Modern organisations need modern boards: Interview with Dan Teo

In times of uncertainty, agility becomes a crucial tool for organisations in the midst of reshaping themselves. As organisations adapt, there’s a pressing demand on boards to proactively keep pace and to continue to add value – no easy feat when leadership skills have been honed in a different era. Nonetheless, failing to do so risks widening the gap between real-world operations and governance, potentially undermining overall effectiveness of the organisation.  

We recently had a conversation with Dan Teo, CEO and co-founder of Radically, to unravel how modern organisations haven’t just weathered the storm of changes but embraced them. Our discussions delved into the dynamic shifts in management practices and what it takes for boards to consistently enhance their value proposition. Recognising the nuances of a ‘value adding board’ emerges as one of the top five issues for directors to focus on in 2024.

How have you observed modern organisations adapting to the evolving business landscape over the last 15 years, and what key shifts are influencing the way they operate and govern?

The business landscape has undergone four significant shifts that prompt businesses to think about the way they operate, and therefore govern. First, a surge in uncertainty has challenged traditional planning. It’s very difficult to predict and plan for three years, let alone 10. It is no longer effective to develop a strategy and then execute it in this climate.  Our modern environment creates a demand for organisational agility and an ability to be able to sense and respond.

Second, people coming to work now have different requirements, highlighting the need for a more human, diverse, and inclusive workplaces, where employees seek purpose and belonging beyond compensation. Recent research coming out of the Harvard Business Review suggests more than 90 per cent of employees are willing to trade a percentage of their lifetime earnings for greater meaning at work. That’s significant.

Third, it’s much easier now with technology to start up a competitor and take market share away from an incumbent. Businesses need to innovate to fight, to retain market-share inspiring a shift from an internal focus on ‘what we think customers want’ to an externally customer centric model.

Last, we don’t know what the future workforce will look like in 10 years but we know it’s going to be different. Organisations need to start thinking about how they build in the capability to adapt as the rapid acceleration of AI and automation transforms the workforce.

The modern organisations I have worked with are responding to these changes by embracing fundamental cultural and mind-set shifts, moving from a 'predict and control' model to one that provides constraints and empowers.

They adopt operating models that deliver end-to-end value rapidly and embrace ‘whole of organisation level’ that allows people to move at pace and adapt through clarity and structure.

Given the significant change in management practices, what are the implications for governance?

The reality is most boards today are governing organisations that look very different from the organisations that they themselves established or ran. The gap between how management works today and what management needs from their boards will become bigger if boards do not lean in and be curious about this change.

Understanding the intricate workings of modern organisations is key for effective governance. It is important to understand the shift in mechanics around how modern organisations work and the mind-set shift that organisations are going through. Directors need to be open to new ways of doing things and learning.

Many customer-focused management teams I work with shy away from certain topics with their boards because the gap in understanding between the old world and the new world is too large. They resort to “managing” the board instead. There are many cans of worms not being opened! Some even use the word “handbrake” when referring to the boards’ influence on adaptability.

I was recently working with two different organisations. One held their management team to account for the EBITDA target, while the other held the management team to account on both EBITDA and Opex. For the second firm, the additional focus on Opex created a series of unintended flow-on impacts for the management team as strategic decisions that could increase EBITDA through investment were being ignored. This is a simple example of disconnect between board and management and could be resolved through re-examining the relationship between the board and management, such that there is greater collaboration and partnering. The same ingredients that enable high-performing teams to deliver results, can benefit both boards and the relationship of the board and management as a team.

How might the adoption of an agile approach influence the overall productivity of an organisation?

Most organisations today are slow and ineffective at delivery because they are designed with functional silos. This has been very effective in a stable environment, but most organisational outcomes today require cross-functional collaboration, which is not effective when the executive and managers have conflicting goals with each other’s functions.

By unlocking the way organisations are fundamentally designed and operating and moving to a more cross-functional, horizontal design (such as value streams), organisations can become more agile and customer-focused. The benefits include significant productivity increases at a time when cost, efficiency and pace of delivery are priorities for many organisations.

What potential risks do organisations face if their boards fail to grasp the nature of changes in the business landscape and adapt accordingly?

Boards face the challenge of becoming increasingly irrelevant if they don’t adapt to these changes.

The real risk is boards simply become a place where compliance is checked off, eroding a comprehensive governance approach related to purpose, governance, accountability, alongside compliance.

As the pace of change and uncertainty intensifies, boards need to work more closely with management to guide, shape and steer the organisation. A negative outcome could lead to management teams feeling compelled to “manage the board” due to a lack of understanding how modern organisations operate and an unwillingness to undergo a mind-set change.

How would you define the concept of agility?

I think of agility in three ways: first, there’s the mechanics of the organisation and ways of working so the organisation can respond to the changing conditions and deliver well. That involves organisational design and often changes to ways of working.

The second is how to govern that type of organisation so the governance function serves the organisation effectively and adds value. That often requires a shift of mindset.

The third is how can the board embrace agility strategically, in terms of how it functions.

For a board to be agile they need to spend time together and get to know each other. That is how you build a high-performing team.

Agility at a board level is also around shifting the relationship that the board has with its management team. I see this as more frequent and deeper collaboration, but not with the mind-set of distrust and control. This necessitates acquiring new skills to balance partnership and accountability, particularly affecting the third pillar of “holding to account”.

One practice I’ve seen that has worked well is where management invites the board to the occasional quarterly planning meeting to help the board understand the organisation better. Yes, there needs to be conversations about clear ways of working between board and management, and the role of each function, but closer collaboration has the potential to add a lot of value to the whole team.

The chair's role becomes pivotal in ensuring effective collaboration and facilitating diverse views.

Boards should also be open to receiving more frequent but richer updates that are more real-time. Some modern organisations are frequently making use of video updates from management, rather than board papers, which can then be transcribed into written format if a record is required. Visual aids are often a more effective means of communication.

For boards interested in learning more about governing modern adaptive organisations, Radically offers a variety of half-day and one-day immersive workshops for boards and executive teams to better understand this topic and be at the forefront of business change.

If you would like to know more about this topic, you can contact Dan Teo at Dan@radically.co.nz or you can get in touch with the Radically team at hello@radically.co.nz 

The Governance Leadership Centre is keen to further explore how boards add value in practice. If you are a director who has experienced what it is like to transform your board’s approach and have some helpful lessons to share, we would love to hear about your experience. Contact Susan Cuthbert at glc@iod.org.nz