How to present your ideas and maximise chances of acceptance
This article provides access to proprietary research into the risks perceived by board members and the ways in which a presentation can be ethically tailored to maximise the transfer of knowledge and the liklihood of acceptance.
Create Your World’
Presenting to the Board; How to pitch your proposal to risk averse boards
This paper is based on a three year research study involving practicing company directors.
Introduction
Company directors are responsible for corporate performance. They set and monitor strategies
and ensure management strategiesis appropriately managing risks. But directors struggle to know which
are the key risks and what is an appropriate role for the board in ensuring that management
has effective identification, control and mitigation strategies in place. This can result in an
excessively conservative approach when considering proposals that are unique ‘one off’
projects; an unconscious bias towards continuing operations and away from new strategies initiatives.
Project proponents can deliver the performance that the directors seek but only if their projets
gain board endorsement. The projects should be aligned to the company strategy, should
mitigate the key risks and should, in aggregate, provide an overall corporate outcome that
delivers sufficient reward for the risk level that the board has stipulated when approving the
strategy.
This paper is based on conversations about strategy and risk with over 200 professional board
members and senior executives. The conversations start by identifying the key risks that
would prevent attainment of strategic objectives and then proceed to what the board does
about them. Insights are classified by organisation type and commonality of occurrence.
Leading company directors have provided additional commentary to extend the reach of the
research and provide practical examples of effective boardroom behaviour. The material is
accurate, relevant, timely and interesting.
The information is relevant to project proponents as they are often able to assist the board (or
its audit or risk committees) with risk oversight strategies but struggle to generate meaningful
engagement. A frequent complaint is that the board members focus on the negatives, or
identify risks that the project does not address and wish to discuss only these issues with the
project proponent. The focus of this paper is on how project management strategiesprofessionals can
initiate a conversation that will lead to identification of the risks that are of concern to the
directors of the board that they are serving. Having obtained agreement on the highest priority
risks there is a simple transition to discussing your proposal in the context of its contribution
to managing these risks to allow the directors to discharge their duties in a diligent and
informed fashion.
The key to this paper is the rigour with which the data from unrestricted conversations has
been codified and subjected to statistical analysis. This analysis was conducted by an
appropriate professional statistician.
What do board members worry about?
A frequent complaint from executives and project proponents is that, although the board are
responsible for ensuring that the organisation has an appropriate risk management strategiessystem and
that it is implemented, when project risk is presented and discussed in the boardroom it is
difficult to generate the right level of engagement. In particular the board often ask about risks
that are extraneous to the project or that will not be impacted by project management.
A simple solution to this problem is to initiate the discussion with the strategic plan and
explain to the board, firstly, how the project supports that plan and what are the key
deliverables and, secondly, what are the risks that would threaten attainment of the plan
objectives and how implementation of the project will mitigate these risks. It is then possible
to create an interactive discussion with a high degree of board engagement.
When risk is considered by the board in the absence of a management strategiesdeveloped framework
the key risks that emerge from the discussion are frequently not those that would be typically
encountered in a risk management strategiessystem, regardless of how well it had been developed. This
is not to say that either board or management strategiesare
wrong in their assessment. It is just that they
assess the issues from their own unique perspective.
What are the key risks as perceived by the board?
From research with 241 company directors, undertaken from 2004 until 2006, the key risks as
perceived by the directors were:
•
Finance
•
Government
•
Resources
•
Reputation
•
Strategy
•
Leadership
•
Competitors, and
•
Mergers or acquisitions
Of themselves, the risks in this list seem unremarkable; however, in discussion about how the
key risk will manifest itself the perception differs markedly from the way in which risks of a
similar name might be portrayed in a traditional project risk management strategiessystem. Additionally
many of the risks (such as leadership) are systematic and apply to the organisation rather than
to any one specific project. Failure to mention these risks in discussion with the board can
lead board members to consider that risk is not being addressed in a holistic manner.
Financial risk is rarely considered in terms of fraud or of financial statement inaccuracy.
These things are embarrassing and annoying, but they are rarely ‘company killers’. The key
issue raised was cash flow and the need to have sufficient money at the times when it was
needed. Financial performance was also mentioned, but usually only in so far as it affected the
other issues. The smaller the company the more likely there would be a need to raise capital
and the greater the chance that failing to do so would prevent strategic success.
Government was seen as the second most likely factor to prevent a company from achieving
its strategy. In discussion, this risk was generally characterised as a risk of change in the
legislative and regulatory environment. Government action is, clearly, outside the sphere of
control of most companies. However, that is no excuse for failing to put in place systems for
monitoring likely developments or for briefing politicians and their advisors on the
implications of change. This risk is more likely to be voiced by the more experienced
directors than by the younger, less experienced directors, as being the most likely cause of
strategic failure.
When discussing the risk of inadequate or misapplied resources most directors went straight to
the human resources of the organisation. The most common risk was a lack of human
resources or lack of appropriately skilled resources at an affordable price. Another resource
risk, which was frequently mentioned, was the loss of intellectual property with departing
staff.
The risk of reputation damage was nearly always discussed in terms of failure to manage the
reputation rather than in terms of being found to have undertaken activities, which were not
acceptable to modern day society.
When discussing strategy, many directors, voiced concern that they may have simply
endorsed the wrong strategy, and also, that the organisation may not have the skills required
for implementation. Lack of decision-making skills at other levels in the organisation was
also cited as likely to exacerbate this risk, as was poor communication of the strategy and a
lack of the leadership required to drive it.
On the issue of leadership, many directors, whilst declaiming a lack of confidence in the
leadership ability of management, raised the issues of change management, and also of a lack
of real management strategiessupport for the strategy which had been endorsed. Board members were
unanimous in agreeing that if management strategiesdid not really support the strategy no board could
expect it to be delivered. Another frequently raised leadership issue was that of board failure.
This was frequently characterised as a failure to reach consensus, which led boards to either
remain in the status quo or pursue small "no regrets" actions, rather than make the bold
progress which the strategy required.
When discussing the risks associated with competitor activity board members tended to
mention issues and risks which would normally be expected to be covered within a traditional
risk management strategiessystem. These included customers switching, lack of pipeline of
development products, blockage of suppliers by a more powerful competitor, and unexpected
competitor actions.
As with the competition risks, the risks of mergers and acquisitions tended to be those which a
normal well-managed risk management strategiessystem would contain. Integration risk tended to be
the key source of internal weakness, whilst adverse publicity board failure of a large publicly
expected deal were the most common sources of external weakness.
How are companies managing these risks?
The short answer is that companies are managing quite well the risks of competition and of
failed merger and acquisition activity. These are not the risks that most concern the directors,
however. The risks that more commonly worry the board of directors tend not to be discussed
and are therefore thought to not be managed at all.
The risk of failure to attract sufficient financial resources to enable the company to implement
its chosen strategy is usually managed by diligent cash flow, production productivity and cash
management strategiescontrols. However, it is not uncommon, for the staff who are not aware of the
underlying strategic imperative to view these controls as an intrusive imposition, rather than
as a necessary element of strategic success. Raising awareness of the underlying risk factors
that are being managed can lead to greater understanding and better performance.
Many companies, and even those companies whose boards cite government as the largest
source of strategic risk, do not have robust systems for monitoring political strategies sentiment, or for
ensuring that the policymakers, regulators and legislators are adequately briefed on the
potential impact of their actions on the company. A related issue is the reputation of the
organisation and the support (or lack thereof) for the company's continued existence and
success in its sphere of activities. The public sector, with its strong emphasis on probity and
transparency is easily moved to close banks against corporate organisations, whose
reputations are tainted, regardless of whether the taint is justified.
The human resources, including intellectual capacity, of an organisation are not easily
subjected to quantifiable analyses. This can lead to their treatment in the risk management
system, being superficial and prone to motherhood statements, or, alternatively, to be reduced
to the numerical ‘productivity side’ of the equation, without taking account of the human
factors behind it.
The simple observation is that companies do not manage well risks, which are outside of the
risk management strategiessystem, and for which no management strategiesplan has been developed,
implemented or is being monitored. The issue for the project proponent is how best to raise
the issue of what may be an unpalatable source of failure, without becoming personally
associated with the issue and risking personal opprobrium. Once the issue is on the table it is
much easier to develop a suitable management strategiesresponse. Getting it onto the table requires
skill and that is only developed through practice.
Developing appropriate proposals
Given the likely risk environment (as perceived by the board) it is important for the project
proponent to put forward clear strategies for managing and mitigating the risks, even if they
are corporate risks and not likely to fall within the purview of the bank. Common business
practice is for proponents to discuss only the financial risks but, for higher proposal success
rates, additional elements must be added to the conversation.
It is important to tailor those additional elements to fit the company that is the target of the
proposal. Risk is perceived quite differently in different types of organisation.
The successful project proponent will address the risks that are most likely to affect the board
being targeted. The risk environment for a large government organisation is very different
than that for a large commercial organisation. Addressing the right risks in the right order will
engender trust as the board will recognize that they are being addressed by someone who
understands their situation.
The perception of risk is also affected by the seniority and experience of the board member
concerned. Younger and less experienced board members are more likely to be concerned
about financial risks than their more experienced counterparts. They are also more likely to be
‘gung ho’ about M&A activity. Unless they are a founding or executive director, it is possible
that a younger, less experienced, director may not be as able to influence the whole board to
their way of thinking as an older, more experienced, director.
More experienced directors are more likely to cite the role of government and regulators as a
concern and also to be highly focused on the traditional financial risks.
Adjusting the presentation to focus on the likely preconceptions of the directors will allow the
presenter to prepare answers for the issues that may be raised and to proactively guide the
conversation towards a successful conclusion.
Emerging new strategies risks
When discussing the risks that are most likely to occasion strategic failure the directors in the
research made no mention of:
•
Ethics or morality
•
Sustainability, Environment or CSR
•
Fraud or accounts misstatement
•
Terrorism or acts of war
•
Diversity/group-think
•
Tax (or equivalent regime)
•
Lack of people willing to be directors
It could well be, that like the risk of financial statements misstating reality, these risks are
simply not serious enough to lead to strategic failure, either on their own or in association
with one of the other risks. However, it is equally possible, that the lack of reference to these
risks is caused by a failure to recognise the devastating potential they entail. Certainly each of
these risks has at some stage been the subject of considerable publicity and cause of board is
to take on new strategies members who have the skills required to deal with the risk. Only time will tell,
which of the risks falls into each of those two categories.
Starting a strategic risk conversation
As was suggested at the start of this document, the current practice of presenting project risk
management strategiesto boards, or to audit committees, is not gaining the traction and input that
boards, management strategiesand their professional project managers are hoping generate. It is
difficult for a board member, even a qualified, skilled and experienced board member, to do
much more than just reflect on how risks are portrayed or query why certain risks have been
characterised in certain ways. What is needed is a whole new strategies approach.
To really garner board input, it should be sought at an early enough stage to allow the board to
have some ownership of the key risks that will form the basis for monitoring and reporting the
project at the board level.
Ideally the board input will be first gathered in a forum where the board members feel able to
be candid about the issues that cause them greatest concern. This is not always in the presence
of management, other than, perhaps, the CEO. Establishing a forum where board members
feel empowered to speak on taboo subjects, such as lack of consensus on the board or lack of
management strategiessupport for the endorsed strategy is difficult.
Gaining access to a board retreat or a special meeting may assist in developing an appropriate
forum. To get the most from the board input the forum needs to be firstly an information
gathering exercise and also an arena for the development of a shared vocabulary for
discussion of the largest risks that threaten strategic attainment and the successful delivery of
the project.
Having discovered the key risks as perceived by the board the possible mitigation strategies
can be postulated. It is expecting too much for these to be quantified or assessed in any great
detail at the same meeting. Much of the work in developing responses will fail to the company
staff and not an external project proponent. The aim of the first meeting is to gather
information about the board’s perceived risks and to delegate to management strategiesthe task of
managing those risks. A second meeting is then required to apprise the board of the results of
the detailed evaluation and the resultant portfolio of risks and reporting mechanisms. This is
immediately an issue, as access to the board is rarely granted twice in any process. However,
if it is sought and granted, the project proposed will have a far greater likelihood of success.
Given a single point of access to the board most professionals opt to present rather than to
inquire. However, it is the process of inquiry that opens up the possibility of discussing some
new strategies risks, especially if there is a difference in perception between the board and the project
management strategiesteam. Taking the courageous step of using scarce and valuable board time for a
process of inquiry is the only way to gain this insight. If there is only one chance to gain board
time then that chance should be spent on developing a shared understanding of the risks rather
than on presenting the project manager’s understanding of the risks.
Once the process has been started through an open inquiry the board can be kept informed by
means of written reports or graphic kpis. There is less need for a repeat meeting although,
having had a strategic conversation, most boards will find the time for follow on sessions with
the project proponent; this is the point at which successful proponents will make the leap from
banker to strategic adviser.
Summation
Many project risk management strategiessystems fail to identify the risks as perceived by the board,
particularly in the case of risks that arise from the board itself, from the senior management
team and from government or regulatory actions. These risks are often believed by the board
to be the risks most likely to underlie a strategic failure.
By relinquishing the position of an expert presenter and adopting, instead, the position of an
inquisitive researcher, the project proponent may gain insights into additional risks that the
board believe to be germane to the project given its current corporate strategy. Developing
management strategiesresponses to these risks is not difficult once they are in the system but is
impossible when the risks are not openly acknowledged and remain tacit. Being seen by the
board as a person who understands the overall corporate context and who can add strategic
value is an enhancement to the reputation of even the most technically skilled professional
project proponent.
Ready to excel in your Boardroom?
Julie Garland McLellan is one of Australia’s leading experts on
boards and governance.
Since obtaining her diploma of company directorship in 1996 Julie has
served on the boards of listed and unlisted companies in the
government, commercial and not-for-profit sectors including MUEF,
VENCorp, and Bounty Industries amongst others.
Julie’s broad international working experience and her detailed
understanding of how vital effective governance is to the success
of a company or organisation, provides Board members with a
tremendous advantage in making their experience and impact a
successful one.
A published author and frequent presenter on governance topics, Julie addresses single
boards, company conferences, and training seminars. She also works with project teams to
assist in preparing and rehearsing presentations for boards, a confidential service aimed at
understanding and managing likely objections on a project-by-project basis.
She also assists aspiring directors and company boards to understand the nuances of the
company director role through facilitated governance workshops and her Board Readiness
TM and Board Excellence
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| Presenting to Risk Averse Boards |
