Companies like WeWork have experienced this shift. During periods of rapid growth and expansion, the board likely took a more passive approach, trusting former CEO Adam Neumann’s vision and strategies. However, as the company faced challenges and scrutiny, the board became more active, intervening in decision-making and even replacing the CEO.
Likewise, during the Covid-19 pandemic, we found that passive engagement mode decreased from nearly 50 percent to around 35 percent. Passive boards shifted to mentor or partner boards. However, this increased engagement proved short-lived, and many boards have since reverted to a more passive stance.
Choosing the right engagement mode
As our research indicates, a one-size-fits-all approach can significantly limit board effectiveness. Boards should be adaptable, shifting their engagement based on the specific decision at hand. This involves regularly reviewing their agenda and identifying the appropriate level of engagement for each decision:
Passive mode for routine decisions
For routine operational decisions with limited strategic impact, such as technical roadmaps, marketing plans, talent reviews and compensation, a passive approach may suffice. The board can delegate authority to management and focus on higher-level strategic issues.
Mentor mode for strategic guidance and expertise
Boards can provide valuable guidance and mentorship on long-term strategic direction or mergers and acquisitions, particularly when members possess important skills or knowledge that management may lack.
Partner mode for collaborative decision-making
A collaborative approach is essential for significant decisions that require careful consideration. These include organisational structure changes, financial management, stakeholder engagement and risk management.
Control mode for governance decisions
Decisions related to governance, such as CEO succession, board member changes and executive compensation, often require boards to enter control mode. The board should actively oversee these decisions to ensure they align with shareholder interests and the company’s long-term success.
Consider a retail giant facing declining sales and increasing competition. An agile board would delegate routine operational decisions to management, while assuming a mentorship role to guide long-term strategy and identify growth opportunities. When significant strategic decisions arise, such as store closures, e-commerce investments or acquisitions, the board could partner with management to assess options and make informed choices. In times of crisis, like a data breach or product recall, the board may need to take a more controlling role, overseeing crisis management and ensuring compliance with regulations.
To maximise impact, boards need to determine the appropriate level of board involvement for each decision. Factors such as the decision’s strategic importance, potential risks and management’s capabilities should influence this choice. This approach ensures that the board’s time and expertise are focused on the most critical issues, while delegating routine matters to management.
“INSEAD, a contraction of “Institut Européen d’Administration des Affaires” is a non-profit graduate-only business school that maintains campuses in Europe, Asia, the Middle East, and North America.”
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