If you want the best board in town, look for inspiration to Broadway, home to the world’s greatest musicals, such as Hello Dolly, Fiddler on the Roof, The King and I, South Pacific and Me an My Girl, which have kept audiences spellbound for generations.
The link between great corporate leadership and a hit Broadway show may not be obvious but recent research suggests that they share a certain magic.
According to the professor behind the research, the reason some shows like Fiddler on the Roof make it to the big-time is because of the special make-up of the core artistic team behind the show. Growing up in New York, Brian Uzzi was a big Broadway fan who went on to become one of the world’s top thinkers on leadership at the Kellogg School of Management.
Uzzi, who specialises in social networks and machine learning, brought together his interests to investigate 2,258 Broadway shows performed between 1877 and 1990 to figure out the reason why some became such great hits. With the exception of actors, he studied all the key figures such as directors, choreographers and librettists involved in putting on a show, to understand the networks responsible for the strongest performances, and to find out how team leaders set about creating a creative network.
What Uzzi found was compelling. Many of the incumbents—the directors and choreographers—usually knew each other or had worked together before. But what made the team make-up so interesting was that it also included newcomers to freshen up the score. It was the mix between the old and the new that worked the magic. The research—first published in Science magazine a few years ago—also shows that when too many of the same directors worked together, the results were sub-standard, as homogeneity hindered fresh thinking.
What’s pertinent about Uzzi’s research is that the core of the Broadway teams—about seven people—has stayed the same since 1930. This number is efficient, he suggests, because it allows enough people to have a specialisation of talent and knowledge, yet it is sufficiently small not to see many overlaps between people within the same interest groups.
Lessons from Broadway
Claire Logan, head of people and talent at PA Consulting, says the Broadway research provides fascinating lessons for boards to look at, if not borrow from, as they build up the teams around them.
Logan, who worked for many years in retail, says that finding the right dynamic is the greatest challenge for an effective board. Getting that dynamic requires different states of mind being used at the same time.
She says: “There is no magic bullet. There are special roles, but there is no special model that works. The best approach depends on your starting point. Good chairmen or women will say to themselves, how can we get the best team to work?”
As Logan points out, most boards face a tough dichotomy between dealing with what’s happening now on the ground, and the future. But it can be done by investing time and effort, and different techniques. Great leaders, she suggests, are those who have a strong vision but do not infantilise the layer of managers below the top board. Critical to any company’s success, therefore, is to work with and draw on the resources of bright young things in the pipeline—from a more diverse background.
Diversity for diversity’s sake
Yet the Broadway experience shows that diversity for diversity’s sake doesn’t work. Professor Uzzi’s study found that while more eclectic teams can offer a creative jolt, they also result in “facile notions of diversity”. “Gender, race and ethnicity are proxies for the kind of diversity we’re talking about—diversity of background, training, experience,” he says.
Even with a team of [racially diverse] individuals, his research found that “if they all have similar training, you’re not getting real diversity.” Indeed, the Broadway research proves that supposedly diverse teams underperformed as a result.
But Logan says there are many practical tools that boards can use to bring on and nurture diversity of thought. Creating shadow boards can be a powerful mechanism for bringing on the next generation of leaders by providing them with experience they would never have had the chance to gain.
Investing in such a bold step takes a chairperson with vision and patience. “Members of the shadow board should be given all the minutes of board meetings, all the relevant papers, the time to study the papers etc. and report into the main board. This takes time and patience but will be worth it in the long-run.”
It’s a mechanism that Logan suggests could be tried in the financial services industry, where there is too little diversity in executives at board level. Rather than appointing the same faces, companies should consider nurturing their own talent bank of women and others from more diverse backgrounds through shadow boards.
There are other ways for boards to be more porous and open to fresh thinking, she says. This is to expose themselves to more outside influences—to make partnerships with SMEs in specialist fields or to collaborate with other relevant third parties through “open innovation.”
The demands on business leaders today have never been greater. As well as having commercial savvy in their field of expertise, directors must also be aware of the complex changes taking place in technology and the workplace, in addition to the more delicate issues surrounding the geo-politics of trade wars and Brexit.
There are other more ephemeral challenges too. Perhaps the trickiest of all for bosses is the cultural shift underway towards the rebalancing of a company’s purpose, from a purely fiduciary one focused on shareholders to the broader interests of other stakeholders such as employees and the wider community.
Are there any UK companies that have managed to achieve this balance? It’s interesting that several of the talent specialists consulted for this article picked out the same three companies which they felt have achieved that sense of purpose. They are Land Securities, chaired by Alison Carnwath; the John Lewis Partnership, headed by Sir Charlie Mayfield; and Sainsbury’s, run by Mike Coupe and chaired until recently by David Tyler.
Carnwath recently retired after nine years at Land Securities, is an extremely talented former merchant banker. Although she has many other board roles, Carnwath made Land Securities—which, it so happens, is one of the first companies to publish its gender pay gap—her main focus.
Mayfield at John Lewis is utterly committed to the partnership’s philosophy, which gives employees and senior partners a strong common purpose and sense of a wider family spirit.
At Sainsbury’s, Coupe—himself a supermarket lifer—runs a retailer where the legacy of the founding family remains fresh and deep. And the family still own around 10% of the shares. Food for thought?
So, how can other corporate leaders mirror their success? What else can a board do to ensure they have talented leaders to take them through the next decade or so?
Andrew Hobbs, partner at EY for public policy and a specialist on human capital, says there are metrics and KPIs that boards can use to measure how well they are doing when it comes to tricky issues such as diversity, digital transformation—think of the mess that TSB got itself into—and, indeed, the future of work in the face of automation. Yet some metrics—like the recent gender pay gap surveys—can be misleading too, says Hobbs.
“The pay gap is what made the headlines, but that can disguise the more important issues such as whether companies are ensuring there are no barriers to women coming through to senior levels. That’s far more crucial.”
The best boards, says Hobbs, should concentrate on two big ambitions. First, they must be constantly assessing the skills and training of their workforce so that employees are equipped to deal with changes over the next few decades. And second, they need to work on the pipeline of candidates coming through to board level to help select future talent. “Boards need to be on top of skills and re-skilling. The human capital in their businesses is by far the most important of all their assets.”
Nurturing human capital
Taking time to nurture human capital is one important criterion, which investors are increasingly on the look out for in companies in which they invest.
Michelle Edkins is the global head of BlackRock’s Investment Stewardship team, comprised of more than 30 specialists covering companies in the Americas and Europe, so she has a bird’s-eye view of what investors want. She says that it’s vital that a company’s diversity must be visible to the outside world: “We are in a position where the talented new entrants coming out of universities and colleges into the workplace now are no longer in the dominant culture; by far the biggest cohort are of Asian, Latino or Afro-Caribbean origin.”
Edkins adds: “These are highly talented individuals and if they see that there are barriers to them getting on in the workplace, they will go elsewhere. There will be a brain drain away from companies. Leaders and their boards have got to show they are running businesses in which the next generation from different backgrounds can succeed.”
Indeed, BlackRock has taken the lead in demanding that CEOs put nurturing diverse talent and social purpose at the top of their agenda. BlackRock’s boss, Larry Fink, caused something of a stir when he wrote in his 2018 annual letter to CEOs: “Companies must ask themselves: What role do we play in the community? Are we working to create a diverse workforce? Are we adapting to technological change? Are we providing the retraining and opportunities that our employees and our business will need to adjust to an increasingly automated world?”
These are big questions, ones which Edkins says that companies must address if they are to have BlackRock as an investor. In terms of best practice, she would also like to see companies giving greater disclosure in annual reports about what they are doing to address some of these issues.
“It’s true that the demands have been greater for CEOs and chairmen and women today. No one can know everything about everything. But the really smart ones are those who are able to ask the smart questions at the right time.”
Directors worried about the enormity of challenge they face will be relieved to learn that one of Broadway’s greatest hit was the long-running show, How to Succeed in Business Without Really Trying. It ran for 1,417 performances from 1961 to 1965, won seven Tony Awards and a Pulitzer.
And the story? It’s about a young man who rises from being a window-washer to chairman of the World Wide Wicket Company in two weeks. Now that’s diversity for you.