ON DIRECTORSHIP is by PETER TUNJIC.

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 a leading voice in the re-discovery of what corporations are and why they exist.

Creating and Protecting Value : A Tool to Get the Balance Right

DLMA Analysis is a tool for analyzing the balance of skills and behaviours between the executive and the board.  It draws from corporate law and management theory to derive four approaches or perspectives that determine a corporation's long term viability.  I originated the framework and it was first published in the journal Governance in 2013.  

DLMA analysis is a technique developed to evaluate how well corporations perform when it comes to the balance of skills and behaviours between the executive and the board.

DLMA is an acronym for directorship, leadership, management, and assurance (also known as governance*).   It's pronounced "dilemma".   Whilst the last three management disciplines are familiar,  directorship in a neologism created because there is no term in the language of corporate governance to describe the board's role in value creation.

The framework is based on three propositions:

  • control of a corporation is divided between the Board (executive and non executives in their capacity as directors) and managers (executives in their capacity as management)
  • value creation (VC)  and value protection (VP) are the two forces of control
  • the Board and the Executive exercise both control forces:
    • Board - directorship (VC) and assurance (VP) (alternatively governance)
    • Executive - leadership (VC) and management (VP)

My hypothesis is that a corporation's long term performance is based on the correct balance of all four disciplines.  While at the same time recognizing three inherent tensions.

  1. The tension between the Board and Executives.
  2. The tension between value creation and value protection.
  3.  The tension between all four forces of control - directorship, leadership, management and assurance.

To explain the framework I developed this metaphor:

“A corporation is like a landscape.  While leaders focus on the forest, managers focus on the trees. And while a board, in its assurance role, is focused on protecting the firm from what's hiding behind the trees, in its directorship role the board is focused on the value that lies beyond the forest”

The Matrix

DLMA analysis is illustrated using a 2x2 matrix:

Graphic representation of DLMA Analysis

Graphic representation of DLMA Analysis

The DLMA Matrix is structured on three levels:

  • Horizontal. The quadrants above the line are focused on value creation: risk taking, people-centric, about innovation and commercialization. Below the line represents the quadrants that focus on value protection: risk oversight, process-centric, about control and financialization.
  • Vertical. The left side of the matrix represents the board perspective, whilst the right side provides the executive role.
  • Diagonal. Assurance and leadership represents perspectives that can be practiced throughout the organisation without formal authority; whilst directorship and management require specific delegated authority.

Analysis

DLMA Analysis is principally a brainstorming tool.  it provides a simple, structured and effective way to provoke a new way of thinking and shared insights.

The Analysis is designed to reveal:

  • Where an organization is focused?  What percentage of time, energy and thinking is devoted to each quadrant.
  • How is control divided between the board and management.
  • How the forces of value protection and creation are divided within the management team and the board
  • Is the balance of control and value right for the organisation.

Usage

Grant Thornton’s report ‘The Board: creating and protecting value’ used DLMA Anaylsis to undertake a cross- sector review executives and non-executives from a range of organisations including charities, housing associations, universities, local government, private companies and publically listed companies.

This report uses the DLMA analysis which categorises skills into four areas: Directorship, Leadership, Management and Assurance. This powerful tool provides a framework (see graph 1) with which to evaluate how well an organisation is performing in balance of skills and understanding of roles; and responsibilities between the executive and Board. It helps align risk (value protection) and opportunity (value creation) with overarching strategy and purpose.

The tool has also been reported on by other consultants, such as Perivan Technologies in the UK:

Getting the right mix
The idea is that by looking at these four quadrants, the board can ensure that they have a balance of the abilities needed to tackle their wide-ranging responsibilities.
It can also help to identify whether members are currently using its time and energy in the right places. The report says that – for a board to be effective – both executive and non-executive directors need to create value (seize opportunities) and protect value (manage risk).

To learn more about corporate longevity contact me.

* As a matter of practice, corporate governance has come to be used as both a singular noun to describe the process of value protection and a collective noun inclusive of value creation and value protection processes.  The precedent for this usage is management which is used as both a singular noun to describe the process of managing and a collective noun inclusive of managing and leading.   

 

 

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