Category: Corporate Governance

Oversight of Organizational Speed in the Digital Age

Published by
Jim DeLoach

Jim DeLoach

A recent survey of executives and directors globally found that the top two risks discussed are disruptive change to the business model and the organization’s resistance to change. This incongruence captures what may be one of a board’s most fundamental fears.

No established incumbent wants to fall into the category of companies that were yesterday’s success stories but today are in decline, suffering “death from a thousand cuts.” Yet it happens all too frequently. One well-known CEO says it begins with “stasis”—a state of inactivity that leads to “irrelevance” and is followed by an “excruciating, painful decline” until, ultimately, there is an abrupt demise of the enterprise.

This kind of decline is unmerciful. Its low velocity is one of the primary reasons it is so difficult to spot. Left unabated, it leads a once-proud company to the point where very little can be done to save it as it continues down its committed path. In the digital age, cloud computing, robotic process automation, machine learning, and other technologies are disrupting every industry by presenting opportunities to reimagine business models. With physical locations, people, and infrastructure barriers virtually gone, it’s possible for “born digital” start-ups to disrupt an established company with a hyper-scalable business model that can accommodate rapid growth without significant upfront capital.

Time and speed in business have changed. Business has evolved beyond the tactical to emphasize a more strategic and holistic view of challenging conventional thinking and disrupting traditional ways of working as well as long-established value chains. Managing to the speed of business may seem like a strange notion to some, but why shouldn’t every organization evaluate its processes given the speed of change in the marketplace and within the industry? Considering the stakes, it’s worth a serious look.

Following are 10 thoughts on managing to the speed of business and its implications to board oversight.

  1. Set the tone for speed at the top. Directors should support the CEO in setting the tone for speed through both actions and words, emphasizing the importance of staying close to the customer, keeping an eye on relevant market trends, organizing for speed, and embracing change.
  2. Focus on high-velocity and high-quality decision-making. Many large companies make high-quality decisions but make them too slowly. There is a time and a place for formality, but for many activities, an unstructured approach is sufficient.
  3. Inculcate a culture of speed. Members of the executive team should have a stake in initiatives to improve and sustain speed. A company must be at least as fast as—and endeavor to be faster than—agile followers of the latest trends in its industry.
  4. Focus on the customer experience. The speed-conscious organization is customer-centric. Accordingly, it places strong emphasis on gaining access to market insights efficiently and in a timely manner, likely through big data solutions and advanced data analytics.
  5. Establish an organizational structure that directly supports lean business behaviors. Open, flexible, and agile structures with flat hierarchies drive efficiencies, speed up innovation cycles, and facilitate collaboration, communication, and faster decision-making and execution. Focused, dedicated teams armed with purpose and clear objectives should be empowered by executive sponsors to tackle well-defined tasks and assisted by appropriate alliance partners. Sponsors keep the effort on the fast track with a fail-fast mentality.
  6. Select the talent who will lead to success. Trite as it might be to say, the best and most diverse talent wins in the digital era. Talent strategy must set the foundation for speed.
  7. Understand external trends. Speed places a premium on recognizing global megatrends and their impact timely. Boards should ensure that management is focused on becoming more future-oriented, mindful of external developments, and resilient in the face of change in the digital age.
  8. Speed must deliver desirable outcomes. Speeding up processes and decisions is not the endgame. Outcomes that are on-strategy validate a faster process.
  9. Learn at the speed of business. A committed learning organization fosters a positive culture that embraces open-mindedness, critical thinking, fresh ideas, and contrarian points of view—all of which are vital to speed. Ongoing knowledge-sharing, networking, collaboration, team learning, and admission of errors and learning from them facilitate speed. Feedback loops regarding interactions with customers, suppliers, regulators, and other outside parties that maximize broad employee participation helps to root out unconscious bias.
  10. Speed requires effective change enablement. When processes and functions are reimagined, and products and services require improvement, the organization should have an established process to organize the necessary stakeholder commitment and drive the needed change.

What do Atari, Blockbuster, Borders, Palm, and Polaroid have in common? Each failed to keep pace with the market and suffered a long decline before entering bankruptcy or being acquired or liquidated. Each case illustrates how difficult it is to turn away from a business model or a segment of the market that has served the entity’s stakeholders well over the years.

Confidence in facing the future is what every director and leader wants. Speed is dictated by the market—meaning that external and internal factors influence it. The tailwind effect of embracing change and managing to speed breeds desirable confidence in the digital economy.

Jim DeLoach is managing editor of Protiviti. 

Companies Weigh Public vs. Private Options

Published by

Peter Gleason

To be a public company or to be a private company—that is the question for an increasing number of directors of both private and public enterprises. And given the recent rise in public-to-private buyouts and private-to-public initial public offerings (IPOs), corporate directors need to be comfortable in both worlds.

Heading toward the public markets are our newest IPOs. As of May 10, 2018, according to statistics from Renaissance Capital, the United States has seen pricing of 67 IPOs worth over $50 million—up 28.8 percent from the same period last year. Last year 160 IPOs got to the pricing stage—up 52 percent from the previous year. As for filings, the first quarter of 2018 saw 44 of them in the United States valued at over $50 million; last year featured 140 such filings—both numbers up from the previous periods, signaling a recovery from the dismal market of ten years ago.

However, the number of publicly traded companies on the market has still not rebounded to the pre-dotcom bust levels. Many companies now see an advantage in going private, with major examples in recent times being Panera and Staples. In both of those cases, the move came amid concerns about short-term mindsets on Wall Street inhibiting the companies’ ability to create long-term value. Earlier this year, Univision, a one-time public company that went private in 2007 after a buyout deal, withdrew from an IPO citing “prevailing market conditions.”

There’s also some speculation that companies want to leave public markets because activist shareholders have spooked them. The 2017-2018 NACD Public Company Governance Survey shows that 16 percent of respondents serve on boards that have been approached by activists during the previous 12 months—down from the previous two years but still a level high enough to motivate meetings with shareholders, reported by half of all respondents and the highest level reported since 2015. A Fortune article written at the time of the Safeway and Dell buyouts observes that both companies decided to go private because of the specter of investor activism. The article quotes a private equity executive speaking on background, saying: “Public company boards are scared to death of activists and will do all kinds of things to avoid proxy contests.”

With this business context in mind, the May/June issue of NACD Directorship magazine focuses on entrepreneurship and activist shareholders: who they are, what they want, and why they want it.

The dispersed global ownership of companies today, enabled through technology, has evolved into the complex adaptive system we call the global stock market. As we know from its recent volatility, the market can act a little crazy. But behind every single share that is traded there is a person who made a decision to buy or sell—often as a fiduciary (in the case of institutions). Directors can and should learn from them, even as they maintain their roles as representatives of all stakeholders.