You will be pleased to hear that this is going to be a serious Secret Ned. About time, some may say. It’s serious because we are talking about a “very serious boardroom matter”: sustainability.
The only problem is that this article will be short because the conversations that I have heard are short. Unless, of course, they relate to the sustainability of said boards’ salaries.
Now that may be true of some boards but it is certainly not true of all. In my experience, the need to consider the longevity of the business beyond the usual accounting horizons has grown as a board conversation over the last five years.
It has been encouraged by the need imposed in the business review to describe the business model in clearer terms and to formally evaluate the business viability over a longer period than the traditional going-concern test.
The challenge of new industry entrants using non-traditional methods has made companies sit up and consider whether their model is at risk from the upstarts—in terms of total disintermediation, cost-cutting and/or doing things radically differently. Compare Uber with Addison Lee, Purple Bricks with Foxtons, Metro with HSBC, Tesla with Land Rover and RoboNed with Ned.
The survivability of the business model will depend on boards being on the ball with regard to emerging challenges. And these may come from very different directions than in the past.
Being ‘on the ball’
But what does “on the ball” mean? To me, it means being awake, being aware and, finally, being open to new thoughts. So, how “on the ball” is your board?
The strategy days of “death by PowerPoint” tend to inhibit this “on the ball” thinking and demote non-executives to nodding donkeys. I recently attended a board strategy event looking at three-plus years out where there were no slides, no presentation—just some facilitation headings. All contributed the headings beforehand, and where management felt that some facts, or context, beforehand would be helpful, those were provided in a bullet-point summary and distributed prior to the meeting.
The meeting objective was to consider the potential strategies needed to deliver a sustainable business over the next three to five years. It was not to agree a strategy. The quality of discussion and engagement was far better than any other I have been to. The executives appreciated the freethinking and found some of the thoughts provocative; no doubt some ideas were even crazy. I look forward to the next stage, which is a presentation of a strategic plan building on the inputs from the earlier meeting.
Sustainability of resources
Of course, the other key driver to a longer-term board perspective is the need to consider the sustainability of resources upon which your business is reliant. It can come as a surprise to a board member used to supping at the Ritz that the bedrock resource of many service businesses are non-UK nationals. Such services may well disappear as a result of Brexit and other economic changes in the supplier country, as well as in the UK.
To ensure the viability of such industries, a quantum change in approach to labour sustainability will be required. It will no longer be a tactical, operational issue removed from the board, but will become a critical strategic issue. This is no different to Coca-Cola’s board, which considers the sustainability of water supplies to ensure continued product manufacture; or the capability of the National Grid to sustain an explosion of electric cars in the UK.
Maybe my boardrooms lack imagination but this is the area where sustainability does not get much bandwidth. Instead it tends to expose the non-diverse board where wisdom is equated with age, and age has become a bit set in its ways.
So, we shall all be looking forward to a set of 2018 annual reports which address business sustainability openly, with vigour and imagination.
Happy dreaming!
The Secret Ned is a current British board director with 30 years’ experience, who has worked on boards in the FTSE 250, small-cap companies and private, family-owned businesses.