Nick Stephens examines the power of the board.
The sun is shining, investors are investing and the life sciences sector is going through an IPO boom. Deal volumes are at a scale unseen since the glory days of the late 1990’s and all is rosy in the garden. However, repeating the actions of the last few years is not a sensible strategy.
The past few years have been harsh. Negative interactions with shareholders have caused a kind of “abused partner” syndrome mainly because funds have been in short supply; resulting in potential new shareholders talking tough in every negotiation and Boards learning to be subservient in order to survive. This frequently led to a focus on process and “simple” compliance – on risk minimisation and cost containment rather than on opportunity enhancement. It is easier after all to demonstrate that you have followed a set of well understood rules than it is to deliver good news in a tough environment. Executives and employees were put “under the cosh” too, enhancing the fortress mentality that had become the norm.
Now Boards of companies that have been surviving are starting to think about thriving. Doing the same things they have been doing will deliver the same (often poor) results. Doing nothing is not an option. Now is the time for Chairs to review and perhaps reset their thinking.
This article outlines a process that will help Boards to return their focus to their primary duty – a duty to the company; not a duty to the shareholders.
Sir Adrian Cadbury captured the role of the Chair beautifully: “The Chairman’s role in all this comes nearest to the conductor of an orchestra; thus Sir Ralph Vaughn Williams’s words are most appropriate: “All their art and skills are valueless without that corporate imagination that distinguishes the orchestra from a fortuitous collection of players.”
Is your Board in charge of the Executive or the other way around? How should Chairs help their Boards lift their gaze to see the possible? How do they gain shareholder support? How can they support their Executive Directors in communicating their new perspectives and opportunities to the people who make up the company? How can they drive the value of their company? We recommend you apply the same level of due diligence to your Board as you do to your IP.
As trusted advisor to a number of Chairmen, we have developed a system which combines our decades of experience and insight with objective information gathering to deliver sound, robust Board assessment to Chairs.
When implemented properly, this process supports the whole business and delivers value to every stakeholder from patient to shareholder.
We have developed Five Steps to Corporate Renewal:
- Ensure the Board collectively renews its understanding of the foundation of every Director’s role namely their legal obligations to the company. These vary from country to country but UK law is widely accepted as setting the standard. Section 171 of the Companies Act lays out 7 key duties (the italics are mine):
- To act within their powers – i.e. the company’s constitution
- To promote the success of the company
- To exercise independent judgement
- To exercise reasonable care, skill and diligence
- To avoid conflicts of interest
- Not to accept benefits from third parties
- To declare interests in proposed transactions
- Note that there is no requirement to benefit the shareholders in the short term unless it is also in the long term interests of the company and remember that the company is legally a person with its own independent existence.We often simply recommend the Chair give each Director a copy of Bob Garratt’s excellent “The Fish Rots from the Head” and ask them to read it before the next Board meeting.
- Board Strategy Review. The Chair should have the Board examine the Company’s strategy and review and refresh it as necessary. We believe this should be an ongoing process, refreshed annually and ingrained into the Board calendar.
- Assess the Board’s competence and fit to the revised strategy. This is an exercise that can be carried out as part of the Chairman’s formal “Combined Code” responsibilities. There should be a formal process to “assess professionalism” of the Board members and a rigorous and transparent procedure for the appointment of new directors to the Board – or it can be done as a stand-alone exercise. It is important to use a trusted advisor for this part of the process to avoid conflicts of interest. The trusted advisor is often an executive search firm but it may be more appropriate to bring in an independent organisation to oversee this phase. Rigorous and transparent processes should be put in place to bring in new Directors as appropriate.
- Communicate the new strategy to the organisation, gain buy-in, build implementation plans and carry out an appropriate assessment process to understand key employees fit to those plans. Adjust the organisation’s skill set to support the existing business and to deliver its future requirements.
- Implement those plans, review and repeat.
Apply the same due diligence to the people on your Board as you would to your IP.
Boards are the long term asset managers of a company.
As well as ensuring compliance they develop and refine the strategy, vision and long term value of the shareholders investment. Chairs therefore need non-executives with diverse experiences and skills, fit for the businesses needs today as well as for long term growth and tactical advice. A vibrant Board therefore needs high energy people, firm but respectful debate and relevant experience.
Building Better Boards requires the same due diligence that you give to your IP or product assets. In-depth assessment of the Board’s existing members and of potential candidates is critical. This provides a ‘fit-for-purpose’ Board constructed to complement each stage of the company’s growth, built of the skills, competing viewpoints and disagreements which is the hallmark of quality leadership and governance. Helping you build this is a truly consultative, data informed activity. It is a personal, professional service driven by Knowledge and by harnessing privileged Networks.
If you are a shareholder, Chair or are interested in how to build better Boards, please contact me to discuss how Boards can be assessed, analysed and shaped to make sure that strategy and value are retained; and to understand how today’s best Life Sciences Boards are being structured, evolved and run.