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Welcome to the Flight Deck »

Welcome to the

Flight Deck

A Global C-Suite Study The Human Dimension of

Globalizing Mid-Caps - as Seen by their Leaders

Chapter 7 – The Flight Controllers: Board Governance


Introduction

This study is a deep exploration of the world of

globalizing mid-caps. It draws upon 83 interviews

conducted exclusively face-to-face with C-suite

leaders from every continent. Lasting up to two

hours, the interviews were conducted by Amrop

Partners over the Summer and Fall of 2013, using

a structured framework designed by researchers

at IMD, the top-ranked global business school

based in Lausanne, Switzerland.

Our focus: the human element:

Talent Management at Top Levels

Culture and its Implications for Performance

Board Governance

This is your personal invitation to enter the Flight

Deck of today’s globalizing mid-caps - a place

beyond public declarations or annual reports - to

hear what C-suite leaders are confidentially, and

often spontaneously, revealing - in their own

words.

Welcome On Board.


On behalf of IMD

Foreword Maury Peiperl

Professor of Leadership and

Strategic Change,

IMD

@MauryPeiperl


On behalf of the Amrop Partnership

Foreword Ulrich Dade

Chairman of the

Executive Board,

The Amrop Partnership


Welcome to the Flight Deck: Headlines

1 Successful mid-caps take an ambitious, long-term view.

2 79% were studying the successes (and failures) of other companies:

3 If many mid-caps already have a successful international business, only 9% felt truly ready

for globalization.

4 Managerial and cultural capacity for globalization are top-ranking, critical issues.

5 Three main factors are positioning successful mid-caps to win the war for customers and

talent.

6 Successful mid-caps strike a compelling balance between local autonomy and corporate

influence.

7 Globalizing mid-caps have powerful employer branding to attract leadership talent:

8 Many mid-caps are ideally positioned to be innovation and entrepreneurship champions.

9 Mid-cap Boards are tailoring themselves for globalization.


Contents

View From 30.000 Feet

1 Introducing the High-flying Mid-Caps

2 Global Trade Winds

3 Key On-Board Conditions for a Successful Flight

4 Piloting Skills: Agility and Consistency

Closer to the Terrain

5 The Flight to Leadership

6 Becoming the Carrier of the Future: A Culture of Innovation

7 The Flight Controllers: Board Governance

8

8 What’s Next? 31

9 Appendix

43


Introducing the High-Flying Mid-Caps

Capturing the notion of a ‘globalizing mid-cap’


7

The Flight Controllers:

Board Governance

So far we have seen that share- and

stakeholders are giving freedom to mid-cap

Boards to function independently. CEO’s are

trusted by Boards to perform. Operations in turn

are given room for maneuver. Boards are

structurally connected to internal information, to

external views and to growth and globalization.

In this chapter, we see how the Board agenda is

topped by an interplay between performance

and finance, investments and talent.

We will learn the value placed

upon the constructive

confrontation of independent

Board Members, how Boards are

seeking greater diversity to

reflect globalization, and the

challenge for Boards to be

representative, yet lean.


Board Governance – the Story So Far

Freedom

−

−

−

Connectivity

7


Boards are Performing a Balancing Act

CEO’s and senior managers may be free, but they are

Still Supported by Boards

“It is related to your

personal development.

In the first year you are

still pretty innocent and

open about everything

that needs to happen,

but once you have had a

number of meetings

with the Supervisory

Board, the Shareholders,

Founders, and so on, you

get ‘shaped’. And

secondly I am aware of

my impact on the

organization and more at

ease with that.” - CEO, Northern Europe


Trust in Senior Executives is Balanced With Risk

Management. The CFO is Crucial.

“Our Executive Board and

especially the CFO over

the last ten years have

built a robust

governance/control

structure. We are praised

for our risk register, how

we separate

authorization and the

underlying systems. With

regard to global and local

we believe strongly in a

culture of autonomous

local/business decision-

making balanced with

solid risk management

from a governance

perspective.”

- CEO, Northern Europe


Strategizing and Management are Distinct,

Yet Connected

“The Board has moved to

a more strategic role and

is no longer so close to

operations and

operational reviews,

which I think is good. My

role is then more to

facilitate the strategic

discussion with

the Board.”

- CEO, Nordics


Strategic Bifocals

“The CEO's role is to

monitor quarter-on-

quarter performance. The

Board’s is more long

term. It's the strategic

direction, a decade down

the line, rather than

short term goals.”

- Vice Chairman, Asia


Agenda Items – 4 Clear Priorities Emerge

Composition is Shifting in Line

With the Organization Diversity – Prioritizing Specialisms, Industries and Nationalities

“Over the last three

years the Board has

become more diverse in

terms of background and

agenda.”

- Board Member, Northern Europe


Globalization is Creating Shifts In Composition.

“Each one of them had

to bring a competence at

the Board level which

would be suitable and

relevant for the Board

management, not only

the SMEs. Because five

of those will not add any

value compared what

one would have added -

if it was the right guy.”

- HR President, Asia


Growth - and More Complex Processes –

Are Forcing Change

Board Composition Must Reflect Organizational

Composition – yet Remain Lean and Athletic.

“My successor had to

change the Board.

Because of the diversity

of strategies and the

split of central functions,

we did not have the

people to manage this.

And now it works.”



“I did a lot in engaging

and leveraging the

Board. Board meetings

lasted a day and half –

six to eight meetings -

and a lot of additional

calls.”

- President, Asia


Independent Members – More Than Box-Ticking

“The current composition

with a small EC is indeed

more effective. I always

use the rule of thumb of

eight direct reports as

the limit for having

constructive thought

exchange, interaction

and commitment,”



Composition is Only the Start -

Consensus, Synergies and Alignment

Must Follow

Achieving Unity and Collaboration

“Sometimes people who

are inside might have

reasons for not

confronting issues head-

on, but I have also seen

Independent Directors

not taking sufficient

interest. That way you

will let things go the

way they are presented -

and it just becomes a

ritual you are going

through.”

- Managing Director, Asia


From Diversity, to Complementarity

“[The Board has] the

right mix of the

organization’s gene -

one optimist, one

pessimist, one to be

cautious and one who

controls the numbers.”



“The Board takes it very

seriously that their toes

are equally held to the

fire as Management’s,

which is why we’re

getting more questions

about process, risk,

governance etc.; they

have to demonstrate

that they are

independent from

management.”

- HR, North America


“These independent

members guided the

development of the

Board; setting up a

compensation

committee and how to

run it. How to build

compensation reviews,

model compensation for

leaders. Governance

[also]- setting up audit

committee, risk

evaluation…”

- President, Asia


Some Mid-Cap Boards Must Resolve

Lingering Problems

“According to the way

the Board has been

growing, there are Board

Members that are more

patrimonial.”

- CEO, South America


Board Succession –

Many Routes to Everest

Board Succession is Rising as a Board Agenda Item

Some Boards Seek a Younger Demographic

We generally say that

each successful manager

should have at least two

to three nominated

successors. Maybe it’s

not there as of now but

the spirit is to have that.

- CEO, Asia


Mid-caps May Well Go Inside First For Board

Succession – (But Not Exclusively)

Several Internal Board Successors are Already Orbiting the CEO or Chairman

“It is not unusual to

promote and observe

potential candidates for

the Board over a period

of ten years.”

- Board Member, Northern Europe


“Since I couldn’t

overstaff, I employed

extremely agile and

relatively young people, I

call them my Swiss

Knives. They’re people

that I can assign to

anything. The more

complicated the

problem, the more they

enjoy themselves. I give

them a web and they

untangle themselves”

- General Manager, Northern Europe


When an Internal Focus is Not Enough

A Few Mid-Caps Are Facing Challenges in Board Succession

“We’ve been able to

bring in leaders who are

entrepreneurial risk

takers – 25 of our 150

top managers are new.”

- Global HR Head, North America


“Our presence in the

international market is

helping us in training

individuals for profit centre

roles now. We have

Bangladesh, South Africa,

Dubai with P&L roles. Our

structure allows many P&L

roles. It helps train CEOs.”

- Chairman, Asia


7

The Flight Controllers –

Board Governance

Summary


7

The Flight

Controllers:

Board

Governance

Leading

Questions

?

4

4

?

4

4

?

4

4

?

4

4


What’s Next? Towards a Leadership profile and strategies for globalizing

mid-caps: the Amrop view.

Who are the mid-caps? 4 distinctive features emerge as key traits.

Interestingly, these are ‘geographically agnostic.’

Could globalizing mid-caps inhabit a ‘vitality zone’?

Preety Kumar Member of the

Executive Board,

The Amrop Partnership

8


Implications and recommendations

What pitfalls could these positive mid-cap characteristics contain? What counter-strategies

are successful mid-caps finding? What leadership profiling and related initiatives do we

recommend?

1 - Successful mid-caps take an ambitious, long-term view.

An ambitious, long-term view

Strength Pitfall

Risk

What’s Next: Inspiring and visionary ambitions matched by managerial and cultural capacity.


Organization design

must allow for

upscaling whilst

preserving the vital

DNA of

entrepreneurship

and connectivity.


Preparing Boards for

globalization must

embrace not only

current realities and

resources, but

ambitions. A context

driven evaluation is

an essential first

step. Yet the results

may confront

embedded

perceptions, lead to

tough decisions

regarding existing

members and a

need to build

consensus.


2 - Freedom is a further feature of successful mid-caps.

Freedom

Strength Pitfall

Risk

What’s Next: it’s all about balance. Freedom balanced by self-governance, management

infrastructure, clarity and connectivity.


Connectivity – a distinctive feature of mid-caps – balances

freedom

Leveraging the value

of independent

Directors must

transcend ‘box

ticking’ and

regulatory

compliance.

Furthermore, should

your independent

Directors have a seat

on the Boards of

other organizations,

do check their

commitment to

yours.


More than

competent

practitioners in their

domain, talent in

globalizing mid-caps

must be skilled and

‘ego-free’ teachers

and coaches.


3 - C-Suite Stewardship is a feature of successful mid-caps.

C-Suite Stewardship

Strength Pitfall

Risk

What’s Next: Preserving the ‘owner attitude’ in an expanding and virtualizing world.


4 - Many mid-caps are positioned to be innovation and entrepreneurship champions.

Innovation and Entrepreneurship

Strength Pitfall

Risk

What’s Next: Preserving the innovative spirit whilst engineering focus and relevance.


5 In summary


Appendix


Methodology

Sampling

Interviewing process

Analysis


Demographics


Acknowledgements Interviewees from the following organizations have given formal permission for their organizations’

names to be published in the report. We sincerely thank them, and all interviewees whose

organization names have been withheld to respect confidentiality, for their invaluable contribution to our study.


About the Authors

About IMD

About Amrop

Contact IMD Contact Amrop Secretariat

We thank Panteia B.V.


Amrop Offices

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