By Ron A. Carucci and Eric C. Hansen, authors of a new executive leadership study and book, Rising to Power: The Journey of Exceptional Executives.
Eric Jackson, CEO of Ironfire Capital, ranked the best boards in America in 2009. Amazon.com, Inc. (NASDAQ:AMZN), Johnson & Johnson (NYSE:JNJ), and Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) rose to the top based on key indicators Jackson uses to assess boards that drive strong share performance: equity ownership, independence and time to serve. In the debate over the impact of corporate governance on business performance, the Shareholder and the Stakeholder models are most often cited. The first focuses narrowly on the accountability of executives to shareholders while recognizing business ethics and broader stakeholder relations can impact the reputation and long term success of the corporation. The Stakeholder model considers and manages the broader network of formal and informal relations required for success while emphasizing contributions by stakeholders that can contribute to the long term performance of the firm and shareholder value. Moreover, the difference between these two models has become merely a matter of emphasis.
Exceptional leadership: Does corporate governance impact business success
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While board governance and performance certainly impacts business success, equally important to sustained results is the internal governing bodies and coordinated system of organizational governance. However, despite the best of intentions, most companies struggle with too many priorities, muddy decision rights, indiscriminant resource allocation processes, and “executive-idol” approaches to key talent appointments. It’s no wonder the ability of executives to make clear, impactful choices and stick with them is challenged. In the ten-year longitudinal study on effective executive performance that Navalent will release later this month, we found the capacity to construct sustainable enterprise choices as a key differentiator between exceptional and mediocre executive leadership.
Exceptional leadership: Internal governance
Internal governance is simply the right people, equipped with the right data and authority, making the right decisions, aligned against clear priorities, allocating the appropriate resources, and then holding the organization accountable for execution. Sadly, most organizations haven’t established sufficient governance to execute their strategy. Yet aligning and integrating strategic, financial, and talent processes to effectively allocate authority, priorities, and resources are the most profoundly differentiating activities a company can undertake. This drives competitive positioning by maintaining proper focus on efficiency, effectiveness, and results.
Unfortunately, many organizations believe a proliferation of councils and committees constitute effective governance; or they pride themselves on being an “informal,” organic company. Both are risky. Regardless of the organization, well designed governance defines and reinforces desirable behaviors and helps diminish negative ones. It clarifies leadership expectations, spheres of power, performance measures, and collaboration required at critical seams across the organization. Good governance defines how groups of leaders come together to make and execute decisions about:
- Priority objectives with requisite resource allocation,
- Targets, performance measures and accountability
- P&Ls and budgets, and
- Managing the portfolios of products, clients, and talent.
Well-designed governance ensures alignment and superior performance. It enables executives to make and communicate choices as they guide the business, its units, and its investments.
Exceptional leadership: Excelling at organizational governance
Companies that excel at organizational governance deploy their people optimally, fulfill fiduciary responsibilities while mitigating risk, and align business and operational objectives. Core processes, policies and plans are defined for optimal impact. Structure, accountabilities, and clear lines of sight are established. Information and decision-making are allocated to the right levels. Ineffective expenditures of time and resources are sharply curtailed.
Even the best governance models are imperfect given the complexities of organizational life with dynamic, simultaneously moving parts. However, when it works well, it is impressive and becomes the central enabler to producing sustained results.
Exceptional leadership: A short story
One CEO, struggling with little integrated planning and the proliferation of committees and task forces insisted on a governance overhaul. He demanded one set of metrics, a clear line of sight to enterprise goals for all businesses, and the option to make resource tradeoffs at the enterprise level when necessary. He declared a moratorium on differing strategy and resource allocation processes, and eliminated an ill-conceived capital allocation team. He streamlined the executive and operations teams, establishing clear charters, reallocating decision rights, and coordinating the information flow. He established a forum for open debate and quick resolution of major business problems. He managed the enterprise as an integrated business portfolio, leveraging organizational capabilities, deflating bloated costs and raising visibility to talent previously obscured. In the first year, his organization successfully launched a major new product in an emerging business unit, integrated an acquisition, and increased talent retention by 38%, reversing a trend of unwanted defections. While there is always some fall out and disruption when implementing such a system of internal governance, the greater disruptions happen in its absence. Lacking a system of clear governance, each employee is left to determine the right priorities and focus for their efforts resulting in confusion, internal strife, politicking and productive capacity drain which directly impacts bottom-line results. For this reason, as investors evaluate a company’s ability to sustain profitable growth, we recommend adding to Mr. Jackson’s list one additional criteria: a well-defined and well established system of internal governance.
Ron A. Carucci and Eric C. Hansen are the authors of a new executive leadership study and book, Rising to Power. Both are managing partners at Navalent, an organizational and leadership consulting firm with more than twenty-five years of experience working with CEOs and senior executives of from Fortune 50 to start-ups in pursuit of transformational change. www.navalent.com
Rising to Power is a time tested, guide for executives aspiring to be exceptional leaders as they navigate their ascent to the highest levels of their organization.