The board’s oversight of projects
Dimension of board effectiveness: Dynamics
How boards can get better at debating the big strategic moves (and avoid becoming potted plants…)
Warren Buffet was famously cynical about the way the executives act when they want to do a deal. “Directors generally were sort of potted plants,” he said. “The CEO wouldn't bring in the deal unless he wants it done and, once he brings it, he's gonna stack the deck and make the presentation in such a way that it's almost impossible to exercise independent judgment. […] There will be nobody arguing the other side.”(1)
He is exaggerating for effect, perhaps, but the same can apply to big projects. Boards might only get the opportunity to comment on a project proposal when the CEO is absolutely sure he or she wants to do it, when the team have put a lot of work into polishing up their arguments in favour of it, and planning is at an advanced stage. In fact, the Executive have spent so much time on the project that they’re “married” to it, and divorce tends to be painful.
This article looks at the ways in which boards can hold useful early-stage discussions on major strategic moves.
In a nutshell:
It may seem straightforward, but many boards find it challenging to have these discussions.
Boards need to give more thought to getting this right as so much is at stake in big transactions and projects.
There are three important aspects to this: the Chair-CEO dialogue, the dynamics of an early-stage discussions and avoiding a sense of “them and us”.
Better debates at the early stages set projects up for success leading to better proposals, better planning and better oversight.
Why does it matter?
Big projects and deals can make or break an organisation. High-profile examples abound: mergers that destroy value, IT systems that deliver chaos and railways that never see a train. Ask any leader of a big organisation – executive or non-executive – and you’ll invariably find they have the war stories and the scars.
A successful project means a major step forward for the organisation, its employees, owners and customers. Failure means a colossal waste of shareholders’ or taxpayers’ money. It means embarrassment and loss of reputation. If the flop is big enough, it brings down the whole company.
Boards are central to big projects because they have a clear responsibility to approve the allocation of funds. They are accountable for overseeing how well the money is spent as the railway is built, the IT systems coded, or the organisations merged. And boards are in the firing line when projects go disastrously wrong.
In his excellent book, How Big Things Get Done, Professor Bent Flyvbjerg calls out the need for better oversight. “Superficial planning is common and will be exposed only if those with the authority to supervise and approve plans […] exercise that power properly by subjecting plans to serious questioning.” (2)
But it’s difficult for boards to do that, if the project only comes for approval after all the planning has been done.
The Harper Webb view
All boards should set themselves the objective to hold an early-stage discussion of any big project or deal before there is a decision to take, an approval to give or a detailed plan to scrutinise. We will call this Stage Zero in a project. Projects are usually considered to begin when boards are asked to approve a business case and, subsequently, to supervise the detailed planning. But Stage Zero is when the big project or transformative deal is still one of an array of possible ideas swirling around in the executives’ heads or being discussed at the executive committee.
The Board does not yet have an official role and there’s no requirement for the CEO to seek NEDs’ input. It’s not generally considered a project stage at all, but if you get Stage Zero right, you will set strong foundations for future approval and oversight processes.
Having seen these early-stage discussions work well at some boards, but badly at others and not at all at some others still, we advise focusing on three important aspects to get this right.
The CEO-Chair dialogue. The Chair is the person who can give the Board the chance to discuss the project by being aware of what is afoot and convincing the CEO to take it to the board.
Early-stage discussion dynamics. We will look at the importance of being clear about the objectives of the discussion, preparing well for it and getting the tone right.
Reducing the “sense of them and us”. Tension between non-executives and executives is natural when it comes to high-stakes decisions, but too much friction damages the relationships on the Board and, ultimately, the outcomes of projects.
First key to a good Stage Zero: the CEO/Chair dialogue
The most important relationship on any board is between the CEO and the Chair. It needs to be based on trust so the Chair can provide informal counsel to the CEO. At the same time, the Chair has to be able to deliver hard messages to the CEO.
The Chair and the CEO typically have an ongoing dialogue outside the formal board meetings. The Board might meet five to ten times a year, but the CEO and Chair may speak weekly. This means that the Chair has a lot more information about what is going on in the company than the rest of the non-executive board members.
As part of their dialogue, the CEO and Chair will often discuss early-stage ideas, with the CEO giving her thoughts on various possible initiatives to the Chair and getting informal input. As a particular project proposal starts to firm up and become a real possibility, the Chair and CEO must decide when the time is right to take it to the full Board for a discussion.
This is the ideal scenario, but two things can go wrong:
Firstly, the Chair doesn’t hear about the deal or the project until the Executive is already looking for an approval. In this case, the Chair’s relationship with the CEO is too distant, and their dialogue is not working properly.
Alternatively, the Chair knows that a project proposal is firming up and gives input to the CEO privately but doesn’t advise the CEO to take it to the Board until they are both committed to it. In effect, the Chair helps the CEO to “manage” the other NEDs and to shepherd the proposal through. In this case, the CEO and Chair are too close.
It’s a delicate balance to strike!
Second key to a good Stage Zero: the dynamics of early-stage discussions
Let’s assume the CEO has told the Chair about a potentially major project which is starting to take shape, and they agree it’s promising enough to take to the Board. It’s not yet a firm proposal and management are not asking for approval. Rather, the objective of the discussion is to share ideas, get the non-executives’ counsel and gauge their expectations.
What then goes wrong?
NEDs expect more polished proposals. They miss the point that it is a compliment to them when the CEO still has an open mind. It means she wants to hear their opinions and to have a debate (or at least has been convinced by the Chair that it’s a good idea). At the next stage, when the Board is approving a formal project proposal, the NEDs can rightly expect to see a preferred option which is set out with a convincing business case and well-structured analysis.
NEDs expect to be giving a definite steer. But this is not the objective. Rather, they can raise potential concerns, suggest alternatives, ask probing questions to test the logic of the project or deal. The CEO can select from the ideas and opinions that she’s heard in the discussion and decide what she will and won’t adopt.
NEDs expect a clearer response. If they’ve expressed serious misgivings, they can subsequently criticise the Execuitve if the project then comes for approval. But this remains the CEO’s prerogative and they must respect that. She may have heard the NEDs’ concerns and decided to ditch the project all together or to reshape it considerably, but it is still very much her choice.
When boards learn how to get the expectations and dynamics right for these discussions, executives value the debate and give the Board several “bites at the cherry” with more than one informal discussion as the proposal gradually firms up. In this way, the executives are “taking the NEDs on the journey” with them. They are learning about what is making the NEDs uncomfortable and helping them to grasp any aspects they don’t understand. If and when the proposal ultimately comes for approval, it is far more likely to have a smoother ride.
When NEDs get the dynamics wrong in these discussions, the CEO will learn that it’s easier to keep them in the dark for longer. The NEDs will find themselves trying to input into rehearsed proposals and, as Buffet maintains, exercising independent judgement becomes much harder.
If it was easy to get the dynamics right in early-stage discussions, far more boards would be doing it. And we work with some boards who do it exceptionally well, putting thought and effort into getting it right. But it’s surprising how many don’t. When you think of the number of projects that, in Flyvbjerg’s words, don’t just go wrong but start wrong, it’s an area worthy of attention.
Third key to a good Stage Zero: Minimising the sense of “them and us”
There’s a natural standoff between non-executives and executives when it comes to big strategic decisions. This is in the nature of the governance structure. When the tension is constructive and manageable, it’s a strength. Too much friction, however, can be counterproductive.
Boards that are being consulted at an early stage can input more and don’t feel “bounced” into a decision. NEDs feel part of the decision with a greater sense of ownership and common purpose. Moreover, when it comes to project governance, the executives and NEDs on the Board have similar challenges. Often the CEO and other top executives are also trying to figure out the right answer on whether to do a project, how to scope it well and how to keep track of it, once it’s launched. This is only part of their work along with all their other multiple duties, and they too are not necessarily the experts on the project. In this way, they are not in so different a position to the NEDs.
It's worth mentioning that the approach we’ve outlined in this article will backfire if the CEO brings too many early-stage proposals for discussion, which are not then progressed. The NEDs and executives will start to tire, feeling that the discussions are a waste of time. But this is far rarer than projects coming late and being steamrolled through!
A final note
This article has looked in detail at the Board’s role before a project is even formally proposed for approval. Big projects and strategic deals put intense pressure on boards, both at the planning and execution stages. It’s worth getting a good foundation in place at Stage Zero to help manage those pressures and get the project off to a good start. The sets the stage for the board to be more rigorous in challenging the plans and more effective in overseeing the implementation.
When they get the early stages right, boards add value by strengthening proposals and, ultimately, giving the projects a greater chance of success.
Flyvbjerg, Bent; Gardner, Dan. How Big Things Get Done (pp. 41). Pan Macmillan.
