Top-performing boards of directors are built on a foundation of integrity and trust. This applies equally to the youngest of startups and the oldest of corporations. I had the honor of serving on the Nokia board from 2012 to 2015 as the 150 year old company was preparing for the remarkable revival of the past few years. This is what I learned.
Startups and large corporations differ widely in operations. Executives who are good at operating in one may typically not excel at the other. But when it comes to boards of directors, there is surprisingly little difference. The board of a startup operates like the board of a large corporation, and vice versa.
A board of directors has three main duties:
- To set the strategy of the company
- To appoint (and release) the CEO
- To ensure proper governance
It is unfortunate but true that many boards are unable to conduct their job properly. This leads to stagnation and ultimately the demise of the company the board was appointed to govern. A board of directors can be dysfunctional for a multitude of reasons:
- The board is detached and does not care about or deeply understand the strategy
- The board is myopic and too operationally engaged
- The board turns a blind eye to proper governance
- The board does not question status quo
- Board members don’t trust each other. This prevents essential discussions, which in turn precludes key decisions from happening
- The board is unwilling to replace a CEO who has done well but has not been able to adapt to changing surroundings
- The board has a chairperson who is not ready to face the reality that the company is facing
- The board lacks a determined and assertive chairperson who would ensure that none of the above happens.
In avoiding the pitfalls, the role of the chairperson is vital. Whether a board of a large corporation or a startup, successful board work starts with trust. In an executive or other operational team, you can wait for trust to emerge while you get concrete tasks done. But a board does not do “concrete tasks”. Trust must be established from the start as a first-order item.
A board sets the strategy, hires and fires the CEO, and oversees governance. That’s it.
The board can do well only if there is trust. Each board member must be able to trust all other board members. The board as a group must trust the chairperson. The CEO and the management team needs to be able to trust the board. When there is trust, the board can question current models and thoughts held to be true that exist within the board or within the management team. Success requires trust.
Get trust right, and your board will be successful.
Let us take a look at one of the most astonishing and successful corporate turn-arounds in the past decades: Nokia. This 150 year old company went from making rubber boots and toilet paper to a leadership role in cellular phones in what appeared to be a quick transition in the 1990s. But even quicker was the loss of leadership position when Apple introduced the iPhone and Google came out with Android.
In May of 2012, a distressed Nokia appointed a new chairman, Risto Siilasmaa, and the company embarked on an amazing turnaround and recovery journey. I joined the board in the spring of 2012. A little later the share price hit a low of $1.84. Today, the stock price is several times higher. A remarkable recovery occurred, and it started from the board of directors.
The way Risto Siilasmaa rebuilt the Nokia board is a useful lesson for anyone serving on the board of any company. It is with his kind consent that I am accounting my experiences and learnings.
Risto did not storm in with decisiveness or by instilling a sense of urgency or panic. His most visible demeanor as the new chairman of the board of Nokia was calmness. He sat down at the board table and looked at its members. Risto stated that we were in this together, and that we would work together to make Nokia successful again. It was a simple and reassuring message that instilled trust.
Risto declared his golden principles for board work:
- Assume the best of intentions in the actions of others. Operate openly, honestly and directly. Expect others to do the same.
- Our philosophy is data driven and based on analysis. We always aim to analytically map out the alternative future scenarios for the company and strive to understand the triggers and levers related to those scenarios. Sometimes this leads us to invest more time than other boards do, but we do believe this effort pays off in the long term.
- Be well educated in the company’s business and deeply engaged in the discussions with management. Expect the management to support you in learning more while being open, straightforward and engaged in their dealings with the board.
- Be prepared to debate, but do it in an informed, passionate, yet respectful way. Affirmatively support the decisions that arise, even if you did not win the debate.
- Firmly and respectfully challenge the management team while keeping in mind that the board is successful only when the management team is successful.
- We seek to constantly improve everything we do. All board members are expected to contribute to the improvement of our work, tools and processes as well as the way we work as a team.
- A board meeting where we do not laugh out loud together is a miserable failure.
As we began working together, for each new meeting, we operated closer to the 7 golden rules than in the previous meeting.
Certainly we “invested more time” as mentioned in principle #2! During the main year of recovery, we held over 60 board and committee meetings. We were on the phone with each other once a week, digesting new information and making decisions on dozens of scenarios. The board of Nokia left no stone unturned in figuring out the new strategy.
From that spring of 2012 until today, Nokia has undergone a remarkable strategic turnaround that is unique for such a large and historic company. Facing tough headwind, most old companies slowly but surely give in. Nokia decided to renew itself. Within a short timeframe, the company divested its mobile phone business to Microsoft, acquired the remaining half of a joint venture with Siemens, sold its mapping business, and acquired Alcatel Lucent.
In a span of about 3 years, Nokia’s enterprise value grew a stellar 20x – from €1.5bn to €30bn. Today in 2016 Nokia is defining itself as a healthy company with a strong balance sheet. It has risen to the role of one of the top 3 global players in the market for telecom equipment.
Most Nokia employees of today did not work for Nokia just a few years ago. The company has transformed itself by holding tight to its company values. The board of directors became a winning team characterized by trust, openness, intellectual debate and boldness.
The lesson is there for anyone serving on a board of directors. A board has just three key responsibilities. Each one of those responsibilities is in better hands when the board operates with trust and integrity. Trust makes it possible to question anything and make bold proposals. It doesn’t matter whether it is a startup with a few months of legacy or a large corporation with one and a half centuries of it.
The foundation of successful board work is trust. Trust is achieved through honest, genuine and respectful interaction between human beings. It’s that simple, and that difficult.