Pulling together

A coaching philosophy and its implementation are critical to building and leading a board of directors under demanding conditions.

by Stanislav Shekshnia, INSEAD
Last Updated: 23 Jul 2013

When I was offered the position of non-executive chairman of the board of Siberian Coal and Energy (SUEK), I felt I had plenty of relevant experience. I had been a CEO and executive chairman, and had sat on the boards of a number of joint ventures and public companies. The task of leading a newly created board with a majority of independent non-executive directors at a privately owned corporation seemed challenging, but manageable. It took two months and two board meetings for me to realise that my previous experience had little relevance

SUEK is the largest coal and power generation company in Russia (and the eighth largest coal producer in the world), with mining facilities in seven regions, 45,000 employees and exports to 20 countries. It was created in 2001 by two young Russian entrepreneurs through a series of acquisitions of coal-producing and power-generating assets. It had been through an initial restructuring phase, but was still a rough amalgamation of different companies, with more than 150 legal entities. The shareholders wanted to make the company a world-class operation and believed that the best way to go about this would be to introduce modern standards of corporate governance, including an independent board of directors.

I was appointed non-executive chairman in 2004. By the end of the second board meeting, it was clear that most of our challenges were of a psychological nature. I also made a surprising discovery - the job of non-executive chairman resembled that of an executive coach, especially the type of group coaching format developed by the INSEAD Global Leadership Centre (IGLC). The coaching philosophy and IGLC's specific tools not only helped me personally, but also helped build an effective and efficient board.

The first SUEK board consisted of 10 members, including the two founders of the company, who were not yet 35 years old, but had built three other multibillion dollar businesses besides SUEK; an ex-CEO of the first publicly traded Russian power-generation company; a leading Russian authority on coal; a Russian banker from an international investment bank; the CFO of a publicly traded Russian company; an ex-European Bank for Reconstruction and Development officer; SUEK's CEO; his first deputy; and the chairman.

That diversity was potentially the greatest strength of the board, but at the beginning it was a major challenge. Not only did most of the directors have little previous board experience, and therefore very different ideas about what they were expected to do, but they were all successful professionals in their respective fields. As is often the case with successful people, they felt they had discovered a magic formula for success that worked everywhere. For example, one of the directors believed strongly that the best way to get results was to stretch people, which made it very difficult for him to accept a standard budgeting approach. Another board member was a strong proponent of management by committee, and pushed this idea forcefully whenever the opportunity arose.

I was surprised, however, at the degree to which these professional and mature people let their narcissistic dispositions drive their behaviour at meetings. I watched classic psychological defensive mechanisms floating in the boardroom, such as interrupting an opponent to state one's position a second or even a third time, non-verbal irritation and even traditional Russian yelling. Two key executives were members of the board, and always supported each other, creating a tangible antagonism between executive and non-executive board members. The confrontations deepened as time went on and the board risked becoming dysfunctional.

To make the board functional, I needed to assume the role of chief facilitator and devote the lion's share of my time to that role. I defined my principal goal as creating a working environment in which every director could contribute productively to a collective effort that would be more than the sum of its parts. My experience as a CEO and chairman was of much less relevance than my three years' work as executive coach at IGLC. I had to look into my coaching toolbox to find solutions to the board problems. I needed to create a safe space where people felt comfortable and their self-esteem was not threatened.

Over the next 18 months, I used various coaching instruments, including many types of feedback exercises, active listening, 360-degree assessment tools and personal development plans. Having worked with highly successful entrepreneurs and senior executives as a coach and consultant, I knew that I could have an impact only if we could establish what I call a 'working alliance' - a relationship in which the other party had confidence in me. A working alliance is narrower than trust per se, since it is limited to a particular area, but it takes less time and fewer ingredients to build.

After the first board meeting, I asked all the directors the same set of questions: "How did I do as a chairman? What did I do well? What did I do poorly? How could I improve?" All responded positively and in turn asked about their own performance. Immediately, I had nine individual conversations going, each of them different but covering similar issues. At the next meeting, I followed the same blueprint: I listened and probed, provided feedback to each member, then moved on to talking about myself, my motivation and expectations, and closed by discussing my vision for the board.

Consecutive conversations took different formats, reflecting the characteristics of each director, their working styles, their fears and concerns. With some, my meetings sometimes turned into tutoring sessions on best practice in corporate governance from my side, and on coal production methods or power-generation technologies from theirs. Whatever the format and specific issues discussed, we always touched on the fundamentals: the board's mission, how it could be made to work and what each director's contribution should be.

After three months of intensive conversations, I achieved some tangible results. I managed to build a working alliance with almost all the directors: I became seen as a non-threatening figure with relevant knowledge and good intentions, which gave me huge leverage in conducting board meetings. Second, I developed some understanding of my colleagues, of how they operated and related to the outside world. This knowledge allowed me to adjust my style of running board meetings in very specific ways, such as providing a short summary of each position after a discussion finished, and removing a corporate secretary from the seat on my left (perceived by some directors as a threat to their status).

Individual sessions with directors prepared them for an important element in my board-building programme - the assessment of board members. Receiving and giving feedback and acting on it is rarely a part of board culture, even in developed economies. In Russia, with corporate governance still in its infancy and an old tradition of indirect talk, such a process is virtually unknown. My requests for feedback accustomed the directors to the idea that it was not a threat, but potentially interesting and useful.

These meetings prepared the ground for a large-scale discussion on what the board's role should be, how to measure its effectiveness and efficiency, what contributions the directors should make and what competencies they needed to possess. The board defined a long-term vision for SUEK and specific targets in the areas of employee health, safety and environmental protection, labour and capital productivity, innovation and community relations. We also formulated a three-year plan for SUEK to become the uncontested leader of the Russian coal industry. The modern system of corporate governance was to become the principal instrument in achieving both short and long-term visions. The board was to be a core element of the system by performing five functions:

1. Evaluating and deciding on remuneration of the top executives, along with succession planning

2. Defining company vision, goals and strategic priorities, including long-term vision and strategy, three-to-five-year strategic plans and annual budgets

3. Approving material projects, such as investments, divestitures, and mergers and acquisitions

4. Defining organisational social architecture - values, structural principles, key procedures and processes

5. Monitoring the major risks

We agreed that the board should focus (according to the IGLC's coaching philosophy of keeping the number of priorities low) on three areas: improvement of the governance system; management of the management (improving quality and performance of the top executive team through assessment, feedback, remuneration, and selection); and the development of business strategy for the next five years.

The board formulated two specific, high-stretch goals to measure the company and its progress: to move one point up in Standard & Poor's 10-point scale valuation of corporate governance within a year, and to achieve recognition for corporate governance excellence in the Russian mining industry. To make sure this was not at the cost of declining performance, we set a goal of creating positive economic value-added (EVA) for the enterprise. We were about to do something that no other private Russian company had done: build a system of corporate governance according to international standards, with the running of the company delegated to independent directors.

This allowed me to put into place a set of behavioural rules for the board that would serve as a blueprint for our board culture. Most importantly, however, it gave the opportunity to implement another important decision: to conduct a fully fledged assessment and feedback exercise. We designed assessment/feedback processes and assessment forms for the board as a whole, the chairman and the directors. Knowing how hard it is to implement 360-degree feedback with senior executives (particularly in Russia), I was not very optimistic about the outcome, but the results exceeded my expectations. The first exercise provided four main outcomes:

- In general, there was a positive assessment of the board and each individual director. My emphasis on presenting the overall picture to the board reassured its members and boosted their self-confidence.

- Following the assessment, we developed a shared vision of what we as a group were good at, and where we were merely average, where we had to take immediate action to improve and what required long-term efforts.

- This behaviour was reinforced at my individual meetings with directors, most of whom committed themselves to specific improvements and asked for support in terms of advice, specific interventions and additional resources.

- Presenting the results of my assessment, I changed tack and emphasised gaps rather than achievements. By openly discussing problems with my performance at the board meeting, I made it clear that I not only trusted my peers, but that I also valued their non-specialist opinions.

The exercise has since become a six-monthly event and has been expanded to include the board committees, their chairmen and the corporate secretary. The exercise is no longer optional and the results are taken into account when evaluating directors for reelection. One unexpected effect was a decision to stop the participation of the executive directors on the board, a move endorsed by the shareholders. It provoked discontent on the management side and required some crisis- management intervention, but proved to be a wise decision.

Four months in, the SUEK board had the fundamental building blocks of an effective governance body in place: a diverse group of professionals, an atmosphere of trust, a shared vision and a set of success criteria, three top priorities for the year, operating principles, formalised expectations for directors, and an evaluation and remuneration system. I could now concentrate on behaving like a traditional chairman - setting agendas for board meetings, ensuring preparation, leading discussions and managing decision-making.

In planning the board meetings for the year, I used an approach developed through observation and analysis of our first meeting. The board could discuss and reach consensus on one large-scale issue, approve decisions on three to five items that did not require further discussion, information on one to two new subjects that did not require a decision, and approve five to seven less important decisions. The board's productivity improved after six months and the rule was modified - two large-scale issues per meeting.

As with any system, the quality of input affects the quality of output. After a couple of meetings, we had formalised requirements for materials submitted in advance and management presentations. However, that procedure worked only after informal coaching-style meetings with the CEO and other key executives. I concentrated on ensuring that all members contributed the maximum of their knowledge. Although some were frustrated by what they felt was a sluggish process, they began to appreciate individual differences and the need to respect them in order to produce collective decisions.

The coaching philosophy and instrumentation were critical aids to building and leading a board of directors under demanding conditions. The situation at SUEK, with its freshly minted board, was atypical and required a higher than usual level of involvement. The emergence of a productive culture is the major achievement of SUEK's board. The rules are simple and allow for effective and efficient group work with minimal guidance. The culture also eases the chairman's role and allows him to spend more time as strategist and organisational architect - the roles I had in mind when I joined SUEK.

EXECUTIVE COACHING

The goal should be to establish a working relationship covering an aspect of the client's life. The coach should play a leading role in establishing this working relationship, invest significant time at the very beginning of the relationship, and open up rather than let the coaching client take the lead and then adjust to their behaviour. Sharing information about personal strengths and weaknesses, and asking for feedback will help to set the tone.

I believe that in working with time-pressed, rather narcissistic, executives, it helps if the coach has strong opinions on the important issues of the coaching partnership, such as the client's strengths and weaknesses, developmental priorities, progress made and solutions to specific challenges. The coach should express and defend their opinions without turning it into a class on public argument.

If after two to three months of relationship-building, the client does not listen to the coach, breaks the agreed norms or does not alter their behaviour, the coach should close the show. Things will not improve and the relationship will waste the coach's time, not to mention the client's money.

GROUP COACHING

Acting as a group facilitator, a coach should be proactive in building the atmosphere of trust in the group and should assume the role of active culture-builder rather than careful facilitator. Creating such an atmosphere - emphasising the need for the prevention of hidden agendas, demonstrating professional credibility, opening up, speaking about one's weaknesses, seeking feedback - will help to foster a safe space for discussion. This space will become one of the most important instruments of the coaching session, and the coach should preserve and reinforce it by exemplifying established rules and principles, and interrupting dysfunctional behaviours.

The facilitator should deal with each group member individually, while making sure that the working principles are observed by everyone. Investing time in learning about the participants' backgrounds, competencies and profiles, but most importantly their information-processing and discussion styles, pays off handsomely. Such a customised approach to organising group feedback sessions increases their effectiveness and the participants' satisfaction and motivation.

BOARD RULES

- We come to the board meetings well prepared

- We operate under an astronomic concept of time (one hour = 60 minutes = 3,600 seconds) and respect agenda and deadlines.

- We respect and encourage diversity of opinions. We discuss and criticise ideas, not the people who express them

- We speak one after another, requesting the floor by turning our name tag on its side

- We use questions actively to help the speaker present their point of view, to receive additional information, and to deepen our understanding

- We stand for the decisions the board has made, no matter what our personal position is, promote them and ensure their implementation

- We strive to improve; we help one another to grow; we use all the resources available to improve our knowledge, skills and quality of interaction

Stanislav Shekshnia is an affiliate professor of entrepreneurship at INSEAD. This is an extract from Coach and Couch: the psychology of making better leaders by Manfred Kets De Vries, Konstantin Korotov and Elizabeth Florent-Treacy, Palgrave Macmillan, £25.00.

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