I met Ram Charan years after he left my alma mater, Northwestern University’s Kellogg School of Management, and embarked on his global trek to counsel business leaders. I immediately appreciated his unique ability to communicate strategic and practical wisdom — developed over years of studying and teaching management — in a way that made sense and could be applied in my business. His gentle nudges, and his use of the Socratic Method, made me think more expansively about situations and opportunities. Reading Owning Up is like conversing with Ram. In the excerpt you are about to read, he explains how to raise the “altitude” of any discussion in a nonthreatening matter. Meetings need not be tedious or boring. And at a time when they are bombarded with data and struggle to convert it into actionable information, executives can adopt Ram’s advice to board members in order to communicate more persuasively as they seek to protect their companies or find new growth avenues. The ability to use questions to illuminate vital issues and avoid micromanaging is a particularly valuable skill in these regards.
— Blythe McGarvie
Excerpted from chapter 13 of Owning Up: The 14 Questions Every Board Member Needs to Ask
The difference between micromanaging and appropriate questioning is not always a bright line. What really defines micromanaging is not whether a director is digging into details. It’s really a question of which details and for what purpose. Is the director making a small point, like nit-picking expenses? Or is the director drilling down into details that help reveal a higher-level issue — detecting a structural change, getting at the root cause of a problem, or questioning the effectiveness of a process?
Asking questions of an operating nature is not in itself micromanaging, as long as the questions lead to insights about issues like strategy, performance, major investment decisions, key personnel, the choice of goals, or risk assessment. Probing a decline in gross margins, for example, can easily be seen as nitpicky in some circumstances. But in industries like office supplies or personal computers, where gross margins have taken a beating over the last ten years, directors might be trying to discern whether the decline is symptomatic of a fundamental shift in the industry and therefore whether the strategy has become obsolete. The key lies in the analytics of working backward to link the operating details with strategic issues.
For a mobile phone operator, subscriber churn rate is an operating detail with very strategic importance. The board of a telecommunications company that approves a multibillion-dollar project to lay new cable has a stake in knowing how the implementation is going. The project’s success might depend heavily on assumptions management made about attracting and retaining targeted high-revenue customers. The board will want to dig into details about how many customers are willing to pay a premium for voice, video, and text combined. Are a sufficient number of customers coming on line on schedule? What percentage is staying with the company? What is the monthly churn, or turnover, in customers and what is the average customer bill? These operational details are an important lens for tracking the execution of the strategy and gauging whether it is working. These items materially affect the business going forward.
When a director picks up on a small point and challenges it for the sake of showing who is right or what could have been done differently, or when a director attempts to make a decision about operations, or individual people, it’s fair to say that person is micromanaging. This typically happens in the area of the director’s expertise and is driven by a personal need to demonstrate superior subject knowledge.
How a line of questioning is worded can also indicate whether a director is micromanaging. The difference lies in how the CEO could respond. Does the inquiry put the CEO in a box, as opposed to shedding light on a subject and opening the door for a richer discussion? Let me give you an example. In the middle of 2007, most boards across the globe were keen to learn how management was responding to the steep rise in commodity prices and the impact on margins. Many boards debated the potential impact on margins and what could or could not be passed on to customers. That was a vital discussion to have. Directors who had to increase prices at some point in their careers know how difficult it is to sit face to face with a customer when the management had not increased prices for ten years.
A micromanaging director might initiate the discussion of pricing by lecturing on her personal experience in dealing with a price increase, implying that the CEO lacks the courage to address the issue and that he should do exactly as the director has done. The implication is that management can do it if it has the will.
A different approach to the topic is to say, “I’m curious about several aspects of inflation and our pricing strategy. What is our process of adjusting prices as inflationary conditions change? How are decisions initiated? Who gets involved and with what tools? What training is being given to people who are looking at pricing and to the sales force that brings it all home? Are the regional sales managers buying into it?” This lets management explain what the company is doing and what alternatives it has considered, an explanation that might include things the director didn’t think of, like issuing a press release.
The director could then ask, “What benchmarking are you doing to improve pricing processes and reduce our exposure to margin compression? Are there any strategic implications that the board needs to learn about?” In that way, the director opens the door to several possibilities without insisting on his pet course of action. It opens the door for other directors to join the discussion. This kind of questioning becomes an imperative when the company is highly leveraged and commodities prices increase several times in a year. It gives directors insight into whether the company has the organizational mechanisms to move and is not awaiting orders from the top.
The difference in approach has a profound impact on the boardroom dynamic. Asking questions at the right altitude, with the right tone, and about the right things refocuses management’s attention while respecting the CEO’s decision-making authority. It is, after all, management’s job to deal with the margin compression and decide on its pricing practices, not the board’s. The board is there to make sure management has a plan and that it is executing that plan.
— Ram Charan
Reprinted by permission of the publisher, John Wiley & Sons Inc., from Owning Up: The 14 Questions Every Board Member Needs to Ask by Ram Charan. Copyright (c) 2009 by John Wiley & Sons Inc. All rights reserved.