ON DIRECTORSHIP is by PETER TUNJIC.

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 Leading THE FIGHT AGAINST

DECAPITALISM.

Leadership Vs Management : Only Half the Story


Consider a majestic landscape. Mountain peaks set against a boundless sky. A dense forest rises up to the foothill divided by a restless river. In the foreground, you make out the individual branches. Look closer again, and you might see things hiding.

Ansel Adams' iconic photograph of The Tetons and Snake River is a symbol of the past and future of organizational design.

The Tetons

scroll  down to remove the mountains from view

 

Revealed is a metaphor for the current state of management thinking - Leadership and management draws the executive's focus onto the forest and the trees.    Whereas governance or assurance, draws the eye of the board to the predators hidden in the shadows of the trees.        

Now scroll back.  The complete image becomes a symbol for the future of organizational design - leadership, management, governance and what has been missing - the focus on what lies beyond the forest.     

 

To transform this natural metaphor into a diagnostic tool I created the value-control matrix or DLMA Anlaysis.  A quadrant based frameworks designed to help balance the contradictory forces at  work in organisations.

It’s hard to see beyond the forest from behind the trees.

The two axis of the matrix are value (divided between the extremes of creation and protection) and corporate control (divided between the extremes of the board and the executive).

 What's Missing?

What's Missing?

What's Missing

There is no term in the language of the boardroom to describe a company director's role and skill in the process of value creation. 

Historically the term "corporate governance" has been used to describe what company directors do.  From the Greek "to steer".  It is a compound word invented by Richard Eells in 1960 to denote "the structure and functioning of the corporate polity" and which has come to be closely associated with board structure, process and composition and "agency theory".  In short, value protection with a traditionally strong  emphasis on financial capital and share price.

To overcome this narrow definition of what directors do and to avoid the confusion of using the same term to describe antonyms, a new word is required.  How could the broader concept of value creation in the boardroom be understood,  let alone researched and improved, if no word existed to describe the concept?  And the only word used, more often than not, was used to describe the opposite.

  "It is impossible to speak of the objects of any study, or to think to think lucidly about them, unless they are named." (Blackwelder)

What lies beyond the forest is "directorship". 

The suffix ship  has a long history of denoting an individual's capacity or skill -  leadership, scholarship and sportsmanship.   Ship coming from old english -sciepe "state, condition of being and schaeppen "to create a thing of value" which in turn is derived from the base word skap - "to create, ordain, appoint,". 

Considering the two most important functions of a company director are to appoint the  CEO and promote the long term existence of the corporation through the sustained creation of value,  that directorship is not used to describe a directors role and skill is in explicable.

DLMA Analysis

The Value-Control Matrix turns the traditional governing, leading, managing pyramid into a dynamic 2x2 business framework.  It exposes the dilemma inherent in organizational design and gives rise to the alternate acronym - DLMA Analysis:

 The Value Control Matrix

The Value Control Matrix

Directorship = Board + Value Creation

Leadership = Executive + Value Creation

Management = Executive + Value Protection

Assurance = Board + Value Protection

The framework is designed to show that each discipline is important and compelling in its own right but pulls the organization in a different direction. 

The simple tool provides a way of exploring and measuring these tensions within an organization starting with the role of the board.

Getting Beyond the Pyramid

In the boardroom leadership is directorship.   That's the key.  Without directorship, organization's can lose sight of distant mountain summits and the boundless horizon .

Traditional governance approaches focus almost entirely on the board looking for what's hiding in among the trees - Independent directors managing risk through maintaining control, exercising managerial oversight and ensuring that risk systems are in place.  

Experts agree boards need to be looking at what lies beyond the forest.  Here the focus is on value creation and directorship – culture, strategizing, communicating vision, appointing the CEO and then inspiring the executive. 

Directorship and assurance are both necessary but require a fundamentally different approach and mindset.  Assurance is about protecting value, directorship is about creating it.  Assurance concentrates on risk oversight, directorship requires risk taking.  Assurance focuses on process, directorship is focused on people.  Assurance is about control, directorship is about innovation. 

Sound familiar?

For decades the c-suite has been debating the difference between leadership and management.  It turns out that the same distinction can be made in the boardroom.  The Value-Control Matrix highlights the need to split corporate governance in the same way – one discipline focused on value protection and the other on value creation.  Healthy competition between directorship, leadership, management and assurance is integral to an organization's success.  

Every organisation needs their executives and directors working avove and below the line. 

Above the Line – Directorship and Leadership

 

Above the line represents those quadrants that focus on value creation - the forest and what lies beyond.

 

 

Directorship and leadership are focused on doing the “right things”. 

The board and executive have complimentary and collaborative leadership roles.  They make different decisions, pull different leavers, but boards that lead and executives that lead share the same objective of creating the greatest possible value for their organization.

Below the Line – Assurance and Management

 

Below the line represents the quadrants that focus on value protection and the trees.

 

 

Assurance or governance sets a managerial tone in the boardroom.  Assurance, in the form of best practice, involves formulas and processes, monitoring and oversight, setting risk appetite, etc.  From this standpoint, the board and the executives share similar characteristics captured in the phrase "things right".


Challenge yourself to answer whether your organization has got the balance between value and control right.   Is the board stuck below the line, looking at what’s hiding behind the trees or are they also looking out beyond the forest?  Is the board asking what if when they should be considering what else?

And if you're wondering about what the river symbolizes read this post that describes how corporations get direction.

Further Reading

To learn more about DLMA Analysis download my presentation from the better boards conference.

 

 

An Open Letter to Corporate Governance Scholars

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