Insights on the importance of communication and articulation from an experienced executive.

In the intricate world of corporate governance, the role of a board member can be opaque for many, but not for Dagmar Parsons, a veteran non-executive director with over 15 years of experience on the boards of both public and private companies. Currently the chair of Advanced Braking Technology (ASX: ABV), and a NED at LaserBond (ASX:LBL), Dagmar's extensive background in executive management across diverse industries grants her a unique perspective on effective leadership.

My interest in Dagmar was sparked during a community dinner, where her principled approach to governance stood out. She possesses a clear understanding of the distinct roles within a company's leadership structure: be it a non-executive director, a chair, or an executive team. Observing her discuss how she has navigated a variety of complex challenges, it became evident that her insights could greatly benefit the broader public community - so I invited her to be interviewed for our weekly email.

During our hour-long conversation, we delved into her foundational principles and their practical applications. Even after our discussion, it was clear that a mere hour barely scratched the surface of her knowledge. One central theme consistently emerged: the indispensable role of aligning culture with strategy. While there's much more to explore, this piece focuses on Dagmar's perspective on that vital connection.

"For me, everything starts with culture and strategy: they need to be aligned," she asserts. “There also needs to be an awareness by the board - that interconnection needs to be there - and that the board is actually in charge of that. I would say it is key for me to have culture and strategy aligned.”

I pressed her to elaborate: What exactly does she mean by culture and strategy?

“There are quite a number of stakeholders, and you need to take all of them into consideration when you develop your vision of where the business is going to go,” she explained. “And as you are articulating that, you need to then go back into the resources that you have: do you have the right shareholders in place? Do you have the right employees that bring that strategy to life? Are your business foundations the right ones? All of that feeds back into culture: what are the attributes that we need in our culture in order to make that strategy happen?”

In essence, strategy is the future the company is pursuing, while culture is the environment in which its people and stakeholders operate. Dagmar believes that companies where the board is aligned on strategy and culture are positioned for success.

"Articulating a strategy is an interactive process," she noted. "You need to understand what the ultimate goal of the company actually is. As a director, who are you actually accountable to? It’s the company. Every decision, particularly big ones, should be around a business case. But if it’s not, you can always check: does it fit in with our strategy? How does it align with our strategy? How does it advance our strategy? How does this particular decision change the dial to get us to where we want to be?”

Her emphasis on "articulation" is telling. Directors must do more than craft a strategy; they need to communicate it effectively to one another and to broader stakeholders. Only then can a company define the culture necessary to achieve its strategic objectives. A well-articulated strategy and culture make it easier to set and manage expectations.

"You have to be pretty clear and upfront about that," she emphasised. "Obviously you have to have a good, friendly and respectful relationship, but you also need to set those expectations."

This resonates deeply. In my experience with strategy and communications, I've observed that many companies "sleepwalk" through their strategic process, failing to deliver a clearly articulated strategy due to the inability for stakeholders to reach clear consensus. I asked Dagmar whether she believes her approach is common practice or an exception.

"I've seen two common scenarios," she replied. "Either doing nothing and letting issues fester - which helps no one - or reacting with knee-jerk decisions, which isn't beneficial either."

So, if articulating strategy and culture is crucial, how can a company achieve it? What roles do the directors and executive team play in this process?

"First, you need healthy relationships between the executives and the board," Dagmar advised. "And you must understand that the board will ask curly questions."

This may sound straightforward, but in hosting numerous directors and executives, I've found that board-executive relationships are a frequent topic of concern. From Dagmar's perspective, while an articulated strategy and culture form the foundation of good governance, healthy relationships are the cornerstone supporting that foundation.

"When joining a board as a new member, come with your eyes wide open and be prepared to step off if necessary," she cautioned. "There's only so much due diligence you can do: the skeletons will eventually emerge. By then, you'll understand the board's dynamics and how individuals interact. That's when I reevaluate: Am I the right person for this board? What do I need to do to make an impact?"

Dagmar believes that if each board member understands the business, the interpersonal relationships, and their own role, they can make an informed decision to remain or step down as a director. Understanding the business is paramount, and this is where the executive team plays a crucial role. Dagmar insists on transparency to enable board effectiveness.

"Data without analysis is useless," she remarked. For her, the executive team's role includes translating data into actionable insights for the board - be it in finance, risk, or other strategic areas - to keep them well-informed.

"You need to understand the business," she stressed. "I've seen directors who just fly in for a board meeting, stay a couple of hours, and then disappear. You don't hear from them again; they don't have their finger on the pulse."

For Dagmar, directors need to immerse themselves in the business as much as possible. But how can they do this while maintaining the necessary distance?

"Get to know your fellow directors. What makes them tick, how they make decisions, what's important to them," she advised. "Understand their roles on the board, the types of questions they ask, and their areas of expertise."

With this understanding, a director can better grasp the role they need to play in helping the company. After this process, directors can decide whether to stay or leave. If they choose to stay, they effectively have a personal charter enabling them to build strong relationships with other directors and make a meaningful impact.

Dagmar's foundations of good governance:

• Governance is enabled by a clearly articulated strategy and culture.
  • Strategy: The future the company is pursuing.
  • Culture: The conditions created to reach that future.
• The board's primary duty is to align on and articulate the company's strategy and culture.
• The board's secondary duty is to ensure decisions align with that strategy and culture.
• Healthy relationships among board members and stakeholders are essential for setting and reinforcing strategy and culture.
  • Enabled by transparency and an executive team that analyses data before presenting it to the board.
• An effective board member must:
  • Immerse themselves in the company to understand it.
  • Understand their fellow directors and their roles.
  • Recognise their own role, and if none exists, consider stepping down or declining the position.

My conversation with Dagmar illuminated the critical importance of aligning culture and strategy within corporate governance. Her insights underscore that while structures and processes are vital, it's the people and their relationships that ultimately drive a company forward. By focusing on clear articulation and healthy dynamics, boards can better lead companies, build better capacity, and ultimately make a greater impact.