HCA hosts French CEO event: Siam Kempinski Hotel, Bangkok.
26 September 2016
The evolving Independent Directors role in Thailand and the Region.
By Edwin Sim, Managing Director, Human Capital Alliance
Ladies and Gentlemen:
I would like to first of all thank the Bank of Singapore for sponsoring this event.
A special thanks to my good friend Dr Gerard Lelande for bringing together an important part of the French business community.
Our topic tonight is how the role of independent directors has evolved in the region during the past several decades.
It wasn’t very long ago that most independent board members in Thailand were key associates or senior managers’ friends.
A highlight of most board meetings was the dinner and cocktails following the event.
These directors’ primarily validated financial results protected the company’s assets and advised the CEOs and shareholders on strategy.
Some directors were even assigned to help the company find and nurture the next generation of leaders.
Two elements driving change
Today this cozy environment no longer exists, primarily because of two key issues.
Number One: The increasing demand for good corporate governance both from shareholders and from a more stringent regulatory environment.
The second major issue is the current digital revolution that is continuously pressuring and upending many existing successful business models.
My presentation today will not deal with mitigating increasing corporate governance pressures because most of our guests here tonight routinely dispense with these issues daily coping with local and global requirements.
Indeed most independent directors have primarily been engaged to monitor corporate compliance and governance issues.
I will focus instead on how many of our clients are using independent directors to provide them with insights into identifying and navigating the digital economy’s disruption of many of their business models.
Many companies tell me that they are having a difficult time fully understanding the digital sources of upheaval pressuring their business models and they want board-level advice, to help them navigate the transition.
They also realize that digitization is changing business models largely by removing costs and by stepping up the organization’s pace.
Thus, scalable automation and new lightweight-IT architectures are now providing digital attackers with the means to strip overhead expenses and operate at a fraction of incumbents’ costs.
Today’s strategic discussions
Today’s executive discussions require a different rhythm, one that matches the quickening pace of disruption.
Consequently, boards that meet once or twice a year to review strategy must now be replaced by regular monthly strategic meetings that can help senior company leaders negotiate the tension between short-term pressures from the financial markets and the longer-term imperative to launch sometimes costly digital initiatives.
The companies also said most managers today usually spend a lifetime in their industries and they believe that most independent directors are not likely to add much day-to-day business management value to an already well experienced management team.
Outside directors, they said however can really add value aside from policing and oversight functions by offering different competitive environment perspectives.
At the same time, they also understand the need to increase the digital IQs of existing board members.
Effective digital environment board members need better knowledge about the technology environment, its potential impact on different company parts and its value chain and how digital competitors can undermine existing strategies and stimulate the need for new ones.
They also need faster and more effective ways to engage the organization.
They must operate as a governing body and encourage management to develop digital talent.
Because today’s digital disruptions may necessitate long-term business model changes with large short term costs, these boards must often view themselves as the ultimate catalysts, for digital transformation.
I would like to now focus on how some companies in Thailand are addressing the digital challenge.
In addition to seeking direct digital solutions, through the engagement of external experts such as the Boston Consulting Group and McKinsey, companies have wisely decided to identify and asymmetrically address, the primary factors that all digital competitors may choose to attack by looking for ways to reduce product manufacturing distribution costs through efficient supply-chain innovations.
For instance, a Thai manufacturing client with regional sales has engaged an independent director to help its management team adjust and optimize its current supply-chain.
This director had recently retired after almost three decades as the head of supply chain for a global multinational within the FMCG space.
His main role will be to help the management team optimize manufacturing and distribution processes that will allow the company to compete successfully in today’s digitized environment.
Today in Thailand after five decades, many successful multinational corporations have produced a large cohort of senior managers that have reached retirement age.
Many of these executives aged between 55 and 60 are still vigorous and eager to provide their expertise for many additional years.
Another client recently engaged a retired CEO of a leading global consumer products company to help strengthen its regional and local marketing initiatives.
This retired executive who is about 55 will mentor the company’s senior management team and provide tremendous insight into how the company can enhance its marketing, against local and global rivals.
At many leading Thai companies today the independent board members have now become partners to the CEO on strategy issues especially in providing valuable advice in their own areas of expertise.
Their roles have grown beyond executing mandated processes to creating corporate value.
We will stop our presentation here and be most happy to entertain any questions.