How boards can test assumptions before disruption does

Our roadshow began with a motorway closed by snow. It was a minor disruption compared with what many organisations are dealing with, but even seemingly minor disruptions can have significant flow-on effects. Energy and supply-chain pressures, severe weather, changing markets and new technology can overturn assumptions quickly. 

In the first week of August, Judene Edgar MNZM, CMInstD, Senior Governance Advisor in the Institute of Directors’ Governance Leadership Centre and Chapter Zero New Zealand Lead; Michelle Branford, IoD Otago Southland branch manager; and I took a series of practical governance workshops to Queenstown, Invercargill and Dunedin. Jason McDonald CMInstD, Evelyn Fraser MInstD and Rob Hewitt joined us along the way. 

The workshops kept returning to three practical questions: whose perspectives are being heard, which existing tools can help test the issue and when does the board need to get closer to the detail? 

Different thinking, skills and experience 

At each workshop, participants stepped into the role of the board of ‘Delicious Foods NZ Ltd’ and considered how the company should respond to a series of challenges and opportunities. 

Participants came from different backgrounds and were at different stages of their governance journeys, bringing different experience and questions to the problem in front of them. They were working with imperfect information and under time pressure – much as boards do in real life. Their creative solutions to the problem came from each participant actively sharing their perspective and experience. 

Do you hear a diverse range of views, skills and experience at both board and management levels? 

And when did you last do a board evaluation? There are many templates and organisations that can help. The value comes from scaling the exercise to the organisation and its board. 

Use the tools you already have 

We worked with tools including value chain analysis, business drivers, materiality analysis, scenario analysis and transition planning. 

Their usefulness extends beyond climate reporting entities, and in your business they may just have a different title. For example, ‘transition planning’ is simply the process of creating a step-by-step strategy to move from a current state to a future goal. 

Boards can use these and other tools to test assumptions, work through risks and opportunities and focus attention on what matters. 

The updated Chapter Zero New Zealand Board Toolkit says governance requires ongoing review, learning and adaptation to ensure existing governance disciplines are kept effective as conditions change. 

One of the exercises I shared was a pre-mortem. 

Instead of analysing why a strategy or project failed after the event, assume it has already failed spectacularly. Then work backwards to identify what went wrong. 

The exercise can expose vulnerabilities that are easy to overlook when everyone is focused on making a plan succeed. In my experience, it can also reveal opportunities. 

Management and the board can do the exercise separately, then compare notes.
 

Look beyond your own organisation 

Sustainability reports, climate reports and transition plans produced by others, particularly organisations elsewhere in your value chain, can help test the robustness of your own plans. 

They may identify risks you had not considered or point to opportunities created by the connections between organisations. 

I also suggested using artificial intelligence to check whether the organisation is telling a coherent story across its publicly available information, particularly between its financial statements and communications about future plans. 

That consistency speaks directly to the credibility of the organisation’s strategy. 

Know when the detail matters 

One question put to the workshop groups was where boards most often get stuck between recognising a pressure and making a decision. 

A common response was: ‘in the weeds’. 

Of course, on some issues the board needs to get closer, but the key is to know when the detail matters. 

Boards can become overwhelmed by the volume of information or keep looking for more certainty before acting. They will rarely have all the information or a perfect answer. 

Evelyn Fraser suggested directors spend time reviewing risk assessments, war gaming and business continuity readiness outputs. 

The board still needs to maintain the broader view – applying judgement, setting priorities and asking good questions about strategy, metrics, targets and whether the organisation has the resources it needs. 

A pre-mortem or scenario analysis exercise, proactive consideration of information from elsewhere in the value chain, or a business continuity review can all put existing assumptions and information to the test before the board is forced to respond under pressure. 

The views expressed are those of the author and do not necessarily reflect the views of the Institute of Directors or Chapter Zero New Zealand.