The Tanzanian and Ugandan economies have been growing at a brisk pace for five years or more. Kenya, long in the economic doldrums, is showing signs of an ever-so-gentle upturn (shhhh…don’t frighten it). CEOs around the region are bracing themselves for a period of growth. It’s an exhilarating feeling – to be focusing on growing the top line rather than worrying incessantly about costs. Growth is an imperative – after all, how much cost slashing can you really do? But wait: the search for growth may throw up dragons. Proceed with care.

Companies enjoying consistent growth in revenues are rarer than you might think. Consider the growth records of leading East African firms, and you might be hard put to find more than a dozen or so that have enjoyed double-digit sales growth for a decade or more. Why so? Some estimates suggest that up to 75 per cent of growth initiatives go wrong. Growth involves moving into uncharted territory – new markets, new products, new distribution channels. There is an inherent uncertainty surrounding every growth initiative.

The old ways of growing have lost steam. Once upon a time, companies looking for growth had only to do one of three things: acquire other companies; move into new geographical territories; or simply raise prices. All three methods have lost their shine. Acquisitions often throw up more problems than meaningful growth – the pain involved in aligning workforces, matching cultures and value systems is very real. Managers of the acquiring company usually find that the first two or three years are spent in the messy job of rightsizing and in retraining staff used to doing things a different way.

International growth? Great idea, but you need access to untapped, low-risk markets to be sure of your growth numbers. Most untapped markets are that way for a very good reason – look at the Democratic Republic of Congo. Apart from unacceptable risk profiles, many of our neighbouring countries simply do not have the strength in purchasing power to make an incursion worthwhile.

And ramping up prices? East African companies have done that one to death. Indeed, many have raised prices to the point where the bottom has fallen out of their markets – a whole segment of low-income customers have migrated to cheaper and less desirable brands, simply out of economic necessity. Raising prices further can only accelerate this process – and cause your low-cost competitors to rub their hands with glee.

So, as you sit there mulling over your company’s growth plans: what is to be done? The first thing to remember is that you may be sitting on the answer. Adrian Slywotzky and Richard Wise, consultants with Mercer Management Consulting, suggest that before venturing out into any kind of growth initiative, you must take a hard look at your company’s hidden assets – the intangible, under-utilised capabilities that you may already possess.

Do you have an enviable reputation and position of authority with your key customers? If so, have you considered meeting their higher-order needs? If you sell them advertising, you could offer to undertake value-added marketing. If you sell them IT services, you could pitch to take over the entire IT function via a new outsourcing venture. If you sell lawnmowers, move up into landscape gardening. It all depends on the strength of your brand relationship. If it’s strong enough, you can take it into relatively low-risk related services. Your customer base is the first asset to consider.

For example, General Motors decided to take advantage of its installed base of 80 million vehicles in the US – by offering a suite of in-vehicle services. GM’s ‘Onstar’ service offers electronic route planning, emergency response and traffic information services to GM vehicle owners – and the new service already has 2 million subscribers.

There may also be a different class of assets to exploit: those based on information. If you are a pharmacy chain, for example, you have access to a rich seam of information about consumer buying patterns and trends. With the right IT data-mining tools, you could glean insights about customer segments and future buying patterns that would be of great interest to pharmaceutical producers. It would help these producers to reduce the risk of new product introductions and to focus their marketing budgets more effectively. The trick is to package the information and sell it to them.

So the answer to the growth question may well be under your nose. But having taken a hard look at these hidden assets, you may still decide to venture into new territory. If your company is making the leap into the unknown, remember to carry a parachute. Chris Zook, a consultant with Bain & Company, estimates that three-quarters of the top business disasters of recent years involved growth initiatives that went horribly wrong. Swissair, for example, was once an airline much loved by Kenyans and renowned for its efficiency and punctuality. However, in the mid-1990s it attempted a very ambitious growth strategy involving simultaneously buying into regional airlines and moving into services such as catering and aircraft maintenance. It soon found itself in enormous debt and ended up firing most of its management and board as it plummeted towards bankruptcy.

Mr. Zook recommends a systematic approach to growth: set a simple formula, and keep repeating it if it works. In particular, do nothing to harm your core business, and focus on only one major growth initiative at a time. If you are extending your product range, for example, do not attempt simultaneously to move into new country markets. Learn one lesson at a time, just like they taught you in school.

A foremost example of a company with a successful growth formula comes, perhaps surprisingly, from West Africa. Olam is a global agricultural raw materials supplier founded by Sunny Verhese in 1989. Today it enjoys annual revenues of US$ 1.3 billion – which makes it three to four times bigger than East Africa’s largest companies. It has managed to keep growing this revenue at nearly 30 per cent per annum, while achieving an annual return on capital of 35 per cent. All of this growth has been organic, and all of it has followed a specific formula. The Olam story is worth recounting.

Olam was founded as an agricultural intermediary – connecting cashew nut farmers in Nigeria to big international confectioners such as Nestle and Sara Lee. Its source of competitive advantage was to create unique financial hedging vehicles for these buyers, to reduce the risk inherent in the international commodity trade. This advantage saw it enjoy some early success, and soon Olam was poised for growth. But this growth followed a strict pattern.

First, Olam moved into new geographies, from Nigeria to other neighbouring West African countries – but stuck to just one product, cashew nuts. Having successfully established the cashew nut business across these countries, its next move was to expand into different commodities (coffee and cocoa) – but keeping to the countries it already had a presence in. Thirdly, it moved upstream along the value chain, to shelling and blanching of cashew nuts – but made sure that this experiment was confined to cashew nuts alone.

Olam has repeated this growth formula many, many times in its short history. This pattern of repeatability has seen it establish itself in several commodities in thirty-five countries – but always one step at a time. It sticks religiously to the formula of only playing with one growth variable at a time. It will never attempt to take on more than one category of risk at one time. The results speak for themselves.

Growth is inherently chaotic. As you steer your company into the turbulent skies of new products, new territories, new channels and new businesses, pay heed to the Olam story. Learn the dance of growth one step at a time.

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Once upon a time, an East African corporation of substance had precisely that: plenty of physical substance. A major company would own, amongst other things: a resplendent corporate headquarters, complete with flags, statues and fountains; huge manufacturing or assembly plants; conference and training centres; vast fleets of vehicles; clinics and medical centres; kitchens and restaurants; and even sports pavilions and pitches. To maintain these facilities, the company would run armies of cleaners, guards, caretakers, mechanics, messengers, nurses and attendants.

That was the era of ‘insourcing’ – when the size of a company’s assets and its workforce were reflective of its success and stature in the market, and when most, if not all, activities were kept in-house, under a very expansive corporate umbrella. That, of course, was then. Today companies are judged on return on assets and capital invested, and on revenue per employee. All the denominators in those ratios must therefore be kept to the bare minimum. Today’s companies are ‘asset-lite’ and ‘employee-lite’: they ‘stick to the knitting’ and outsource everything else.

If you visit any of the region’s leading companies today, you are likely to find only a minimalist company HQ and a lean production facility, staffed by as few employees as possible who use cutting-edge technology to aid them in their work processes. You will also notice something else: that the company still has cleaners, guards and messengers around – it just doesn’t employ them. That work is given out to specialist firms: couriers, security providers, caterers, fleet managers and cleaning and sanitation experts. This situation suits everyone – the company sheds staff and assets and gets access to people who do the job better; the service providers enjoy booming demand and can employ the best people in their area of expertise.

The idea is sound: that a company focuses on its ‘core competencies’ – the skills and capabilities where it enjoys competitive leadership and provides unique value to its customers – and outsources every other activity. In this way, the theory goes, a company can build a business model around what it does best. It is allowed to focus its financial and managerial resources on very specific, mission-critical activities. It reduces costs by passing out work to other firms. Those firms in turn build competencies around what they are good at doing. Everyone wins.

But outsourcing today is going even further. Nike is the world’s largest supplier of athletic shoes, but it doesn’t actually make any shoes – that work is farmed out to manufacturers and assemblers around the world. Nike focuses its activities on research and development, and on marketing and distribution. Coca-Cola, the world’s best-known brand throughout the last century, is essentially a marketing company – other people own most of the physical bottling plants. Or take that gadget in your pocket, the ubiquitous mobile phone: no matter what brand you carry, the chances are it is made by one of only two contract manufacturers in the world.

What exactly is part of the ‘sacred core’ of a company these days? Manufacturing? No, contract manufacturers are all the rage. Distribution? No, fulfilment specialists and logistics firms can distribute anything you want. Customer service? Call centres operated by third parties and wired up to your customer data can take that off your hands – and they don’t even have to be in the same country to do it. Payroll and other regular payments? Just talk to your bank. Managing your human-resource systems? That’s being farmed out en masse in the West.

Outsourcing has gone far beyond cleaning and guarding, to areas once thought to be at the very heart of a company, like research, design, logistics and even financial planning. And it will go further still. For East African business leaders, this is a wind that’s building out at sea, and it’s heading your way. Today, we may only have critical mass in the supply of a few activities: delivery, security etc. Outsourcing is a no-brainer in those areas. We have yet to see the emergence of local data processors, process managers and call-centre operators. I believe that in the next 1 to 3 years, those types of service providers will be flocking around your business.

So be prepared to consider a fundamental question that will induce much soul-searching and introspection: what exactly is your core business, and why? How much will you farm out, and what will you retain within? Where exactly are the boundaries of your company?

Outsourcing can, of course, go horribly wrong. There are lessons to learn from those who have been there before and found themselves face-down in the mud. One critical lesson: what is core today, can be non-core tomorrow, and back to core the day after. Take airport security. Up to 8 September 2001, that would be a non-core activity handled by outside firms. From September 9, it reverted to being a core activity provided by the government of every affected nation, for obvious reasons. So it pays to be flexible and open-minded as you embark on the outsourcing journey – there may be many twists and u-turns ahead.

Equally, many companies have found that they spend all their time micro-managing myriad suppliers, negotiating deals and struggling to maintain quality standards. Many will tell you that once an activity leaves your four walls, control goes with it and you expose yourself to unacceptable risks in terms of unfulfilled orders, angry customers and time lost.

The best advice is to look beyond mere cost cutting and choose your new service providers as long-term partners. Cheapest is rarely best in the outsourcing game, and a standard bidding or tendering process is unlikely to yield the right results. As outsourcing comes ever closer to your strategic core, it requires more and more attention at CEO level. In short, not something to leave to the accountants. You are likely to need to experiment and get things wrong before you get them right. And as with most things, reputation, credibility and track record are the things to look out for in a service provider.

When done well, outsourcing can be an integral part of a strategic transformation. By the early 1990s, IBM was a limping giant, a company whose strategic ground had shifted beneath its feet. Outsourcing became a critical part of its turnaround. It spun off what was once considered hallowed ground in IBM: its hardware and components manufacturing. Its core was redefined to be e-business services and technology solutions – not supply of computer boxes, where it had long ceded competitive leadership. Its entire supply chain was reconstructed, and its acquisitions thereafter all supported its new ‘services and solutions’ focus. It is today in effect a different company, whose return on invested capital moved from -5.7 per cent in 1993 to over 15 per cent by 2000.

As strategic outsourcing looms large on the East African corporate horizon, we should also bear in mind that there is further gold to be had. If call centres and data-processing firms take off here the way they have in India and the Philippines, they could help alleviate a major social headache. Unemployment in our countries is essentially an urban phenomenon, involving relatively well-schooled, English-speaking youngsters with a low skills and experience base. That is precisely the employee segment most attractive to many outsourcing companies. If the outsourcing sector can throw up a few world-class local firms that cater for pan-African companies and beyond, they may do what endless government promises never can – provide meaningful urban employment.

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This is the era of good corporate citizenship. As governments are rolled back all over the world, big corporations are rushing in to fill the void. Business is now the principal engine of growth and development the world over, and society demands that corporations contribute to the social, environmental and economic goals of the communities in which they operate. There is a widely accepted term for such activities: corporate social responsibility (CSR).

In East Africa, the CSR wave has hit the beach. Corporate dollars are funding everything from clean water to reforestation to university scholarships. Two regional giants, East African Breweries and British American Tobacco, have launched public corporate citizenship reports in recent weeks. Most large companies in the region have systematic CSR programmes and are falling over themselves to publicise them.

Why all the sudden largesse? Is this all a public relations game, or is there something more meaningful going on? Charles Handy, a widely respected management thinker, thinks that it is all a sign that “fundamentalist capitalism” has lost its sheen – that the supremacy of the shareholder and the dogma of the bottom line are in decline. The purpose of a business, he says, “is not just to make a profit, full stop. It is to make a profit so that the business can do something more or better.”

Sir John Browne, CEO of BP, articulated this further: he postulated that the business community is essential to delivering sustainable development, because only business can produce the technological innovations and the deliver the means for genuine progress. Businesses are long-term entities and need a sustainable planet for their own survival.

As corporations assume this new central role in society, their programmes aimed at community welfare and environmental protection can only be seen as a good thing. Or can they?

There are two objections to CSR: an old one and a new one. The old one dates back to 1970, when the right-wing economist Milton Friedman stated, famously, that “the business of business is business.” When directors, managers and employees give away the funds of the business, they are being charitable with money that does not belong to them. That money belongs to shareholders; let them play Santa Claus.

Forty years later a new objection is taking shape amongst NGOs and activist groups: That CSR is at best a sham, no more than window dressing. It is a branch of public relations, or a small part of the advertising budget. At worst it is a mask that hides the true face of corporations. By this reckoning, big businesses often have a devastating effect on the communities in which they operate, particularly in the developing world. They pollute water sources, exploit vulnerable labourers and corrupt governments. CSR, it is being claimed, is a wholly inadequate response to the harm done by large companies. Only legislation and binding regulations can shackle rampaging corporations.

How does a progressive firm respond to charges such as these? How does a CEO structure a CSR programme that goes beyond getting his picture in the papers?

Countering Mr. Friedman is not too difficult. The answer lies in the words “give away”. Today’s executives would argue that they are not giving away shareholders’ funds; they are in fact increasing their value. In today’s knowledge economy, a company’s value lies in its intangible assets: in its intellectual property and in the skills and experience of its workforce. And top of the intangible assets list is the company’s reputation. To build and maintain this reputation, a company has to actively manage the expectations of multiple stakeholders. Many studies show that companies that vigorously manage their stakeholders and nurture their reputations enjoy above-average returns.

Yet CSR must do more than pay lip service to a few pesky hecklers. To succeed, a CSR programme must become an integral and crucial part of the company’s activities. Like every major investment, it must be managed a strategic level – not by junior managers. And it must be driven by the values and principles that the company holds dear.

One such principle, advocated by Mr. Handy, concerns the taking of an ‘oath’. Companies, like doctors, should undertake to do no harm. They should voluntarily bind themselves to the equivalent of the ancient Hippocratic oath. Doing no harm means going beyond minimum legal requirements; it means taking the lead in environmental and social sustainability. It means pushing the curve out. It means becoming the agent of progress, not the despoiler who must be reined in.

Principle-driven CSR requires strategic energy. One of the major problems with the first wave of CSR initiatives was that they were whimsical – driven by the fancies (and egos) of CEOs and directors. This threatened their sustainability – new directors would often terminate their predecessors’ programmes as unnecessary. To avoid this problem, CSR must become embedded in the company’s strategy – and for all the right reasons.

Michael Porter, a Harvard University professor and renowned management guru, says that companies must focus their philanthropy to improve their own competitive context – the business environments in which they operate. CSR programmes can be used to sharpen a company’s own competitive edge – in addition to doing good to society at large.

How can this be done? Take American Express. It depends on travel-related spending for much of its credit-card revenues. So it has funded academies in 10 countries aimed at training students for careers in travel agencies, airlines and hotels. Local citizens gain jobs; AmEx makes visionary investments in its own industry.

Transparency International tackles corruption around the world. Corruption is a punitive cost of business for many global corporations; so 64 such companies sponsor TI’s activities worldwide. Again, the benefits are shared: local citizens are released from the withering grip of corruption; the corporations gain untroubled access to new markets.

East African corporations are learning to design these sorts of ‘win-win’ CSR initiatives locally. EABL, for example, works collaboratively with its suppliers to ensure sustained availability of inputs. It underwrites bank finance and provides training in good farming practice to barley farmers. It also recognises that clean water is not only essential for the well being of the communities in which it operates; it is also a key raw material for the brewing process. So it has invested in several ‘Water of Life’ programmes to ensure safe local water supply around its key operating locations.

To implant CSR in the work of the company, it has to become part of strategic management. DHL’s global head personally supervises its corporate citizenship policies, and leads a team that develops DHL ‘CSR champions’ throughout the organisation, at all levels. The aim? To implant social responsibility into the culture of the company, and to ensure that all staff participate in the development of sustainable programmes.

CSR programmes that meet business goals whilst simultaneously improving the lives of stakeholders are the way of the future. They will be sustained because they are not just acts of charity; they are core investments made by the company in its own future as a business. This is the challenge that modern CSR throws out to the forward-looking CEO: how to take good citizenship away from the flashing cameras and fleeting fame of public relations, and into the very heart of the company.

Let me end with the words of Mr Handy: “(Business) is, in itself, a noble cause. It helps make the good things of life available and affordable to ever more people. We should make more of it. We should…measure success in terms of outcomes for others as well as for ourselves.”

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You lead a large, long-established, obviously successful East African company. It is a veritable behemoth, looming large over the corporate landscape. Its products are household names, loved by consumers. It is a profit machine, churning out handsome dividends to smiling shareholders. There is every reason to feel confident about the future.

Allow me to send some strong whiffs of coffee in your direction: wake up; you could be extinct within five years!

East Africa’s corporate sector is staring at a whirlwind of violent change, make no mistake. And when we reap this whirlwind, there will be a number of famous casualties left by the wayside. We can expect unprecedented volatility in earnings and protracted profit slumps for all but the best companies.

Why? Because we’ve had our heads in the sand for far too long, and retribution is on its way. Many of our famous corporations have ignored the need to computerise their operations – but their competitors, both here and abroad, haven’t. These companies persist with manual, paper-based processes, while those that will bring them down obtain real-time information at a mouse-click. Others are still treating their workers as beasts of burden – ferried to work in trucks, minimised on the profit and loss account. Their future rivals are regarding employees as part of their capital and a source of competitive advantage.

Major political and regulatory change is around the corner. Donors are linking aid flows to changes in legislation, aimed at freeing up markets and getting the state out of private business. The word ‘monopoly’, which kept our businesses unnaturally robust and our CEOs unnaturally somnolent for so long, has become a term of derision. Citizens are no longer the goats we used to shepherd into polling booths to vote as directed, and will agitate for economic development as never before. Customs treaties are in flux throughout the region, and trading blocs will take shape and dissolve before our eyes over the coming years. We will soon be engaged in hand-to-hand market combat, not just with our fellow Kenyans, Ugandans and Tanzanians, but with South African, Egyptian, Indian, Middle Eastern and Chinese firms. What has been a trickle could soon become a flood.

To cap it all, our consumers will no longer stand for any nonsense in product or service quality. They have tolerated shoddy goods, defective parts and sullen service for decades. As our middle class grows, travels the world and consumes world-class products, it will place its wallet where the quality is. As our prodigal sons and daughters in Diaspora return to these shores, they will infect the consumer population with tales of how things are done elsewhere – and will carry with them the expertise to make it happen here.

If you are a business leader who cannot see these forces at play, it can only be because there is sand in your eyes. You think I exaggerate? Cast your eyes across the oceans. Coca-Cola, the unchallenged world leader in soft drinks for as long as any of us can remember, is reeling from a simple change in customer tastes. As people get better off and more knowledgeable, they just don’t like the idea of sugary carbonated drinks any more – no matter how much trendy advertising you throw at them. The company that has thrived for a century on the basis of its much-protected cola recipe now requires reinvention.

Or take Microsoft, the world’s most dominant company for the past 20 years or so. You would think Microsoft’s leaders could afford to take it easy. Not so. “We are always two years from irrelevance”, Bill Gates is reportedly fond of telling his managers. And he is right. The company currently faces a relentless onslaught from Linux, the open-source operating system that is providing a cheaper and more flexible alternative to customers around the globe.

And therein lies the answer to the problem. Gary Hamel, a leading management thinker, says that companies have to learn resilience – the ability to recover from the shocks and stresses of an ever-changing business landscape. Crucially, however, resilience is not about repeating the formulas that led to previous successes – it is about being willing to shed them. Resilience is about dynamically reinventing business models and strategies as circumstances change. It is not about “rebounds” or even “turnarounds” (Mr. Hamel memorably refers to a turnaround as “a transformation tragically delayed”). It is about having the ability to anticipate changes and movements. It is about having the capacity to change even before the need for change is obvious.

How do you instil such abilities and capacities in your successful company? The first step is to ensure that all your senior managers accept reinvention as a fact of life. Consider any of the consistently successful companies in East Africa, and you will see a record of reinvention. East African Breweries Limited was a traditional monopolistic brewer as recently as ten years ago, with a large portfolio of physical assets and a huge workforce. It then embarked on a journey of questioning all the fundamentals of its business, and began to shed assumptions and sacred cows in equal measure. It discarded idle assets, revamped all its key processes, and gained formidable strength in marketing. This dramatic streamlining saw it face the two most daunting challenges in its recent history – the arrival of SAB/Castle, and the seismic shift in consumer tastes and drinking patterns – with aplomb. Today, it is an extremely fit business, generating KShs 28 billion (USD 350 million) in annual turnover from just 1,100 employees.

Nation Media Group, with its “Nation” brand, has dominated the East African newspaper market for decades. Yet it saw the seeds of destruction in this very dominance years ago – and set out to do something about it. Today it is a diversified, multi-territory media house – with a stable of radio and TV stations, a variety of newspapers, publishing and courier businesses, and one of Africa’s most popular websites. As competition intensifies in a once-quiet media industry, NMG is able to lead from the front.

Strategies decay. The first step in building strategic resilience is to recognise and embrace this fact. Using the successful strategies of yesteryear is almost certainly a the path to an early corporate grave. Where will fundamental change hit your company? Being able to ‘see’ the change on the horizon requires many things. It means you have to be at the places where change happens first – like the Internet, or where the young hang out. It means talking regularly to the customers who don’t buy from you. It means listening with a keen year to the activists who may assail your company.

It also means having the will to experiment, continuously. Resilient companies encourage innovation and reward it. They listen to what may sound like highly debatable propositions. As Mr. Hamel puts it, they “launch swarms of low-risk experiments” – and hope that one or two may provide tomorrow’s outsize successes.

The companies that thrive and survive move resources quickly and efficiently. They recognise that legacy strategies have large constituencies of vested interest -and dismantle them ruthlessly. They earmark a proportion of their capital budgets to innovative projects – and are willing to lose money on them.

Ultimately, resilience is a function of diversity. Biological diversity underwrites our planet’s survival, and Mr Hamel points out that our companies are no different. We have to encourage diversity in our ranks – diversity in race, tribe, age, background, experience and skills. Anticipating the future demands the ability to listen to many voices simultaneously – and hear the winning idea that may emerge.

Building strategic resilience is an act of courage. Successful CEOs need to have the guts to dismantle the very strategies that led to their success in the first place. By the time external forces start to drive change in the company, it’s usually too late. The impetus that matters can only come from within.

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The new management series by Sunny Bindra continues. This week: Part 2 of an article on corporate governance arguing that in redesigning the board of directors, we need to throw tradition out of the window.

The traditional board of directors has had its day. The original concept was elegantly simple and eminently successful. It belonged to an era where a group of wise men could take an occasional and, of necessity, superficial interest in a business and still guide its development. It was conceived at a time when managers could be trusted to align their decision-making with the interests of shareholders. It was nurtured during an age in which the incentives to commit fraud and larceny were not as huge as they are today. And it saw its golden years during the time of predictable change and stable profits.

Today, the need for change is recognised across the world. But the recommendations for reform appear to believe that the basic idea is fine; all that is needed is a layer of good conduct enforced by codes of behaviour. Reform also focuses on putting in more and more ‘independent’ directors on the board – those who have no material interest in the company other than the directorship, and who can therefore be trusted to exercise independent judgement. Laws are coming into place in many countries to ensure that better behaviour is not just left to voluntary mechanisms.

To understand why these reforms are not enough, we need to take a look at the fundamental functions of the board of directors. Governance expert Bob Tricker thinks there are two types of role involved in ‘directing’. The first concerns providing supervision of executives and ensuring accountability to shareholders – conformance. The second is about setting strategic direction and policymaking – performance.

Most of the reforms being suggested across the world are focused on the conformance part of the spectrum. The reforms are driven by the worrying ease with which executives seem willing to play games with shareholders’ assets, as well as by the numerous scandals involving outright theft of shareholders’ funds. That is all well and good, and there is no doubt that executive excess must reigned in. But it still leaves us with a basic question: who’s worrying about the performance side of the equation?

Independence comes at a cost. If directors have no other relationship with the company, one thing is certain: they’ll have a lot to learn about the business, its customers and the strategic forces at play in its industry. Their role as watchdogs may be strengthened, but their role in providing strategic guidance is invariably weaker. Independent directors have other demands on their time. How much time can they devote to understanding the strategic complexities of any one company?

Two specialists, Prof. Jay Lorsch of Harvard Business School, and Colin Carter of Boston Consulting Group, propose a radical new agenda. They are convinced that all boards face different circumstances – in terms of company complexity and strategic situation. It therefore makes no sense to assume that each board must be structured in the same way, follow the same processes or undertake the same activities. One size and shape does not fit all.

Once we shed the assumption of board homogeneity, life becomes interesting. Boards can start looking at the specific situation of their company, and explicitly choose the role that they must play and the value that they must provide. They can purposefully choose where the balance lies between the ‘watchdog’ and ‘pilot’ roles in their particular board – or for particular directors. In creating a bespoke board, directors have three variables to play with: structure, composition and processes.

Let’s look at structure first. How large should the board be? How many independent directors, how many executives? How many committees? The answer lies in the particular circumstances of the company, not in habit or tradition. We must learn to emphasise the idea of expertise in the board, just as we do in management. A board needs as many directors as are necessary to provide the mix of skills needed to guide the company – and no more. A blend of legal, financial and strategic skills will be needed in most cases – but the precise mix must vary from company to company.

A large, established cement producer in Kenya, for example, can function with a fairly traditional structure that focuses on checks and balances; a small, fast-growing start-up media production company in Tanzania, looking to provide digital content to the region and facing erratic demand and unpredictable competition, would look to having a smaller team of directors contributing to the ‘pilot’ role in the company rather than emphasising their ‘watchdog’ side.

Let’s move to board composition – calibre and abilities. How does a company assemble the right team in the board? Deadwood persists in boards. There is a convention of tolerating under-performing peers in the best tradition of gentlemanly conduct. In today’s companies this tradition can prove very expensive. All boards must meet certain challenges: widening the talent pool to include younger and less conventional executives; raising the performance bar and setting exacting standards; and providing a formal education and induction process for new directors.

Our Tanzanian media production house, for example, will need to understand its buyers very well, and could well benefit from having a director with senior experience in leading broadcasters. It may face regulatory hurdles, and could usefully include a legal specialist or former civil servant with regulatory skills. It may find that its key markets are likely to be in Kenya or South Africa – and will need to have directors who understand the peculiarities of those countries’ media markets very well. Finally it must identify the major risks facing its business – and identify a director who can mitigate those. Assembling a board of directors, in short, should be little different from composing a management team.

The third area of board design concerns the processes through which the board receives information and does its work. The traditional model of infrequent meetings following a rigid agenda and ploughing through selective information provided by management must go out of the window. Too many directors see the company only from the boardroom window- a highly limited perspective. Tomorrow’s boards must take advantage of the new developments in application systems to access company intranets, independently and electronically, where they will find that rich information can be assembled at the touch of a button. Information gathering must stop being a hide-and-seek game with management.

The number and variety of board meetings should, again, depend on the nature of the company and its circumstances. Our media start-up, facing a frenetic growth phase, will require much more time input by directors, who should be selected on their ability and willingness to provide this time. They will also need to be rewarded accordingly. Three months is a long time in the life of an e-business venture. The market battle can be won or lost between quarterly board meetings.

Directors also, crucially, need to be moved outside the boardroom. Currently, hardly any directors I have come across spend any meaningful time visiting activity centres or key customers, conversing with junior employees, or meeting industry experts – until a crisis hits. It is indeed true that management must be left to managers, and an over-zealous board can do more harm than good. But it is equally true that ex-boardroom activities like these can provide the deeper, more nuanced information that is invaluable to the truly effective director.

Lastly, there are two key processes that are very much in the remit of boards of directors: strategy setting and executive compensation. Boards must be very active participants in these processes. They must bring their wider experience base and ‘birds-eye’ view to strategy, and their independence of outlook to the thorny question of compensation. They must participate fully in strategy formulation, not just shoot down proposals at meetings. They must recognise that strategy is an ongoing process, not something done solely at annual retreats in Mombasa.

In these turbulent times, asking a group of part-timers to spend very limited time together, yet do enough to understand the business deeply and protect shareholders against disasters is, as The Economist put it recently, the job from hell. Yet it need not be. If companies rethink from first principles and break away from the assumptions that bind them, they will find that the matter can be addressed intelligently. Boards can be tailor-made to perform the duties most important to their companies.

What will the reinvented board look like? It will have defined the correct (and unique) balance between its conformance and performance roles. It will have as many directors as it needs, full stop. It will contain the blend of skills that suits its current strategic needs. It will be a dynamic animal, one that changes its size, shape and features at different times in its life span and in response to changes in its environment. It will have access to a wide range of real-time information, not be spoon-fed by management.

A modern board, like a modern business, will also have embraced the idea of outsourcing – that no one corporation can keep all the skill-sets it needs in-house. Many local companies, rather than recruiting new directors and constructing unwieldy boards, now appoint specialist advisors to technical committees. This introduces greater flexibility and ensures access to the best available expertise.

In short, whilst the fundamentals of board architecture may remain the same, the style and substance of boards will change radically. The high-performance board of the future will focus on making the best use of scarce time to build the deepest possible knowledge of the company. To achieve this, all the parameters – size, shape, composition and processes – will be up for redesign.

History and tradition need no longer shackle the best East African companies. Getting there from here is not difficult. All that is needed is a healthy dose of imagination.

Related posts:

1. The real challenge of corporate governance: reinvent the board of directors!
2. The private sector must also embrace good governance

The EastAfrican announces a new management series by Sunny Bindra focusing on the key strategic issues facing senior executives in the region today. We start with the first part of a challenging look at a hallowed institution: the board of directors.

The corporate board is on fire. Across the world, boards are under unprecedented pressure. Directors of listed companies are wilting under the glare of the spotlight of unrelenting public scrutiny. And many business thinkers now believe that this will be the decade in which we dramatically redesign the entire concept of the board of directors.

That is entirely as it should be. The venerable institution called the board of directors has, in essence, remained unchanged for many decades. During this period, the business world has undergone dramatic upheavals. Information and communications technology has transformed the way business is done the world over. Globalisation has provided a quantum leap in the scale of operations of many corporations – whilst simultaneously opening them up to ferocious competition. Customers have used this new freeing of markets and the remarkable array of consumer technology now available to them to tremendous effect: to demand – and get – unprecedented choice and value for money.

In response to this wave of unparalleled change, businesses have had to uproot their deepest structures. Organisational design has moved away from functional ‘silos’ to customer-facing processes. Companies have learned to define their ‘core competencies’ and narrow the scope of operations to doing that which they do unambiguously well – and outsourcing the rest. Information technology has penetrated every facet of the modern corporation. Reward and incentive systems have been transformed as the importance of attracting and retaining the best human talent is recognised in company after company.

Yet the governance mechanism sitting right at the top of the corporation – the board of directors – has managed, by and large, to emerge unscathed from this turmoil. The structure is unchanged: a chairman and a dozen or so directors, some of whom are executives and others outsiders. Board composition is pretty much standard: retired (and tired) CEOs, politicians and professionals, mostly male. And board processes – how the board’s work is done – are largely as they were: quarterly meetings, following a rigid agenda; information provided by management in standard, predictable formats; a stage-managed annual general meeting where shareholders are wined and dined and thrown dividends.

Is it really any surprise that this institution is in crisis? Where management teams have had to learn to be agile and nimble, boards have managed to remain slow and unwieldy. Where managers are being forced to rethink the fundamentals of their businesses every two years or so, board directors remain steeped in tradition and the business lore of yesteryear. Where managers rely on information that changes daily on the computer screens at their desks, directors receive carefully vetted, sturdily bound board papers that they have neither the time nor the inclination to peruse in any depth.

This was a fire waiting to be lit. And once the first spark came, the flames exploded and spread right across the globe. We have seen a seemingly endless train of corporate scandals: from Enron, Tyco and WorldCom in the USA, to Marconi and Parmalat in Europe, and to the woes of HIH Insurance, Australia’s biggest insurer. Every time, the same message is rammed home: traditionally constituted boards of directors can do very little to prevent massive failures in management and ethics from taking place beneath their very feet.

As billions of dollars of shareholders’ funds and employees’ dues have gone up in smoke, the reaction worldwide has undoubtedly been swift and emphatic. Presidents of nations have intervened, and committees and task forces have been convened. Grey heads have been asked to look at the failure in governance and recommend a way forward. And an apparently inexhaustible procession of codes of practice has emerged. Many years of weighty discussions and many acres of rainforest later, a consensus appears to be emerging with regard to ‘best practice’ in corporate governance.

These things are good: a majority of ‘independent’ directors and an ever-tighter definition of ‘independence’; a separation of the roles of the CEO and chairman of the board; three core committees (audit, compensation and governance), all consisting of independent directors; board approval of company strategy; formal board evaluation of CEO performance; and, of course, handsome remuneration for directors for engaging in these arduous activities.

These things are bad: an overly powerful CEO who has other directors in his thrall; non-executive directors with powerful incentives to influence board decisions in their own financial interest; large boards with unnecessary directors entrenched by history; boards that talk too much; boards that talk too little.

So, out of the ferment of recent years, a consensus of sorts is forming. At its core are a couple of basic propositions: that boards need to be empowered to act on behalf of shareholders; and that board incentives need to be aligned with those of shareholders. The best way to achieve this, so the consensus thinking goes, is to ensure that board control is in the hands of directors who are independent of management. In short, the focus is on protecting shareholders from the nefarious designs of managers. And companies are at present falling over themselves to demonstrate their willingness to adopt these best-practice codes.

Where are we in East Africa in this whole debate? Let us start by being quite frank: what does a position as a director in many of the region’s leading corporations entail? Firstly, one is generally invited to the board by one’s friends and allies in the corporate world, usually to join a particular political camp in that board. Secondly, one often actively seeks conflicts of interest: if one is a professional, one tries to sell one’s services to the company; if one is a politician, one marshals the company’s resources for personal use, particularly at election time. Thirdly, one really expects to have very little to do as a board member: a few tedious meetings every year followed by a sumptuous lunch; a board retreat or two at a beach hotel or 5-star lodge; a generally uneventful AGM where an occasionally troublesome shareholder livens up proceedings.

Traditionally, local directors in eminent boards tend to be drawn from one of two sources. First, from the pool of retired CEOs who made their reputations in the boom years of the 1970s and 1980s (in Kenya at least), and who bring grey hairs, a certain fame and a stack of business stories from the monopolies of yesteryear to the table. Second, from the pool of politicians and political operatives who bring the possibility of putting the company on the inside track with regard to lucrative government procurement, or who can pick up the telephone to smooth out tricky problems that the company might face from time to time.

I am generalising deliberately. Of course there are companies that are very competently governed, and directors who provide wise independent counsel through good times and bad. But there are very few. By and large, we are retaining structures that are totally irrelevant to the demands of the 21st century. We are appointing individuals that at best are invisible and at worst are subtracting value from the corporation. And we are stuck with information processes with that leave directors completely in the dark as to what is really happening within the company.

In East Africa, executives are used to whining about the state of the region’s infrastructure, about what additional costs are imposed by insecurity and corruption, about the inconsistencies of fiscal and monetary policy. We are less used to taking a hard and honest look at the very structures and systems by which we manage and govern ourselves. If we start at the very top, we will see that the role and operation of the board of directors itself needs a fundamental overhaul.

East African companies come in all shapes and sizes, from the large multinational to the small, rapidly growing trading companies located in the back streets of Nairobi, Kampala and Dar-es-Salaam. Good corporate governance is necessary in all of them. The interests of minority shareholders must be protected at all times, even in small family-owned companies. Society, too, increasingly expects responsible behaviour from all corporate entities. Not-for-profit organisations like schools, hospitals and NGOs must also account for themselves in a professional manner. No organisation is exempt from the need to take governance to a different level.

Given that we are starting from farther back than the rest of the world, adopting the best-practice codes of conduct that are sweeping through boards everywhere would be no bad thing. We certainly need to protect shareholders from managers who have consistently and systematically denuded them. We certainly need to embed the idea of the independent director, in a corporate culture that has yet to grasp its import. And we certainly need to limit the often-ridiculous powers we grant to our chief executives.

Yet the opportunity is far greater. We would limit ourselves severely if we went for wholesale adoption of codes of practice and then settled back to our cigars and brandies, our work done. The true frontier of change in corporate governance is elsewhere. The most enlightened corporations are looking far beyond best practice. They are looking at a fundamental redesign of the board of directors from first principles, a complete overhaul of structure, composition and processes.

That is where leading East African corporations must settle their gaze. For a tour of what the reinvented board of directors might look like, see you here next week.

Related posts:

1. The private sector must also embrace good governance
2. Good governance is the measure of our civilisation
3. The new government’s big challenge: connecting the dots