Text of my talk to the IOD India Global Convention, London 25th October 2017
Ladies and Gentlemen, the Higher Education sector in the UK I think offers an interesting lens through which to view our topic of building better Boards. In recent times, despite the UK HE sector generally being regarded as world leading, and, according to a recent report, generating £95 bn for the UK’s economy and supporting nearly 950,000 jobs, it has felt as though there are a number of existential threats being posed by our current political and economic environment, to which our governing bodies have to devise adequate responses. These disruptive changes in our world reflect I think the worlds of many of you and other organisations in a rapidly evolving global economy.
Never has the role, governance, and development of HE Boards been more important than in a climate where, for example, the UK’s decision to leave the EU creates uncertainty over our future research income streams, threatens a future source of customers in the shape of our EU students, and risks creating a feeling among our many EU employees that they will no longer be welcome on these shores following Brexit in 18 months’ time. If that were not enough, the current government now appear to have targeted the HE sector as a means of reclaiming a lost youth vote: by challenging the very financial basis of UK University’s success by revising the fees structure, and via its well publicised and frankly inexplicable intransigence toward international student visas; and is now turning its attention to a story very familiar elsewhere in the UK’s economic structure, by challenging the salaries paid to its Chief Executives – the Vice Chancellors.
At times like this it would be easy for Boards in the HE sector to hunker down into the trenches to avoid being struck by one of the missiles being fired at them. In my experience, this is exactly what tends to happen, if they’re not careful, to any leadership body at a time of perceived threat – that is, to retrench, to concentrate solely on tighter regulation and control, and to risk missing one obvious opportunity, to innovate. Yet time and again studies have shown that it is exactly at this moment of greatest threat that innovation can be the most powerful weapon in the armoury, and it is this point that I would like to address principally today, using the example of HE to make it. I am indebted on this score to the ideas of one of my visiting professors at Lincoln, Colin Coulson-Thomas, who has also been a regular adviser to this Body on the topic of building better Boards and is present at the conference today.
The UK is rightly known around the world for best practice in Board Governance, and is often used as a model elsewhere – Japan, for instance. As recent reviews have shown, however, Boards are still constructed and incentivised to deliver on their main task, regulation and control; in Clayton Christensen’s language from his work on innovation, ‘they concentrate on keeping the flywheel turning’. The disciplines required for such a task – legal, financial, and actuarial expertise – are, how can I put it, not necessarily those best known for creativity and innovation (in fact creativity in compliance is usually seen as a risk, not a strength). These Board requirements are however necessary conditions for success, but not sufficient ones. Whether it is dealing with some of the existential threats I have described, or whether it is leading less tangible but equally important agendas of culture change, business model innovation, and sustainability, innovation on Boards is critical. I would like to share ideas of developing innovation at Board level in three areas; in the scope, the structure, and the scale of Board operations, using the HE sector as an example.
First of all, scope. A recent survey by the UK HEI and NUS indicates that over 80% of students in the UK believe that sustainability should be actively promoted by Universities, and incorporated into teaching; the positive response from International students was even higher. Us older generations may wish to take note; millennials, 18 year olds, are idealistic, values driven and passionate about sustainability. Not only does it make financial sense for the Board to be incorporating expertise on sustainability on its agenda, it makes sense also from the perspective of the consumer of its products. Yet a narrow focus on regulation risks bypassing these questions entirely, especially if the ‘business’ – like HE – isn’t naturally one driven by questions of sustainability.
I would fully expect – as is the case at our Institution – for a Board member to be given specific briefs on some non-regulatory but critical topics, such as sustainability, consumer service, employee engagement, ethics, culture change, and business model innovation – and be given the freedom to reach down into any level of the organisation to observe, check, audit and advise on what is being done to serve these important agendas, and to report back to the Board with their advice and recommendations. In my own College, we link members of the Board directly to subject area specialists so they can check, in their view, whether the education we offer our students is in line with their understanding of what society is expecting of that ‘product’ – that is, our graduates.
Which brings me to my second topic, structure, and how to design Boards to promote innovation and responsiveness to change. Two well established phenomena from social science pertain here about how any organisation functions. The first is ‘group think’; place too many like-minded people in the same room for too long, and you will certainly kill any chance of original thought or decision making. The second well-observed phenomenon is that creativity happens on the boundaries between disciplines and structures. Boards have to become more diverse in their composition and skillsets if they are to respond effectively. Too often, stakeholders with far greater ‘stakes’ in the success of the business than the typical Non-Exec are simply not represented at Board level; employees, consumers, even wider society. There is some controversy in the UK at present about whether we should include employee representatives on Boards. Concerns of confidentiality are often cited as reasons not to. These concerns are in my view misguided.
At our University, there has always been an employee representative on the Board of Governors, and our consumers – our students – are not only represented on the Board, but also at every level of functioning of the University including our recruitment panels and the most senior Academic committees that determine our University policy and agendas. The key point is that not only does it provide a ‘representative’ channel – that is, a check on the actions and decisions of the Board – but, and for me more crucially, it provides Boards with direct access to ideas, thoughts, opinions, and solutions that would otherwise potentially be closed off to it. The question for Boards as they struggle with issues of sustainability and societal impact is, do you hear the voice of those most affected by your work? There is an additional benefit of course to this diversity, which is transparency; often critiques of organisations in the UK – including the HE sector – is that the workings of the Board are poorly understood and even less likely to be visible to stakeholders, and therefore their decisions more open to question when they hit the headlines. Diversity of membership will massively assist with this challenge.
Which brings me to the third area for consideration, after scope and structure, which is the scale of Board activity. In the UK 99% of companies are either unlisted or private; in my own county, Lincolnshire, over 90% of employees work in small to medium enterprises. These organisations are clearly a critical source to the economy of dynamism, entrepreneurship and innovation, yet risk being bypassed by discussions about Boards, as there is no statutory requirement for them to have one, and it can seem simply too burdensome to set one up. Recent scandals in the UK on governance have occurred below the radar of stockmarket listed companies; and we are, as is well documented, plagued in the UK by a persistent productivity problem holding back the UK’s economic growth. Yet smaller companies, especially, often hesitate to introduce Boards because of the implied cost and regulatory burden.
Seen in the light of sustainability and innovation, however, and structured for diversity, Boards, scaled effectively, can act as an engine for transformation, especially at critical moments of a small company’s growth. Many of these companies are family owned, which brings risks as well as advantages, especially for the ‘groupthink’ problem I mentioned earlier. A properly functioning and well scaled Board with external representation may offer alternative solutions to the company at the point for example when it is entering new markets, diversifying its product base away from the ‘baby’ that the owner has so much ownership over, and is so reluctant to give up, or requiring new capital funding for its growth plans. And a small scale operation is often all that is needed without a heavy regulatory burden.
As an example, my own University is proud to be diversifying its own business into the Indian market, despite many of the barriers being placed in its way that I referred to earlier, with the clear objective of helping to meet the enormous demand from Indian businesses for graduates with entrepreneurial flair. We have established a small Advisory Board, based in Delhi, to oversee this innovation, chaired not by the University but by an Indian entrepreneur and good friend of mine, and whose membership includes not only academics, but also and more crucially schools counsellors and the distinguished Chief Executive of the IOD, Mr Manoj Raut. It’s an example of ‘horses for courses’ – putting in place a cost effective, diverse, representative and efficient body, fit for purpose, whose main aims are innovation and sustainability, and not regulation and control.
Ladies and gentlemen, that concludes my remarks to the convention and thank you so much for listening.
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