How can agile thinking be used to improve work and practices in Boards of Directors? Why is traditional budgeting limiting companies' performance? This presentation is about agile thinking in Board work and beyond budgeting. In the end of the presentation, 10 recommendations for every Chairman.

1. Agile Boards of
Directors
11.3.2015

2. 2

3. 3
Agenda
1. Board Work and Legislation
2. Budgets and Reporting
3. 12 Agile Principles for Boards
4. Chairman’s Checklist
5. Discussion

4. 4
1.
Board Work and
Legislation

5. 5
Organization of LLC
Shareholders Meeting
Supervisory Board
Board of Directors
Managing Director
Nomination
Reporting

6. 6
Stamp Board
Reporting
Sluggish Board
Participating
Board
Dictating Board
Powers of the Board
PowersoftheCEO

7. 7
”The CEO leads the
Company, the Chairman
leads the Board work.”

8. Board Duties
Companies Act
• General powers
• Controlling the Managing
Director
• Supervision of bookkeeping
and assets
Practice
• Focus on division of
responsibilities between the
Board and CEO
• Special emphasis on CEOs
with entrepreneurial
background
8

9. Decision-making
Companies Act
• Min. 1 member + deputy
• Quorum, when more than
1/2 of the members present
• Decisions made with a single
majority of votes
• All the members to be
reserved the opportunity to
attend
• Member disqualified, if
conflicts of interest
Practice
• Typically 3, 5 or 7 members
• Focus on the agenda of Board
meetings
• Sufficient but not excessive
documentation delivered well
in advance
• Prerequisite for an effective
meeting: all the members
have read all the
documentation
9

10. Meetings
Companies Act
• Meetings to be convened
when necessary
• Chairman convenes the
meeting
• Only the members and CEO
present
Practice
• Typically, Boards convene
monthly
• Half-day meetings
• Electronic Board rooms for
documents and discussion
• Also the CFO and other
necessary persons present
10

11. Minutes
Companies Act
• Minutes to be kept, signed by
the Chairman and at least 1
member
• Right to record a dissenting
opinion
• Minutes to be numbered and
stored in a reliable manner
• Minutes provide evidence on
the resolutions made
Practice
• Recommended that an
outside professional keeps
the minutes
• Signing of the minutes at the
next meeting
• In many Boards, all the
members sign the minutes
11

12. Delegation
Companies Act
• Board has the right to resolve
on issues belonging to the
general powers of the CEO
• Board has the right to
escalate issues belonging to
its powers to the
Shareholders Meeting.
Practice
• It can be good negotiation
tactics to escalate issues from
the CEO to the Board.
• The Board may limit its
liabilities by escalating issues
to the Shareholders Meeting.
12

13. 13
2.
Budgets and
Reporting

14. 14
Min. 80 % of Board Meetings for strategy and significant business issues
Max. 20 % of time for reporting

15. 15
”Budgeting Process is
the most ineffective
practice in
management. It
sucks the energy,
time, fun and big
dreams out of an
organization…In fact
when companies win,
in most cases it is
despite their budgets,
not because of them.”

16. Budgeting
Problems with traditional budgeting:
1. It takes a long time, costs too much, and consumes too many
corporate resources.
2. It’s fixed and inflexible, and can quickly become irrelevant.
3. Most companies tie executive and employee compensation
directly to performance against the budget.
The remedy: rolling forecasts
16

17. Beyond Budgeting
17
1. Bind people to a common cause; not a central plan
2. Govern through shared values and sound judgement; not detailed rules
and regulations
3. Make information open and transparent; don’t restrict and control it
4. Organize around a seamless network of accountable teams; not
centralized functions
5. Trust teams to regulate their performance; don’t micro-manage them
6. Base accountability on holistic criteria and peer reviews; not on
hierarchical relationships
7. Set ambitious medium-term goals, not short-term fixed targets
8. Base rewards on relative performance; not on meeting fixed targets
9. Make planning a continuous and inclusive process; not a top-down
annual event
10. Coordinate interactions dynamically; not through annual budgets
11. Make resources available just-in-time; not just-in-case
12. Base controls on fast, frequent feedback; not budget variances

18. 18
3.
12 Agile Principles for
Boards

19. 12 Agile Principles
SW Development
1. Our highest priority is to satisfy
the customer through early and
continuous delivery of valuable
software.
2. Welcome changing
requirements, even late in
development. Agile processes
harness change for the
customer's competitive
advantage.
3. Deliver working software
frequently, from a couple of
weeks to a couple of months,
with a preference to the shorter
timescale.
Board Work
1. Board’s highest priority is to
satisfy the company’s customers
through valuable strategy work
and nomination of an excellent
CEO.
2. Welcome changing requirements
in strategy work. Agile strategy
process harnesses change for the
company’s competitive
advantage.
3. In the strategy work, focus also
on issues that can be executed at
shorter timescale.
19

20. …12 Agile Principles
SW Development
4. Business people and developers
must work together daily
throughout the project.
5. Build projects around motivated
individuals. Give them the
environment and support they
need, and trust them to get the
job done.
6. The most efficient and effective
method of conveying
information to and within a
development team is face-to-
face conversation.
Board Work
4. Board members and operative
management must work closely
and continuously together.
5. Hire a motivated CEO and pay
attention to the management
team. Give them the
environment and support they
need, and trust them to get the
job done.
6. The most efficient and effective
method of conveying
information in Board work is
face-to-face conversation.
20

21. …12 Agile Principles
SW Development
7. Working software is the primary
measure of progress.
8. Agile processes promote
sustainable development. The
sponsors, developers, and users
should be able to maintain a
constant pace indefinitely.
9. Continuous attention to
technical excellence and good
design enhances agility.
Board Work
7. Shareholder value is the primary
measure of progress.
8. Agile Board work promotes
sustainable development. The
Board members and
management should be able to
maintain constant pace
indefinitely.
9. Continuous attention to business
performance and rolling
forecasts.
21

22. …12 Agile Principles
SW Development
10. Simplicity – the art of
maximizing the amount of work
not done – is essential.
11. The best architectures,
requirements, and designs
emerge from self-organizing
teams.
12. At regular intervals, the team
reflects on how to become more
effective, then tunes and adjusts
its behavior accordingly.
Board Work
10. Simplicity – the art of maximizing
the amount of work not done –
is essential.
11. The best strategies, practices
and resolutions emerge from
self-organizing teams.
12. At regular intervals, the Board
reflects on how to become more
effective, then tunes and adjusts
its behaviour accordingly.
22

23. 23
4.
Chairman’s Checklist

24. Chairman’s Checklist
1. Be ambitious in building a winning team. Pay
attention to diversity and personal chemistry.
2. Ensure that the Board composition is flexible and
annually renewed.
3. Actively lead the Board. And let the CEO lead the
company.
4. Carefully plan the agenda and targets for each
meeting.
5. Remember: 80 % of time for significant issues, 20 %
for reporting. At a good meeting, the time never
runs out.
24

25. Chairman’s Checklist
6. Co-operate not only with the CEO but also with the
management group.
7. Don’t waste your organization’s time for traditional
budgeting and reporting. Beyond budgeting!
8. Conduct a self-assessment at least annually.
9. From a good meeting, the CEO walks out more
energized than (s)he was when walking in.
10. Simple is beautiful.
25

26. Timo Lappi
Timo Lappi
timo.lappi@fondia.fi
@tilapit