The board sets the company’s direction and management works out the strategy. Add the right CEO and observe the culture, and you have the basic ingredients of the Swedish model of governance, according to Hans Stråberg, chair of large and medium sized companies.
Hans Stråberg draws on the experience of ten years of CEO of Electrolux and as the chair of industrial giants Atlas Copco and SKF and several smaller listed companies. He adds the importance of engaged owners. The big companies mentioned have large ownership by the Wallenberg group. “For me it has been important to be part of a sphere that has a long-term engagement and acts through the board” Hans Stråberg says. “There I get the advantage belonging to a large international network.”
The role of the CEO
Hans Stråberg is a strong supporter of what he calls the “Swedish corporate governance model”. “Roles and responsibilities are clear. It is the operational management that runs the company. The board’s task is to appoint and remove the CEO, to approve the strategy and keep checks and balances. “It’s all about appointing the right CEO. If a company has a great CEO, but only a mediocre board, it usually goes well. But it never works the other way around! Best is of course if both are great.”
Consequently, his most important task as a chair is the selection of the CEO. “Personally, I always recruit a CEO based on personal qualifications, what views does the person in question holds around ethics, morals, leadership, drive and similar values. If something misses out with the personality, it never works!”, he says
When the CEO is in place it is important to view the management team around the CEO, he emphasizes. “A good leader in turn recruits good people around him or her. So which people the CEO recruits as the closest employees is in turn a very good measure of him(her)self.
As the chair of the board, I prioritize being a discussion partner and bouncing board, but I always tell the CEO that I am allergic to delegation upwards. The CEO does not have so many others to confer with, so in that respect I’m always available!”
Strategy and direction
The direction of the company is set by the board and the strategy should be developed within the company. The board’s task is to discuss, challenge and approve the strategy (or not) and to work together with management to make it successful. It is important that the strategy is believed in and owned by the management. “It is always the management of, for example, a business area that present the operational proposals to the board. Then we are well ‘fitted’ as a board to say, ‘we believe in that’ or ‘we do not believe in that’ as well as propose improvements.
What the board asks about and emphasizes will also be a guiding star for the CEO. The board itself can demand or can and should emphasize the important issues through the questions they ask, Hans Stråberg reasons. Asking the “right” questions, is very effective for a board to steer the management in a certain direction. “If we ask about sustainability or about digitalization, at every single board meeting, it will eventually be impossible for the CEO not to put more focus on the issue. And if the issue is important for the board, it will be important for the CEO and eventually also for the entire organization.”
“But if we as a board have views that the company is heading in the wrong direction and if the CEO does not take reason, then the person will have to be replaced!”
In the role as chair, I of course look after the interests of all owners. However, if the board has a major change of direction in mind it is of course good to have support of the major owners.
The board’s responsibility cannot be taken lightly, and monitoring policies and systems for control take a lot of time. I always take a seat in the audit committee but not as the chair of the committee.
The board follows the development of the overall business as well as for each of the relevant business units. In the case of Atlas Copco there are 4 business areas and 23 divisions. Each business area as well as other important functions presents at a board meeting on a rolling schedule during the year. Operational results are followed on at the level of each division. If one or more fail to reach targets the board would give it closer attention.
Hans Stråberg is also chair of two smaller technology companies, Roxtec and CTEK. Roxtec is a world leader in products and technologies for sealing cable and pipe penetrations and CTEK develops and markets battery chargers for low voltage as well as electric vehicles.
“The difference is that smaller companies usually do not have the same internal resources as larger companies, where it is always possible to request a special report on a specific area. In a smaller company a closer support of the board is sometimes required”. In a company of the size let’s say of one hundred million Euros turnover the board will monitor the business even more detailed and even be interested in details of deals with important customers. Roxtec and CTEK both have private investors who in their turn can support with analyses and expertise.
“My very strong conviction is that responsibility and authority should go hand in hand. The person closest to the solution should have the authority and responsibility to act. My concern is that the more common matrix organizational structures do not foster great leaders. With vague or dual reporting lines few leaders will ever get a fair chance to test, develop and grow. Clear mandate, authority and responsibility are prerequisites to foster good leaders. Furthermore, matrix organizations become slow and that we cannot afford in today’s ever faster business environment. And you need to foster openness, transparency and trust. Mistakes are tolerated if they are admitted so we can learn from them and not repeat them.
The organization and the culture
It is important that the board realizes that a company is governed by its corporate culture. “Culture is everything and ultimately the only way to actually control a company”, says Hans Stråberg.
Atlas Copco is often highlighted as an example of a large company with a very strong corporate culture. It takes time to develop and foster such a strong and unifying culture and you have to stay on the course. The company has been using the “Atlas Copco book” for over twenty years, an internal publication that describes their strategy, leadership model and basic values. The book is a very important tool in the cultural development and is continuously read, taught and discussed throughout the entire organization. Even more important is that management foster the culture by being good role models.
If a company develops as wanted it is advisable to select a new CEO from within the company. If on the contrary major changes are needed someone from the outside may be considered.
As indicated before, Hans Stråberg is a strong believer in decentralization, i.e. the person closest to the solution should have the authority and responsibility to act. “Of course, certain things need to be unified companywide, e.g. the way we do things, financial reporting, basic IT, policies and procedures etc.
A focus on synergies should be avoided. It leads to coordination and endless meetings with unclear responsibilities. What you think you will gain from synergies, you certainly risk losing in speed; that decision-making becomes slower if you have to coordinate and even go up the ladder. Which in the end leads to a deteriorating gross margin at a faster pace than you realize the synergies.”
The question of corporate culture is closely linked to the issue of digitalization. According to Hans Stråberg, it does not differ from other similar strategic issues around, for example, sustainability, ethics, and compliance. It must be immersed in the whole organization.
He himself likens the discussion on digitalization to the issue of quality work, which was discussed extensively during the 1980s. One effect of these quality discussions were, among other things, that after a while texts began to appear on the mirror in the restrooms that read “You are looking at the person who is responsible for quality!”
“It works in the same way when it comes to digitalization. This is an issue that must go down and permeate the entire organization. That is why it is basically a cultural issue.” It cannot be fixed by only appointing a ‘chief digital officer’! This also means that a company that claims to be finished with its digitalization is wrong”, Hans Stråberg believes. “It will never be finished”.
“The important thing is to have an agenda of continuous improvement. There is always a better way!” The board should ask questions, for example – how can we better serve our customer’s needs? Does the digital open for new businesses models? Do we see signs of, or fear disruptions?
Knowing the company
How can the board keep track of digitalization and operations in a company with approximately 40,000 employees with manufacturing units and offices in more than seventy countries, serving 180 countries world-wide? This motivates a fundamental question: how much knowledge about the business itself is at all possible for a board?
Hans Stråberg: “It is never possible to get to know a company just by sitting in the boardroom, you have to travel and meet people and see for yourself how the troops are doing and thinking. As a chair I normally spend a lot of time traveling around and visiting the operations in different countries”; adding that this does not mean that he as chair interferes in the operational activities. “You have to be curious and interested to learn.
”Covid-19 has of course made it much more difficult to really get ‘under the skin’ of companies!” But to stay updated he spoke last week, for example, with all the different business area managers at one of the companies he chairs by TEAMS to get a personal description of their situation.
As a chair or a board member you must always make sure to educate and improve yourself. “One of the most important personal qualities is to constantly keep curious! To always be set on learning and understanding new things”, says Hans Stråberg. He says that he himself relatively recently, just before the pandemic broke out, spent a week in Silicon Valley in the USA and one in Shenzhen in China to update his knowledge.
“I sent some of my insights to CEOs of companies where I am part of the board. In some of the companies I got the answer that ‘yes, we are already working on that’ and that is of course a joy to hear! That indicates they are on top of the issues.”
It takes time for new board members to learn a company. An introductory program is set up with meetings with key managers and visits to business units. Such programs have of course been hampered by the pandemic, but when resumed new members will be asked to share their impressions and insights to the rest of the board after their visits. Hans Stråberg also sets up meetings with every new board member to discuss and answer their questions.
Lately digital seminars about specific topics have started inspired by new ways of meeting. Board members are invited on a voluntarily basis. So far, all have participated.
Board members contribute with their specific experience and knowledge. When Hans Stråberg himself was active as CEO of Electrolux he used the board’s expertise as a sounding board. “I actually see it as a sign of weakness in a CEO if he or she does not dare to get help from the members of the board!”, Hans Stråberg says.
“I do not run faster than a young thirty-five-year-old leader, instead I have a little more experience and I can advise not to run on impossible balls. But at the same time, it is crucial not to be limited by previous experiences. Things are ever changing and there is always a better way!”