Your board has a crucial role to play in your company's long-term success. To be the best it needs to focus on three Ds: diversity, digital and development.
History has something important to tell us about the difficulties of steering a business to long-term success – through seismic shifts in technology, consumer demands and product development. With that in mind it’s unsurprising that over half the world’s largest companies in the early 1900s had shut their doors by the late 1990s. Some, however, have endured.
US car manufacturer Ford began operating in 1903. And more than 100 years later, Ford is the second largest carmaker in the US[1] and the fifth largest in the world[2] by sales. The finance sector has its success stories too. After more than two-and-a-half centuries in operation, the UK’s Lloyds Bank is the 22nd largest bank in the world[3] by assets and part of the fourth largest banking group in the UK.[4]
These companies have not only survived, they have continued to thrive and compete with the best in the world. So what is their secret? Companies that enjoy long-term success tend to have strong corporate governance, particularly on issues that will win them a competitive advantage. That governance starts at board level and cascades through every tier of leadership within the business.
What wins companies a competitive advantage is their ability to hit a moving target. Our conversations with business leaders tell us that those in charge of corporate governance must focus on two current priorities: ensuring diversity of thinking and boosting digital capability.[5] This will help them to tackle a complex blend of challenges – technological advances, increasing regulation, demographic changes, and globalisation – that will gather force over the coming decade.
True to form for businesses with longevity, digital capability and diversity are two areas where Ford and Lloyds Bank are currently on top of their game.
Earlier this year, Ford President and CEO Mark Fields said the company was "disrupting itself" by changing from solely being a car manufacturer to also being a mobility company that sells a transportation service.[6] The company that put millions of people behind the wheel is about to start building driverless cars.
Why? Because while its traditional rivals might be Chrysler or General Motors, in the future it’s likely to be Google or Apple, says Fields. The shift towards greater innovation means Ford is now embarking on a major overhaul of its production facility in its manufacturing heartland of Dearborn, Michigan, to make it more high-tech.
Ford has also established a presence in Silicon Valley so that it can participate and collaborate in the world’s leading technology cluster. In May it announced a US$182.2 million investment in Pivotal, a cloud-based software company headquartered in San Francisco, to "deliver outstanding customer experience at the speed of Silicon Valley", as Fields put it.[7]
Ford’s commitment to boosting its digital capability comes from the top. Field sits on the company’s board of directors alongside others who bring additional digital insight to the table. These include William Helman who is a general partner at Greylock Partners, a venture capital firm focused on early-stage investments in technology, consumer internet and healthcare companies. And William Kennard, who has a rich history of working and investing in the technology-led telecommunications and media sectors, and has been dubbed a consumer champion for the digital age.
This sort of digital expertise at board level will be increasingly crucial. If businesses are to benefit from disruptive technology, boards need to readjust their assumptions and thinking, and tackle digital innovation head on.
At Lloyds Bank, the Group Executive Committee (GEC) is focused on what it believes to be one of its main competitive advantages: diversity.[8] The bank’s group inclusion and diversity strategy is led by the GEC and individual committee members each sponsor a key area of focus. These include gender, ethnicity, disability, sexual orientation and agile working.
The bank consistently wins awards for its myriad diversity initiatives. In 2015, it was named a Top Ten Employer for Working Families and the Women’s Business Council gave it the Leadership and Innovation Award for its work on establishing the Agile Future Forum – a group of employers that supports workforce agility in the UK.
Additionally, the Group Ethnic Minority Network, which aims to connect, support and develop colleagues from ethnic minority backgrounds, won the bank a finalist position at the 2015 Inclusive Network Awards. And this year, the company has retained its position as the top private sector business for LGBTQ people in the Stonewall Top 100[9] for the second year running.
Why does Lloyds Bank invest so much in diversity? As the UK’s population has become more diverse, the bank’s existing and potential customer base has changed too. It needs to reflect this diversity in its workforce if it is to retain and grow market share. People want to bank with an organisation that understands and can meet their needs, regardless of who they are.
Diversity at board level – in theory and in practice – boosts the peripheral vision of an organisation because it can lead to a wider input of thoughts and ideas. This can help it to monitor the current landscape but also be prepared for what may be looming ahead. While diversity covers myriad groups, the focus for individual organisations should be on building boards that reflect their markets, customers, people and organisational culture.
Advocating digital capability and diversity of thinking at board level is all very well, but how do you get there? One thing is clear: it can’t happen overnight. Boards need to develop and signpost a clearer route to senior management and proactively nurture the directors of tomorrow.
In New Zealand, a national Mentoring for Diversity scheme has been established by its Institute of Directors (IoD). Now in its fifth year, the scheme links senior managers (mentees) with chairmen and senior directors of large company boards for a period of 12 months. It’s a way for senior managers, who may be finding it difficult to see a route to the board, to gain first-hand experience of how listed and large company boards work and glean advice on practical elements such as networking, presentation or conduct.
The scheme also aims to broaden the diversity of the available talent pool and increase visibility by forging new relationships between chairmen, directors and talented individuals who want to grow.
Shadowing and mentoring opportunities such as those offered by the New Zealand IoD is one of a number of tools that can be adopted to help talented people see how they can progress to the board. Another is putting in place specific development plans for potential board members from diverse backgrounds.
If businesses can get better at developing and signposting routes to their board, those boards are more likely to be made up of the best people for the business; people who are capable of anticipating changes heading their way rather than being caught off-guard.
Boosting digital capability, encouraging diversity of thinking, and developing and signposting a route to the top aren’t nice-to-haves; they are absolute priorities for boards today. If history is anything to go by, businesses that fail to embrace these changes may not survive. If only we could ask those top companies from 1912 that didn’t survive.
To find out how your company board can prepare for the challenges ahead, read more in our corporate governance report.