Cost Reductions: On & Beyond the Board Agenda
Cost Reductions

Corporate boards are responsible for governance of companies.

At a high level, board of directors’ governance means directors of boards are responsible for keeping their “noses in” and their “hands out” of the business.

Directors of boards must strike the right balance when they oversee company costs/expenses:

  • too little attention to costs and directors are failing to perform their duties, and
  • too much attention to costs and directors are intruding into operations territory.

Directors of boards must understand the processes employees are using to manage costs and know that employees are following those processes.

CXOs should understand their boards of directors need to know those two things and CXOs should manage their business planning, organizing, controlling, and reporting activities accordingly.

When the cost-management policies, practices, and procedures are written out, everyone can understand them, and follow them. Employees, including CXOs, have 3 choices:

  1. adopt and perform the defined cost-management activities,
  2. object to the defined cost-management activities and state their objections, or
  3. object to the defined cost-management activities and be silent.

When “continuous improvement” and “open communication” are embraced, people will either make choice #1 or #2. When employees make choice #1, directors do not have to be concerned about “process adoption”. Of course, directors must still oversee cost-management. With #1 in place, that oversight can focus on cost-management strategy and less on cost-management operations.

When employees make both choices #1 and #2, directors can focus on the communication and decision-making processes that generate “continuous improvement”. To embrace choice #2, employees must believe their ideas for cost-management improvements will be considered and rewarded. There are many ways to encourage employees to share ideas, ranging from suggestion boxes to payments for ideas and annual employee recognition events.

The best approach is creating a culture where everyone in the organization is responsible for cost reduction:

  • people must understand the importance of “metrics”,
  • people must understand the value tied to cost reductions, both tangible and intangible, and
  • everyone must share in the rewards cost reductions deliver to their organization.

Leaders must learn how to ask questions that promote clear and detailed answers.

Directors must be comfortable asking questions and CXOs must be comfortable providing answers to those questions.

To confirm employees manage costs, corporate directors have a duty to know how to ask the right questions and obtain accurate answers.

The process of questions and answers must be managed properly.

Expectations must be clear. [Best practices for board meetings are a broad topic…to be covered in future posts/articles.]

In summary, the expectations placed on directors and CXOs who attend board meetings become clear when boards adopt good processes for board activity, examples include:

  • scheduling board meetings well in advance,
  • having a clear agenda for each board meeting,
  • providing pre-reads well in advance of each board meeting,
  • ensuring each director is prepared to discuss the topics on the meeting agenda,
  • ensuring each CXO is prepared to discuss his/her agenda topic(s), and
  • sticking to the meeting agenda.

…more to follow.