Lessons from Family Businesses
Would this redefinition of what a truly healthy firm looks like actually make a difference? What if boards made creating a high-commitment and high-performance enterprise the basis for their stewardship?
A path-breaking study by Danny Miller and Isabelle Le Breton-Miller strongly suggests that it would. They noted an anomaly: family-controlled businesses are over-represented among corporations that are highperforming over the long term. In their book, “Managing for the Long Run,” they explored why that was. Their conclusion? These family-controlled businesses have been pursuing a leadership and governance model in which their picture of health conforms to our depiction of high commitment, high performance. They invested more in capabilities, cared more about stakeholder relations, worried explicitly about institutional longevity, and created high levels of emotional attachment to the institution. In short, they were serving as stewards to ensure healthy, resilient, successful organizations.
What will it mean then for boards genuinely to serve as stewards of enterprises capable of sustained high performance? The clarity of the company’s purpose and values, the health of the company culture and the level of commitment from key stakeholders—these will need to become as much a focus of the board as the financials and the robustness of the company’s strategy.
Moreover, the board will need to become a positive force, participating in defining the long-term direction and character of the institution. Most boards are reactive. They function as an oversight check, focusing on compliance, ensuring that the CEO and management do not stray “out of bounds.” Or they function as a sounding board, helping test and challenge the robustness of management’s thinking. But if the organization is to be characterized by a higher purpose and a set of guiding values that are truly stable over time, then those need to be anchored, not just in the person of the CEO, but in the board.
Lessons from Hospital Boards
To see how boards may evolve, we can usefully look to developments currently underway in the governance of not-for-profit hospitals.
Board discussions at hospitals have been just as heavily weighted towards focus on their financial performance as any for-profit institution. But hospital performance on clinical safety and quality has become a national concern. Studies by the Institute of Medicine and by the Institute of Healthcare Improvement have shown that hospital care is far more dangerous than it need be, with avoidable deaths of more than 100,000 per year. And safety is also becoming recognized as good business—costs drop by reducing lengths of stay, complication rates, and malpractice suits.
Improving board governance of clinical safety and quality has therefore been targeted as a priority by a number of institutions pioneering health-care reform. Blue Cross Blue Shield of Massachusetts (BCBSMA), for example, in partnership with the Massachusetts Hospital Association, has developed an education program to help trustees play a more active role in governing quality and established various innovative programs and incentives to accelerate adoption by hospital boards.
Beth Israel Deaconess Medical Center (BIDMC) was an early participant in this board education initiative. Stimulated by their participation, the Board of Trustees chose to set an ambitious goal to eliminate all ”preventable harm” by 2012. Several other hospitals in Massachusetts have followed suit and set similarly stretching goals for improved safety and clinical quality.
When the board puts this kind of “stake in the ground” it can have a powerful galvanizing effect across the institution. Most visibly, it creates urgency to develop strategies and plans to meet the goal.
At a deeper level, it helps align the multiple constituencies who all need to work together in the hospital, by making clear the high priority the board has set on clinical safety and quality.
Lastly and most fundamentally, board commitment can ensure continuity through a change in CEO. In hospitals where there has been a leadership transition, the board commitment has informed the hiring criteria and the successor CEO has been as fully committed to the safety and quality agenda as their predecessor.
New Depth of Oversight
Ensuring a clearly articulated corporate purpose, related performance goals, and set of guiding values is only a first step. Boards will also need to establish new governance processes that provide visibility into the extent that the values are being lived in practice and the degree to which the organization is genuinely achieving both performance alignment and psychological alignment.
Enabling people deep in the organization to speak honestly about leadership and organizational effectiveness issues is difficult. But our work with numerous companies has shown it is possible if certain principles are followed. It can also be transformative. Southwest Airlines has for years enabled truth to speak to power using a culture committee that interviews widely and reports to top management, with the findings made available to the board.
We can turn again to the health care setting to see some of the emerging themes. To support their increased focus on clinical safety and quality, several hospitals have found they need to increase time expectations of board members and create or expand the board subcommittee that addresses safety and quality issues.
They have also found it essential to send strong signals about the importance of disclosing medical errors and using them as learning opportunities to ensure that the root causes have been identified and addressed. Several of the boards now start their meetings with a case review of a recent medical incident.
Beyond just reviewing errors, a number of boards are also seeking to create a climate in which staff feel fully empowered to “call out” situations that could lead to subsequent safety or quality issues. The BIDMC Board, for example, now gives out a regular “caller outer of the month” award to celebrate a staff member who has spoken up about potential safety or quality issues.
A New Governance Model
The recent financial meltdown, and earlier governance failures from Enron to WorldCom, are extreme examples of a system of corporate governance that is not providing effective stewardship. As an economy and as a society, we need a better model. The direction we need to move is clear.
Boards need to adopt an expanded understanding that truly healthy corporations combine both high commitment and high performance. Boards need to play a more active role in ensuring the corporation is developing and sustaining not only performance alignment, but also psychological alignment and the capacity for learning and change. And board members themselves need to step up to new roles in anchoring the fundamental purpose and character of the institution.
Nathaniel Foote is Managing Director of TruePoint, a management consulting firm, and a collaborator on the book High Commitment, High Performance. Michael Beer is the chairman and founder of TruePoint, the Cahners-Rabb Professor of Business Administration Emeritus at Harvard Business Schooland, and author or co-author of 10 books, including High Commitment, High Performance (Jossey-Bass, August 2009).
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Tom Chappell, co-founder and CEO of Tom’s of Maine, wrote a great book about this subject. The book is called “Managing Upside Down” and published in 1999. It launched a new genre of books such as the “Triple Bottom Line” book by Andrew Savitz and Karl Weber – and then took off from there. My one biggest concern ten years later is as follows: we now have “plenty of principles” but nevertheless a “paucity of principals”. Why?