SESSION 2 - Directing vs Managing

8/8/2019 SESSION 2 - Directing vs Managing

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Bob Garratt

Session Two

Directing Versus Managing

Prof Bob Garratt

Bob Garratt

The Key to Direction Giving is to Distinguishbetween Managing and Direction-giving

Managingis about dealing, hands-on, withthe design, implementation andmaintenance of prudent control systems

Direction - givingis about showing the

way ahead and leadingBoth are necessary for healthy organisations butthey require very different attitudes, knowledgeand skills especially in approaches to thinking

Differentiating between Directing and

Managing


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Bob Garratt

The Four Dilemmas for the Board

The Board must simultaneously be entrepreneurial and drive thebusiness forward while keeping it under prudent control

The Board is required to be sufficiently knowledgeable about theworkings of a company, to be answerable for its actions, yet to be ableto stand back from the day-to-day management of the company andretain an objective, long-term view

The Board must be sensitive to the pressures of short-term issues andyet be informed about broader, long-term trends

The Board is expected to be focused upon the commercial needs of

its business while acting responsibly towards its employees, businesspartners and society as a whole

Source: 'Standards For The Board' IoD 1999

Bob Garratt

Reserved Powers

A statement of the boards reserved powers, inwhich the powers and responsibilities of the

board are set out, can help companies toclarify the difference between direction andmanagement. Such statements tend to beformulated for boards of larger companies,

and provide a clear terms of reference forthese boards, their directors, and the

managers of the business.


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Stage of strategy

developmentBoard authorities Managerial authorities

Clarifying joint or unclearly

assigned authorities

DevelopingStrategy

* Understand the externalenvironment/changes

* Main forum for debate anddiscussion of vision, values, goalsand key issues

* Develop and agree vision,values and culture

* Provide advice and support toexecutives during thedevelopment of the plan

* Comment on executives drafts* Check compliance

accountabilities* Agree final structure of strategy

* Undertake research to provideinformation for the development of

the strategy* Embed the learning organisation

culture through the organisation* Provide feedback on environmental

scanning rapidly to the board

* Who will write drafts of strategy andimplementation plans

* Who will agree the use of consultantsand advisors

* Who will control the budget for strategydevelopment

Ratifying thestrategy

* Approve strategy im plementationand feedback process

* Delegate to senior management/executives

* Present implementation plan to board* Develop implementation plan* Allocate resources to implementation

* Who will disseminate the strategy* Who will complete the details of the

strategy

Monitoringimplementation

* Monitor overall progress ofstrategy implementation

* Help executives in problemsolving and trouble shooting

* Communicating withshareholders/stakeholders

* Manage implementation process* Measure progress* Manage resource committed* Sign off completed tasks* Report frequently to the board

* Who is responsible for speed andfrequency of the feedback

Developingpartnershipsand alliances

* Identify and approach potentialpartners

* Use board networks* Communicate with existing

partners* Approve formal partnerships and

alliances

* Help identify potential partners* Help approach potential partners* Negotiate detailed agreements* Manage partnerships and alliances

* Who will finalise partnershipagreements

Bob Garratt

How do The Codes deal withbalancing the Directoral

Dilemma?

Most are compliance-fixated

and, therefore lead to a box-ticking

and legalistic mindset -

and remember, Enron was 100%

compliant


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Bob Garratt

Corporate Governance Codes

UK Board Conformance Focused

Combined Codes of the London Stock Exchange (=Cadbury + Greenbury + Hampel) Higgs Review 2003

+ Smith + Organisational & Financial Reviews (OFR)

UK Board Performance Focused

Turnbull; Myners + Tyson = Board Performance

= 2003 UK Combined Code

CACG (Code and 10 Duties) King Commission 2 (South Africa)

Sarbanes-Oxley Act (US) (draconian yet vague)

Bob Garratt

But a few Codes are movingbeyond just compliance

They are beginning to recognise that

board performance leading to added

shareholder value is an equally important

aspect of corporate governance.


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Bob Garratt

Sarbanes-Oxley Act, US 2002

Penalties for corporate fraud and prison terms up to20 years for destroying or altering documents infederal investigations

CEOs who certify false accounts face prison for up to20 years and fines of up to $ 5million

New 5 member board to oversee accountingprofession; with disciplinary and subpoena powers

Restriction of consulting and non-audit services fromaccounting firms

SEC will impose new rules on financial analysts toprevent conflicts of interest. Etc.

But they have already a strong Fraud law!

Bob Garratt

Abolish reliance on quarterlyreporting

Over-reliance on Quarterly Reporting is

inherently dangerous. It assumes the

possibility of ever-increasing performance

In a complex and discontinuous world. It

is based on an artificial model of

uninterrupted growth.


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Higgs Review 2003 Eradicate Board Incest

Increase Directoral Independence

Increase Effectiveness of Board CriticalReview and Decision Making Processes

Increase Shareholder Access To TheBoard

Promote Better Board Training

Bob Garratt

The UKs 2003 Combined Codeof Corporate Governance

The 17 Main Principles:

1. Every company should be headed by an effectiveboard, which is collectively responsible for thesuccess of the company

2. There should be a clear division of responsibilities atthe head of the company between the running of theboard and the executive responsibility for the runningof the companys business. No one individual shouldhave unfettered powers of decision.


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17 Main Principles continued - 2

3. The board should include a balance of executive andnon-executive directors ( and in particularindependent non-executive directors such that

no individual or small group of individuals can

dominate the boards decision taking.

4. There should be a formal, rigorous and transparent

procedure for the appointment of new directors to theboard.

Bob Garratt


5. The board should be supplied in a timely manner withinformation in a form and of a quality appropriate toenable it to discharge its duties. All directors shouldreceive induction on joining the board and shouldregularly update their skills and knowledge .

6. The board should undertake a formal and rigorousannual evaluation of its own performance and that ofits committees and individual directors.

7. All directors should be submitted for re-election atregular intervals, subject to continuing satisfactoryperformance. The board should ensure planned andprogressive refreshing of the board.


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8. Levels of remuneration shall be sufficient to attract,

retain and motivate directors of the quality required torun the company successfully, but a company shouldavoid paying more than is necessary for the purpose.

A significant proportion of executive directors

remuneration should be structured so as to linkrewards for corporate and individual performance.

9. There should be a formal and transparent procedurefor developing policy on executive remuneration and

for fixing the remuneration packages of individualdirectors. No director should be involved in decidinghis or her remuneration.

Bob Garratt


10. The board should present a balanced andunderstandable assessment of the companysposition and prospects.

11. The board shall maintain a sound system of internalcontrol to safeguard shareholders investment andthe companys assets.

12. The board should establish formal and transparentarrangements for considering how they should applythe financial reporting and internal control principlesand for maintaining an appropriate relationship withthe companys auditors.


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17 Main Principles continued - 613. There should be a dialogue with shareholders

based on the mutual understanding of objectives.The board as a whole has responsibilities for

ensuring that a satisfactory dialogue withshareholders takes place.

14. The board should use the AGM to communicatewith investors and to encourage their participation.

15. Institutional shareholders should enter into a

dialogue with the company board on the mutualunderstanding of objectives.

Bob Garratt


16. When evaluating the companys governancearrangements, particularly those relating to board

structure and composition, institutional shareholders

should give due weight to all relevant factors drawnto their attention.

17. Institutional shareholders have a responsibility tomake considered use of their voices.


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Bob Garratt

The UKs Annual Operating and

Financial ReviewFor listed companies it is now mandatory

that not only the financial report is made but

that also statements on the future viability of

the company must be made. In addition it is

advised that institutional investors should

guide boards in relation to the social

responsibility issues they consider

important.

Bob Garratt

OFR: DTI proposed objectives

The proposed annual Operating and Financial

Review suggests a balanced and

comprehensive analysis of :

the development and performance of the business ofthe company and its subsidiary undertakings duringthe financial year

the position of the company and its subsidiaryundertakings at the end of the year


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Bob Garratt

OFR proposed objectives

continued The main trends and factors underlying the

development performance and position of thebusiness of the company and its subsidiaryundertakings during the financial year

the main trends and factors which are likely to affecttheir future development, performance and position

source DTI 2004

Bob Garratt

The Triple Bottom Line

Annual, Externally AuditedAccountability on:

Financial

Physical Environmental

Corporate (Social) ResponsibilityIssues

= Combined Added Value


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What Can Boards And Directors

Do About This?

Some Practical Frameworks

Bob Garratt

The Ten Directoral Duties Duty of Legitimacy

Duty of Upholding The Directors Primary Loyalty

Duty of Upholding the Directors Primary Role

Duty of Holding the Company In Trust (fiduciary duty)

Duty of Ensuring Critical Review of Board Proposals

Duty of Ensuring Directoral Care (in decision-making)

Duty of Upholding the Three Values of Corporate Governance

Duty of Upholding The Rights of Minority Owners

Duty of Ensuring Corporate Social Responsibility Duty of Ensuring Board Learning, Development and

Communicating

Source: Bob Garratt Thin On Top2003


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Bob Garratt

Tasks of the Board Formulating Policy and Foresight

Thinking Strategically

Supervising Management

Exercising Accountability to

shareholders and stakeholders

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Board Structures

You have choices


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What Choices Do We Have?

Choices are:

- structural

- emotional

and there is no legislation in the UK for aspecific board structure

Bob Garratt

TheRepresentativeBoard

The

ProfessionalBoard

The

Country Club

Board

The

Passive

Board

High

LowLow High

Understanding

Inclusion

The Emotional Climate of Boards


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The Executive Board

CHAIRMAN

Managing Director

EXECUTIVE DIRECTORS

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The Independent Non-Executive Board

CEO

CHAIRMAN

INDEPENDENTDIRECTORS


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The Two-tier, or Senate Board

SUPERVISORY BOARD

OPERATIONAL BOARD

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Unitary Board

CHAIRMAN

Managing Director

ALL directors are equal whetherIndependent or Executive


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Bob Garratt

Towards The Learning Board In

The Learning Organisation

Building the necessary mind-sets and

competences

Bob Garratt

The Traditional Organisation

"Us"

"Them"=

Symbols

PyramidalHierarchicalMany layers

Strictly segmentedTop-down onlyCustomer unfriendly

Customers


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Bob Garratt

The Changing Organisation (2)

Symbols

Inverted Pyramid

Customer responsive

Fast feedback from Moments

of Truth

Few layers

Bottom- up = Top-down for

Operations

Managers and directors in

Operations back-up role

Moments of Truth

Customers

Supervisors

Managers

Directors

Customer facing staff

Moments of Truth

Bob Garratt


Acceptance that good and bad learning occurs

continuously at all levels of the organisation

Focus on systems for capturing learning fast

Valuing of people and learning

Discussability = forgiveness provided one learns

ExternalWorld

InternalWorld

Policy

Strategy

Operations

The Business Brain


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PerceivedInternalServiceQuality

StaffRetentio

n

CustomerDevelopment

PerceivedExternalServiceQuality

CustomerRetention PROFIT

INTERNAL EXTERNAL

STAFFSURVEYS

ANDMEASUREMENTS

CUSTOMER

SURVEYS

Service Profit Chain

StaffSelection

andDevelopment

ORGANISATIONALCAPABILITIES

SURVEYS

Bob Garratt

Issues of Personal Development

Stepping Up To The Boards Thinking

Processes

1. Organisational Issues


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* Policy

The Hierarchy of Organisational Learning

* Strategy

* Tactics/Operations

Bob Garratt

Second OrderChange

LESS OF MORE OF

Reframing Loop

"HelicopterView"

First OrderChange


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ILOVE

PARIS IN THETHE SPRINGTIME

Bob Garratt


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Bob Garratt

The Nine Nations of North America

MEXAMERICA

BREADBASKET

ECOTOPIA

THE EMPTYQUARTER

QUEBEC

NEWENGLAND

THEFOUNDRY

THE ISLANDS

DIXIE

Bob Garratt

Organisational issues of BoardDevelopment

Getting into the Directoral helicopter -

hands off, business brain on


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Bob Garratt


Giving

direction

Monitoring

external

environment

THEBUSINESS BRAIN

PerformanceControlSystem

Policy

Strategy

Operations

Disruptionsfrom the

environment

Deviationsfrom plans

Bob Garratt


Giving

direction

Monitoring

external

environment

THEBUSINESS BRAIN

Performance ControlSystem

Policy

Strategy

Operations

Disruptionsfrom the

environment

Deviationsfrom plans

OrganisationalEffectiveness

OrganisationalEfficiency


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Bob Garratt

The Wrong-learning DownwardSpiral

Downsize

Rightsize

Dumbsize

and

Capsize

Bob Garratt

The Learning Organisation:

the idealised process of critical review and learning

A Mistake or Deviation is made

Accept Ownership quicklyand assess Possible Risks

Are they potentially serious?

Take Corrective Action andInform those affected

Codify problem and Resolutionso that others may learn quickly

Problem Solved

Share your discovery to improvework processes and learning

Is there a flaw in thesystem or process?

Investigatecritically why the

mistakes happened

Tell someoneresponsibleimmediately

Co-operate activelyto ensure error

is corrected

YES

NO

YES NO


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Bob Garratt

The bad-learning organisation

A mistake is made

Will it show?

Hide it and hope no-one finds out

Problem

Avoided

NO

Conceal itbefore anyone

finds out

Sit tight and hope theproblem goes away

Can you hide it?YES YES

Can you blame:- others- special circumstances- a customer

Will an admission of guiltdamage your

employment prospects?

Be first toyour boss withyour version

of events

NO

YES

NO

NO

YES

Bob Garratt

Four characteristics:


It encourages people at all levels of theorganisation to learn regularly and rigorouslyfrom their work

It has systems for capturing the learning

and to move it to where it is neededIt values its learning

It is able to continuously transform itself


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Bob Garratt

Patent

Copyright

Registered Design

Trademark

Servicemark

Intellectual Property Rights (IPRs)

5 Legal Forms Increasingly Recognised Internationally

Bob Garratt

For any organism to survive, its rate oflearning has to be equal to, or greater than,the rate of change in its environment

L CSource: Reg Revans



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Encouraging Board Diversity

If a board is to be successful it needs tohave sufficient diversity amongst its

members to be able to debate and

criticise constructively

See Tyson Report 2003

It is a mark of an educated mind that a person can

entertain a thought without having to accept it. Aristotle

The test of a first class mind is to be able to hold twoopposing views simultaneously and still be able to

operate F Scott Fitzgerald

Bob Garratt

The EFQM Model for Business Excellence

LEADERSHIP

100 Points(10%)

PEOPLEMANAGEMENT90 Points (9%)

POLICY ANDSTRATEGY

80 points (8%)

RESOURCES90 points (9%)

PROCESSES140 points

(14%)

PEOPLESATISFACTION90 points (9%)

BUSINESSRESULTS150 points

(15%)

CUSTOMERSATISFACTION200 points (20%)

IMPACT ON

SOCIETY60 points (6%)

ENABLERS 500 points (50%) RESULTS 500 points (50%)


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Bob Garratt

NOT FOR USE WITHOUT THE

WRITTEN CONSENT OFProf. Bob Garratt

Chairman

Organisation Development Pte Ltd150 Cecil Street, #09-02

Singapore 069543Tel: (65) 62222129;Fax: (65) 62222126

Hphone: (65) 97309365email: [email protected]

[email protected]

http://www.odpl.net

SESSION 2 - Directing vs Managing

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