The inability to change the corporate culture
even in the face of clear market threats.
The gales of creative destruction in global markets exert continuing and increasing pressure on CEOs to improve enterprise performance—growth, profitability, value creation and competitiveness—as the volatility, pace and scale of changes in markets accelerate in the global economy. To create sustainable value in the emerging world, enterprises must master both operational effectiveness (execution is a necessary condition) and change (creativity is a sufficient condition) to freshen businesses with new approaches, business models, products, people, and ideas to enhance and sustain performance.
Most companies cannot meet or exceed the pace and scale of market changes over time— thereby destroying value. An entirely different mindset is required to do so—emphasizing creative destruction and discontinuities—involving consciously creating new innovations and abandoning others when they are no longer economically viable and a fresh approach is called for. This presents new conditions the Board and leadership must adapt to in order to be successful going forward.
Recent research shows that institutional investors and board members are dissatisfied with both governance, executive performance and compensation. The CEO is perceived by them as being the principal barrier to making the required changes. A recent study of 476 of the world's largest corporations found that nearly half of the CEOs have been in the position for less than three years, and nearly two thirds of the corporations have hired a new CEO in the last five years. Under these conditions, Level Three thinks the winning strategy for the CEO is to embrace and lead changes in governance to reassess and adapt the Board and governance processes of an enterprise to the realities they now must confront consciously.
Given these realities, Level Three suggests the CEO consciously take on working with the Board to strengthen and broaden its capabilities to re-imagine governance and leadership providing the possibility for new and fresh approaches to proven problems and challenges while at the same time bringing about the immediate changes needed to support sustainable performance improvements. This involves reestablishing the balance between management and the board so that the former runs the company while the latter contributes to its strategic and operational development and provides the oversight needed to satisfy shareholders. At many companies this delicate equilibrium has tipped too far in favor of management. Restoring the balance involves strengthening the independence of the board and giving it clear leadership separate from management.” The second step is achieving a culture and ethos of change. This may require the CEO to accept a non-executive chairman or strong lead director. The CEO also can take the lead advocating and accommodating changing management-compensation plans and establishing performance criteria for C level executives and board members keeping in mind the overarching need for active, engaged and accountable directors and senior leaders. Finally, there is the compelling need for the CEO and board to share a new understanding of the risks companies face—the challenges of outperforming the market and the consequences of failing to do so—run and the compelling need for creating a high=performance culture withtransparent and effective communication of the principles of corporate ethics and probity in leadership affairs.
Level Three is ready, willing and able to help CEOs bring about the changes in thinking, feeling and behavior, both individually and in the corporate culture to induce and sustain the entrepreneurial spirit of the enterprise enabling the enterprise to operate developmentally according to the vision of the Board and executive management.
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