54Chapter 7 The Fourth Pillar: Group Dynamics and Board Culture 57Understanding Group Dynamics 59Coalitions Within a Board are Inevitable – and they Feed into Politics 62Boards Fall into Traps 64Drawing Strength from the Board’s Potential 67Developing Self- awareness 68Board Culture 69Summary Table to Part I: The Four Pillars of Board Effectiveness Toolkit 72Checklist on People Quality, Diversity, Dedication, and Focus 72Checklist on Information Architecture 73Checklist on Structures and Processes 73Checklist on Group Dynamics 75Part II: Board Failures and Challenges 77Chapter 8 Four Areas of Board Failure 79Chapter 9 Risks and Ensuring the Right Board Risk Philosophy 83Chapter 10 A Board Member’s Practical Guide to Risk Thinking 87The Physical Health Check: Technical Risks 87The Mental Health Check: Behaviours 93The Strategic Risk Check 96The Governance Risk Check 98Chapter 11 Elements of Advanced Risk Techniques for Board Members: From Quants to Cyber 101The Why and How of Quantitative Risk Assessment for Boards 102Integration of Risks 105The Outcome of Risk Assessment 105Cyber Risk 107Chapter 12 Crisis Management 111Crisis as a Turning Point 114There is Work to be Done in Peaceful Times 114Communication Principles 115Another Powerful Weapon: Gathering Information 116A Crisis Will Shed Light on Boardroom Fissures 118Procedure vs Authenticity 119Communicate Your Way to Rebuilding Trust 120Chapter 13 The Four Tiers of Conflicts of Interest 123Tier-I Conflicts: Individual Directors vs Company 124Tier-II Conflicts: Directors vs Stakeholders 126Tier-III Conflicts: Stakeholders vs Other Stakeholders 132Conflicts of Interest within a Group of Stakeholders 136Tier-IV Conflicts: Company vs Society 137Chapter 14 High-level Fraud and Active Board Oversight 143Why Does High-level Fraud Happen? 145How to Create an Effective Oversight Environment 153Tools for Anti-fraud Activities: Assessment, Prevention, Detection, and Investigation 159Part III: Board Leadership 165Joanne Marker and Board Values at Comfre 167Chapter 15 Board Leadership and Values 169Quality Boards Live and Breathe Integrity 169Which and Whose Values? 171Board Values vs Organisational Values 173Family Values in Business 174A New Board Arena for Joanne Marker: Chairing the Board 175Chapter 16 Becoming the Chair 179The Role of the Chair 179Effective Chairs are Active 181Transitioning into the Role of the Chair 182Chairs as Transformational Leaders 185Making the Right Decisions about Chairmanship Roles and Styles 187Managing the Transition 190Leaving a Lasting Organisational Impact as Board Chair 193Appendix 16A – Checklist: Board Chairs as Stewards 194Joanne Marker Enters the Chair Arena 195Chapter 17 The Chair–CEO Relationship 197Chair–CEO Dynamics – the Hallmarks of a Productive Relationship 198Tests of the Chair–CEO Relationship 201The Ideal Attributes of a Chair to be a Secure Base to the CEO 202Joanne Marker Confronts Failing Board Culture 205Chapter 18 The Board–Management Relationship 207Supervision 207Support 209Blurring the Board–Management Relationship 209Writing Governance Codes is Easier than Changing Behaviours 211Chapter 19 Effective Diversity 213Diversity is Good . . .  But Why; and When? 213Diversity as a Considered Choice 214We Have Embraced Diversity . . .  Now What? 221The Chair’s Role in Building and Nurturing Diversity 222Chapter 20 Stewardship from the Board 225Building Upon a Rich Cross-disciplinary Legacy of Thought 227Psychological, Organisational, and Cultural Influences on Stewardship 227Steward Leaders Build on their Unique Strengths to Drive Stewardship 227Steward Leaders Deliver Long-lasting, Meaningful, and Inclusive Impact 228Becoming a Steward Leader: What it Takes 231Stewardship Risks 231Boards are Key to Fostering Stewardship 232Part IV: Board Best Practices 233Chapter 21 The Board as a Strategic Asset 235Five Definitions of Strategy 236Clarifying the Board’s Role 238Taking Context into the Mapping Process 241The Impact of Context on Strategic Views and Roles of the Board 241The Board’s Ultimate Strategic Significance 242Chapter 22 Is the Board a Team? 245Fundamentally, the Board is Not a Team 245Boards Must Allow for Controlled Instability and Dissent 246Convictions can be the Fuel in a Board’s Teamwork 247The Overarching Objective is to Make Boards Cohesive and Potent 249Ways to Nudge a Board up the Maturity and Potency Curve 250Effective Board Teams are Adept at Juggling Competing Priorities 254Potent Boards Know When to Converge and When to Diverge – and Value Both 254Appendix 22A: Characteristics of a potent board checklist 255Appendix 22B: Board members’ cultural and cross- cultural competences checklist 256Chapter 23 A Primer on Finance Essentials for Directors 257Reading Financial Reports 257Understanding Ratios to Analyse Operating Strategies 259Interpreting between the Lines of Financial Statements 261How to Identify Red Flags in Financial Statements 262Implementing Desired Capital Structure 263Understanding Valuation Fundamentals 264Making Better M&A Decisions 265Overseeing Risk 267Chapter 24 The Intricacies of Subsidiary/Holding Governance 271Structures 273Culture 275Chapter 25 Fostering Entrepreneurship from the Board 277‘Best Practice’ Governance vs Entrepreneurship 278Boards Should Actively Encourage Entrepreneurship 278Chapter 26 The Board’s Oversight Framework for M&As 283Creating a Deal-making Mindset 284Seeing the Bigger Picture 285Staging Deals with Maximum Precision 285Integration 290Confronting Litigation Involving M&As 291Acknowledgement 293Chapter 27 Boards and Oversight of KPIs 295KPIs are a Language – and are Indispensable for Boards 295KPIs Need to be Credible to be Useful 296Zooming in on the KPIs that Matter – and that Tell a Story of How the Company Creates Value 297KPIs Should Measure What is Critical 297A Keen Focus on Value Creation 298KPIs Help Diminish Substantial Business Risks Linked to ESG 299KPIs and Human Capital 301A Dynamic Approach to KPIs 301Hi-tech Display and Review of KPIs 302A Renaissance of the Balanced Scorecard 304KPIs for Board Members 304Appendix 27A 305Chapter 28 The Talent Pipeline 309The Board’s Responsibility for Talent Management 309The New Talent Dynamic: Culture, Values, Community 311Chapter 29 Human Capital Evolution for Boards 315Board Responsibility for Human Capital 316Growing Stakeholder Demands for HCM Disclosure 318Culture as the Safeguard of Long-term Value Creation 320Staying Current with Emerging Expectations of the World of Work 321Chapter 30 Boards and Social Media 323JP Morgan’s Failed Foray into Twitter Q&A 324Why Boards Should Understand Social Media 324What Boards Should Do 326Acknowledgement 330Chapter 31 Boards and Investors 331The Move Toward Increasing Shareholder Engagement 332The Surge in Shareholder Activism on Boards 334Chapter 32 Managing Stakeholders 337Shareholders vs Stakeholders: A Definition 337How to Identify a Company’s Key Stakeholders 339The Board can be Instrumental in Shaping the CEO–Stakeholders Conversation 340The Process of Stakeholder Engagement 340Anticipating Stakeholders’ Influence and Impact 343Chapter 33 Board Oversight of Geopolitical Risks and Opportunities 347Geopolitical and Geoeconomic Resilience has Moved to the Forefront of the Board’s Agenda 347Geopolitical Competence is Now a Muscle that Boards Must Develop 350A Toolkit for Addressing Geopolitics 354Overseeing Management’s Action in Tackling Geopolitical Risk 358Appendix 33A: Business dimensions affected by geopolitical risk 362Appendix 33B: Evaluating the board’s geopolitical competence 363Appendix 33C: Gauging management’s preparedness to handle geopolitical risks 363Appendix 33D: Overseeing management’s actions in dealing with geopolitical risks 364Chapter 34 ESG Oversight in the Boardroom 365Compliance with ESG Requirements 366ESG Governance Oversight: Shifting from Compliance to Proactive Governance 367ESG Metrics: Understanding which ESG Factors are Salient 370Disclosure Oversight: Managing the ESG Narrative 373Appendix 34A: ESG Questions for the board to reflect on 380Chapter 35 Assessing and Benchmarking Governance Performance 383HPB Director Survey 2012–2023 384People Quality, Diversity, Focus, and Dedication 385Information: Designing Board Intelligence 389Structures and Processes: Architecting Governance Excellence 392Group Dynamics and Culture 394Conclusion: Orchestrating Governance Excellence 397Conclusion 399Index 401