BOARD ROOM DYNAMICS: ENHANCING THE BOARDS PERFORMANCE ICPAK 12 th April 2013

1. BOARD ROOM DYNAMICS: ENHANCING THE BOARDS PERFORMANCEICPAK 12th April 2013 Facilitator: K.M. Murimi CEO & Team Leader

2. GROUP DYNAMICS • Group dynamics underpins the board’s ability to do all the components of its job – whether it’s compliance and monitoring or making contributions to strategy and CEO selection. Unless individual directors can gel into a working group, they simply cannot be effective. • The group dynamics can be shaped and managed by adopting practices in the following areas: JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

3. Cont…group dynamics • Rules of engagement: Directors must together define the norms of behavior required to achieve productive dialogue. • Board leadership: Boards need leaders (informal or formal) who have an innate ability to keep dialogue on track without stifling dissent, to elicit diverse views yet help the board reach consensus. JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

4. Cont…group dynamics • Executive sessions: Executive sessions provide a forum for outside directors to air issues, but if mishandled they can be enormously damaging to the board’s relationship with the CEO. • Board evaluation: A board’s self-evaluation should uncover the real issues that inhibit effectiveness. The directors should also be prepared to act on the important findings, individually and as a group. JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

5. Cont…group dynamics • Managing the unwanted director: Boards must be prepared to deal with peers who are unlikely to ever become productive members of the group, or who unnecessarily drain energy from the CEO and the board. JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

6. Information Architecture • Good group dynamics are not much use when directors lack information for a productive discussion. The bottom line: Boards need the right information in the right format at the right time. • Information architecture describes all of the ways the board gets information, whether it’s communications from management in preparation for board meetings or planned visits by directors to company sites. It specifies what kinds of information the board will get when, and in what format. JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

7. Cont…Information Architecture • Channel 1 – Board Briefing: A succinct report that captures the current state of affairs with no jargon, to prepare directors before each board meeting. • Channel 2 – Management Letter: a short topical letter or communication from the CEO that keeps directors abreast of current conditions within and outside the company between meetings. JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

8. Cont…Information Architecture • Channel 3 – Employee survey: A periodic instrument the board can request from management to monitor a specific set of issues. • Channel 4 – Director Outreach: The commitment of time to visit stores or plants, speak directly with line managers, attend conferences, and otherwise experience the business firsthand. • Channel 5 – Reports from Committees: Recommendations and relevant background information presented to the full board. JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

9. Focus on Substantive Issues “Most boards use up their meeting time on two things: one is listening to last quarter’s results, dissected in unnecessarily minute detail with very little focus on the future, and the other is watching the ‘dog and pony’ shows put on by operating people.” Too often, discussions of important matters such as strategy, succession, and external trends are squeezed in around the edges, leaving directors and CEO’s dissatisfied and opportunities to contribute unfulfilled. JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

10. The Ten Questions Every Director Should Ask Question 1: Do you have the right CEO? Question 2: How well is the CEO’s compensation linked to actual performance? Question 3: Do you have a precise understanding of the money-making recipe in the chosen strategy? Question 4: Is the management team looking at external trends and diagnosing the opportunities and the threats presented? JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

11. Cont….The Ten Questions Every Director Should Ask Question 5: What are the sources of organic growth? Question 6: How rigorous is the process for developing the leadership gene pool? Question 7: Do you have the right approach to diagnosing financial health? Question 8: Are you examining measures that capture the root causes of performance? JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

12. Cont …The Ten Questions Every Director Should Ask Question 9: Do you get bad news from management in time and unvarnished? Question 10: How productive are executive sessions? JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

13. The Twelve-Month Agenda in Practice A Twelve-Month Agenda is neither a meeting agenda nor a meeting schedule. It lists very specific, forward-looking discussion points that the board and management jointly decide must be addressed at some point in the coming year. How and when those discussions take place will be determined as the board proceeds. One board divides these into five categories to ensure… JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

14. Cont…The Twelve-Month Agenda in Practice ….that none of these overarching issues are ignored: • Compliance • Operating effectiveness • Strategy • People • Urgent concerns JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

15. Contributions That Count The board’s proper participation can make a huge, positive difference in five areas: • The right CEO and succession • CEO compensation • The right strategy • The leadership gene pool • Monitoring health, performance, and risk JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

16. Corporate transformation To achieve the vision the questions that need to be answered are: • What processes and systems are needed? • What products and services are needed? • What people, resources and competencies are needed? • How should these processes, people and resources be organized? • What should the values and culture of the organization be? • What does the organization currently look like? • How far away from the vision is the organization (gaps)?

17. DECOMPOSING THE ECONOMIC ENGINE Concept of What is our basic value proposition? “Served Market” How have we segmented the market? What kind of customers do we serve? Where are our customers? Revenue and Where is the business system do we take profit? Margin Structure Where do our margins come from? What has determined the size of our margins? What are the major cost and price drivers? Configuration of What do we believe we know how to do well? Skills and assets What physical infrastructure supports our business? What kinds of skills predominate in our company? What is the trajectory of our development spending? Flexibility and How alert are we to new value delivery models? Adaptiveness How easily could investment programs be reconfigured? Which constituencies would most resist change?

18. BOARD RESPONSIBILITIES • Review and approve management’s strategic and business plan. • Review and approve financial plans, objectives, and actions including significant capital allocations and expenditures. • Recommend director candidates for election by shareholders. • Evaluate Chair/CEO and other senior executives. • Compensate Chair/CEO and other senior executives based on performance in meeting predetermined standards and objectives. JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

19. Cont… • Review management development and succession plans. • Review procedures designed to promote compliance with laws and regulations and setting an ethical tone at the top. • Review procedures designed to promote integrity and candor in the audit of the company’s financial statements and operations, and in all financial reporting and disclosure. • Assess the effectiveness of the board’s governance practices and procedures. JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

20. Cont… Risk Management • Appraise the company’s major risks and determine that appropriate risk management and control procedures are in place. JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

21. Roles of the Chair • Leads board meetings • Builds positive working relationship with the board • Strives for constructive, effective, value-added, focused meetings • Ensures focus on the right issues and provides useful information • Keeps board informed on a timely basis of significant positives/negatives (totally open and honest) • Uses meetings and other contacts with board to tap knowledge and wisdom • Strives to make the board a competitive advantage • Provides board open access to senior management team JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

22. THE QUEST FOR COMPETIVENESS . THE QUEST FOR COMPETIVENESS RESTRUCTURING THE PORTOFOLIO AND DOWNSIZING HEADCOUNT REENGINEERING PROCESSES AND CONTINUOUS IMPROVEMENT REINVENTING INDUSTRIES AND REGENERTATING STRATEGIES SMALLER BETTER DIFFERENT

23. The Role of the CEO • Together with his/her management team, carry out the day-to-day business of the entity; • Develop and recommend to the Board for approval the long-term strategy, business plans and annual operating budgets and proper internal control systems and procedures; • Co-ordinate and prepare business-related proposals, reports and other submissions for consideration and approval by the Board; JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

24. The Role of the CEO (cont.) • Ensure that there is effective communication between the management and the Board as well as between different levels of management; • Provide leadership to employees; • Attend to HR matters including organizational structures, appointments, welfare training, industrial relations, separation and effective management and succession plans in line with the Board’s approved business plan; • Ensuring continuous achievement of the entity’s financial and operational goals and objectives; JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

25. The Role of the CEO (cont.) • Overseeing and ensuring implementation of policies and programmes; • Maintaining a conducive work environment for attracting, retaining and motivating employees; • Fostering a corporate culture that promotes ethical practices and good corporate citizenship; • Acting as the principal spokesperson of the entity; • Ensuring compliance with the laws of the country, and • Any other responsibilities as may be necessary to achieve the entity’s objectives. JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

26. Strategic Asset Board Characteristics of the “Strategic Asset” Board Strategic asset boards can add tremendous value to a company. Just what is a strategic asset board? Perhaps most basically, it is a board that avoids the harm done by less stellar boards: “negative impact” boards that drain management energy, “no impact” boards that merely rubberstamp management initiatives, and “basic monitoring”…. JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

27. …boards that oversee management in merely mechanical ways-driven more by process than substance. More importantly, a strategic asset board creates value. The hallmarks are present when directors: • Know and understand the company’s business and competition • Provide “intellectual capital,” including performance-enhancing ideas, networking, and strong support for corporate best practices JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

28. Establish high, realistic standards, as well as ambitious, measurable and carefully articulated goals for senior management • Enhance decision making by bringing knowledge, rigorous analyses, and constructive engagement to the process • Energize the leadership team by empowering and holding management accountable and responsible for operating within a high-performance framework • Work to help attract top leadership team talent • Become constructively engaged in strategic issues through both attention and involvement, and • Creatively link management compensation to the creation and enhancement of shareholder value in order to reward outstanding performance. JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

29. This list is far complete. Strategic asset directors, for instance, also commonly show a keen awareness that board meetings must be productive-and they work at it-in order to maintain a high level of corporate governance. As a result, board meetings not only are more challenging but also are more exciting and enjoyable than they otherwise might be. Equally important, strategic asset boards pay close attention to and involve themselves in strategic issues. This means that they typically stay constructively engaged in helping to develop corporate strategy and challenging management’s strategic planning assumptions. JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

30. The Business Balanced Scorecard FINANCIAL PERSPECTIVE ‘ How do you look to your stakeholders?’ . VISION ORGANISATION LEARNING ‘Are you able to sustain innovation, change and improvement?’ CUSTOMER PERSPECTIVE ‘How do you look to your customers?’ BUSINESS PROCESS ‘How effective are key business processes?’ JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

31. Using the Business Balanced Scorecard (example) • Financial Perspective • Market Share • Product, customer and channel profitability • Growth in share per country • Differential in share between each unit and next best rival • Cost-income ratio • Direct v support headcount . • Customer Perspective • Customer response time • Number of customer complaints • Repeat business percentage • Response rate to marketing • Retention rate • Organizational learning/innovation • New products representing >10% of sales • New customers representing >10% of sales • New technology introduced successfully • Contribution to market share and profits from acquisitions VISION To be the market leader • Process Performance • Staff Productivity • Volume of business processed per person • Error rate • Cross-sales • Utilization of process by other products

32. Simplified Strategic and business planning model Current business direction . Baseline strengths and weaknesses Knowledge Opportunities and threats Review and evaluate Formulate future business direction Strategy Decide business change programme Plan Business plan JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

33. Implement new business designs The effort required to implement depends on the degree of change to be introduced, and therefore the work to be undertaken in this stage cannot be prescribed. However, the potential implications of implementation, which should not be underestimated, include: • Large-scale redundancies, including delayering of management as well as elimination of redundant activities • Outsourcing activities that are not strategic and not a core competence and for which there exists and efficient external market JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

34. Cont… • Organizational change from changing functional boundaries, responsibilities and groupings • Senior management change, including the replacement of some senior managers • Change from dominance of functional vertical hierarchy to horizontal management in some key business processes • Development of new competencies and capabilities including retraining of large sections of the organization in new methods, working practices and skills. JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

35. Cont… • Implementation of systems to enable the performance improvement. The implementation programme has the following elements: • Specifying and managing the human dimension of the change, and • Specifying and managing the individual ‘physical’ change projects to achieve the process redesigns – the success criteria have already been defined and implementation success should be measured on the basis of achieving these criteria. JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

36. KNOW • Your goals minus your doubts, equal your reality. Ralph Marston • To realise our goals, we must first imagine them fully. Siew Hwa Beh • A clear vision, backed by definite plans, gives you a tremendous feeling of confidence and personal power. Brian Tracy • Take the pains required to become what you want to become, or you might end up becoming something you’d rather not be. That is also a daily discipline and worth considering. Donald Trump JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

37. QUESTIONS AN EFFECTIVE TEAM ASKS? Here are a few questions you might want to ask yourself: • Have we let others define customer expectations? • Do competitors see us more as rule takers than rule breakers? • Has our strategy changed in some important way in the last two years (two months for internet companies)? • Has there been any erosion of our price premium or cost advantage? • Has it been getting more difficult to attract world-class talent? JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com

38. DIRECTOR – MURIMI SAYS THANK YOU Discuss (Strategic Issues) Internalize (Key Performance Indicators) Results (Strategic Substantive Issues) Evaluate (Performance Targets) Conclusions (Right Path) Transform (Good is great) Objectives (New to transform) Realistically (Next quarter to Do’s) JMG STRATEGY INNOVATIONS LTD Email:engage@jmgstrategyinnovations.com