Boardrooms in Transition Ep. 1/5 | Didier Cossin | Failure to Act

 This is episode 1 of 5 in Boardrooms in Transition, a special series from Inside CVC by U-Path. Start here and listen in order. 

In the opening chapter of Boardrooms in Transition, IMD professor and globally recognized governance expert Didier Cossin examines why so many boards fail—not because they lack information, but because they fail to act on what they already know. Drawing on his experience advising boards around the world, Didier explores the human dynamics that prevent organizations from making difficult decisions and the courage required to lead through uncertainty.

We also discuss:

• Why governance structures alone do not guarantee better decisions

• The "gray rhino" risks boards see but fail to address

• Why information—not talent—is often the weakest link in governance

• The role of AI in helping boards become better sensing organizations

• Why courage and psychological safety matter more than compliance

• How the best boards move from deliberation to action

As we begin the series, Didier reminds us that boards rarely fail because they lack data. They fail because they hesitate. In a world moving faster than ever, the greatest risk may not be making the wrong decision—but failing to make one at all.

Boardrooms in Transition: www.boardroomsintransition.u-path.com
Inside CVC: www.u-path.com/podcast
U-Path Venture Advisors: www.u-path.com

Acknowledgments
Special thanks to Grammy Award-winning saxophonist and composer Wayne Escoffery for lending his music to the soundtrack of Boardrooms in Transition. A member of the Yale School of Music faculty and one of the leading voices in contemporary jazz, Wayne's work helps bring this series to life. Learn more about Wayne and his music at www.wayneescoffery.com.

Transcript

Steve Schmith 0:00
Welcome to Boardrooms in Transition, a special series from Inside CVC, where we are bringing you an inside look at the conversations and the decisions being made inside of boardrooms around the world.

Philipp Willigmann 0:12
We are doing this series because you have asked us to share some insights what really happens in the boardroom. So Steve and I reached out to our network to find the most influential board members who are willing to share their insights, how they are transforming organizations, how they are thinking about the future of ecosystems, and how we can together move to a more positive world.

Steve Schmith 0:33
And that's exactly what you're going to hear in the five episodes. Personal stories around managing AI, leading with courage, managing through geopolitical pressures. We cover it all from voices from inside the boardroom. I'm Philipp Willigmann, and I'm Steve Schmith. Welcome to Boardrooms in Transition. We're kicking off Boardrooms in Transition with Didier Cossin, professor at IMD and one of the world's foremost experts on corporate governance. In this conversation, we explore why so many boards, even well-constructed ones, struggle to act on what they already know and what it will take for boards to become the decisive forward-looking institutions the moment demands. Here's our conversation with Didier Cossin. Welcome to the show, Didier. It's a pleasure to have you.

Philipp Willigmann 1:21
How are you doing today? I'm very well. It's great to be with you. Didier, um, we had the opportunity to get to know each other a little bit uh during my uh board readiness diploma last year. Uh and uh you have worked with a lot of boards globally in Europe, the US, uh, and really, really deep uh expertise on governance. And uh couldn't be a better person to close out our um series around um the future uh of boards and the boards in transition. So to get us going, you have worked with hundreds of boards globally. Um how often do boards truly not see problems coming versus seeing them but not acting?

Didier Cossin 2:06
Thank you, thank you, Philip. I mean, first, you know, we have to acknowledge one thing that's very simple is that at large, boards underperform. You know, uh when you survey board members, 90% of them consider their contribution to the board to be effective, whilst 30% think their board is effective. In other words, right, board members think of themselves as effective, but not of their boards, right? And this is the reality. I've I've been quoted in the Financial Times by saying for saying that 90% of boards are failing, but the reality is that boards are not contributing to the performance of companies the way we'd expect. I would say it's 50-50. Uh 50% of boards that are blind, just don't see it, are naive, don't have the skills, ignore, uh, are in a comfort zone, right? And 50% that are in this gray rhino kind of uh environment. You know, you see the thing, it's right in front of you, it's big, it smells, you know where it is, right? But somehow you cannot avoid it, and it still smashes you, right? And the and it can come from denial, it can come from muddling, it can come from confusion. Frankly, boards at large, I would say half of them have a hard time deciding. I was uh just earlier today with uh the former chair of a large publicly listed company here in uh Europe, where he had been confronted to that situation of a board that was not deciding. Even the board, you know, knew what to decide, and they were not deciding. And so it's very impressive, right? Boards have a hard time acting.

Philipp Willigmann 4:05
Let's hit the pause button. Let's unpack the 90-30 gap. Didier notes that 90% of the directors think they're effective, yet only 30% think the board is. For the innovation and CVC leader, this is your opening. The board is starving for a sensing organ that can tell them what's actually happening outside their echo chamber. And now back to the conversation. So, what actually happens in that moment when a board kind of knows, you know, the CEO is not good or there is actually not performing at the level they could. What happens if they know it but they hesitate? Well, basically it lasts and takes two years for something that should have taken two months. And uh it's very impressive. I by the way, the smartest boards, you know, when they do that, they'll do a workshop or retreat, etc. They'll come to a safe space, they'll take the two days, and you see that what was supposed to be a strategy retreat will end up with the firing of the CEO, right? And and frankly, yeah, I'm addressing this specific issue because we know well that the board is uh is a key decision maker and that the world is moving faster, and that many CEOs are not delivering for good reason. By the way, it's hard to deliver in today's world, right? But I have never seen a board firing a CEO too soon. All boards are regretting how long it has taken them. It is very impressive. And so, what they do is that they indeed, for the best of them, take the time to reflect and make the decision. And they don't go to bed before they've made that decision, right? Whatever is the right decision, keep the CEO for the long term, right? And support his success or her success, right? Or get rid of him or her, right? But if you're in between, it's very unhealthy, right? You don't like the CEO, but you keep her or him there, right? It's very unhealthy. It doesn't work, it's not performing. And so somehow you have to make that decision, and boards are large, at large, are not very good at making this decision.

Steve Schmith 6:23
So why don't we unwrap that a little bit? Governance today is stronger than ever on paper. We've actually had a board director as part of this series focus on exactly that. Uh, this individual has actually managed four CEO transitions as her role in the board chair. Why then, given these things, why doesn't this translate into actual better decisions at the board level? What's the gap? What's sort of holding up underperformance? What is what is resulting in poor decisions at the board level?

Didier Cossin 7:00
Well, so thank you, Steve. I mean, for me, I work very simply around four dimensions, four pillars, right? Number one is the people. Do you have do people have the skills? Do they have the dedication? Are they focusing on the on what really matters for the organization? We all know that's not the case all the time, right? The second is simply the information, and I know we cannot come back to that, but it's a big driver on the quality of the information. And frankly, the security of the board around having the right information. Uh, it's not only about having the information, it's about feeling for the board that they have the information they need. And uh, and you see a lot of board hesitant on that. The third is really the processes and the structures, and in publicly listed companies it tends to be there. But frankly, I see family businesses that are easily as large as the large publicly listed companies that don't have the performance review process well structured, right? That don't have a succession process organized. And so suddenly they realize their CEO has a problem. I have one, I have the largest industrial company in uh in the country, in a large country, where uh they understood that the CEO was had approved of arguably a fraud, right? Family-owned, 100%, two brothers and a sister. And frankly, they hesitated firing him because they didn't have a replacement, right? You would never see that in uh tens of billions of dollars of publicly listed company. And the fourth is really about the culture, you know, groupsing, comfort, depends on the boards, right? But you have you have many dynamics that lead to poor decision making. And so you see the decision undermined around these four dimensions quite easily.

Steve Schmith 9:05
So, can you talk about a situation where the board had the right information, had the right people, and still made the wrong call? What broke in that situation?

Didier Cossin 9:15
So here you have a first class board. Uh, you know, top leaders, good diversity, good diversity of perspectives, good diversity also in uh in a classical sense of gender, etc., right? And uh and quite keen decision making, sharp individuals. I remember uh head of uh um uh Porsche consulting, for example, or you know, very solid board members, you know, solid professionals, etc. And they still don't land it. And they still don't land it. And and the reason they don't land it is uh ambiguity in the decision making, what's CEO, what's board, what's owner, a bit of uh detachment, right? I'm board member, but this is not quite my ass and these are 10 years decisions, right? Am I there for that, right? Am I there more for five years? Is my executive for two years, right? Well, how do I uh how do we know what's gonna happen, right? I mean, this is uncertain, by the way. Uh classical S-curve type of problem, right? We see it coming, but how do we figure out our next step? Uh, this is where, by the way, corporate venturing is interesting, right? Figuring out adjacencies, testing, etc., right? But very hard for a board to see that because we like to have, you know, the plan, the direction, etc., right? And so there is uh a lot of dynamics around the world. Plus, you add to that an interpersonal dynamic and a distraction, right? Very often you have a big distraction. I haven't seen a board with something really stupid going on, right? It can be an owner, right, that's calling on reports to the CEO to tell them what to do, right? It can be uh a CEO that fights on his compensation package and that becomes so emotional, right, that there is full destruction of the future of the company, right? So you see a lot of these things. There is always something. I remember the board of G had something massive like that. So don't think that by the way, I'm sure at the Federal Reserve you have things like that, right? Uh people, that's the reality of governance, right? You have stupid things going on, right? That are distracting. It's very human. It's very human, right? You have stupid things that become emotional, that distract from the reality. And suddenly, I mean, people are smart, they still see the reality, right? The best boards, right? But they don't have the energy, they don't have the capability to really execute on that, to really bring it down. Because frankly, it's tough to transform these organizations, it's tough to bring them to the next step.

Philipp Willigmann 12:19
So, so Didier, on that topic, when it is about transformation, right? So, in some of our episodes before, right, the board is not making decisions, right? It's kind of helping and supporting and asking the right questions so that the leadership can make the right decisions. But in the world we live in, and you know, if there is a lot of things happening around the board, and the exam you just spoke about, what can the board do, or what should a chairman do to actually make sure that a board is focusing on these decisions and is looking out into the future and is encouraging the leadership team to make some bets, to invest, to, for example, do corporate venture capital and other innovation topics. What can a board do in that situation?

Didier Cossin 13:03
So, Philip, I first, you know, governance, high-quality governance is very linked to the identity, the DNA of the organization itself. So I don't want to make too many blanket statements, right? Because we have to be careful. You have to each time look at what this specific organization is. But at large, on average, which may not apply to every single organization, at large, boards are not active enough. Boards need to be more active, more engaged. I mean, private equity boards can be quite active, but even there, uh, even there, I see some that are not quite there, right? And people hide behind certain principles, certain rules, right, that talk about the role of the board versus the role of the executives. And I'm not saying that the board should overtake executives, of course not, right? But executives in our world have plenty of space to be active, and boards have plenty of space to be active. There is plenty to do in today's world, right? And we have to figure out where these boards are active. The four meetings a year, in my view, is something of the past, right? And how do you become active and proactive, right? With a longer-term horizon of the executives, right? With a different shrewd, right? With stakeholders, with uh, you know, the the bigger thinking and the long-term strategic thinking. And I'm I'm careful with strategic thinking because it's strategy and risks together, right? And figuring that in today's world is part of the play of uh the ball. And frankly, it's hard to get there. It's hard to get there. I see some board members that are very dedicated, but the transformation is massive. And I would add to that that frankly, whether we like it or not, we are moving from a rules-based order where there was a certain sense of what good governance is, that's becoming very old-fashioned very quickly. And we are moving to a power-based order, right, where the art of negotiation is becoming absolutely central, even for boards. And so, and and there are some parts of the on the world, not only in geography, but in terms of practices that are still decently rules-based, but you have to overlap to that a power-based that is important, that has to play on boards. And so, and we always had that, by the way. We were hiding behind a nice rules-based type more order of boards, right? Reality, it was always a bit of a power game as well, right? But that power game is becoming more prominent.

Steve Schmith 16:13
A quick break here. Didier is warning us about the shift from value creation to value protection. In a power-based global order, your board's primary job isn't just growth. It's ensuring you don't get smashed by the risks everyone sees, but no one has the courage to mention. Now back to our conversation.

Philipp Willigmann 16:35
Didier, before we go deeper on that, I would love to come back to the four pillars, right? People, information, structure, and culture dynamics. Is there like one of those which is most consistently underdeveloped in a board? And if so, which how why is it breaking? Yeah, very, very easy in my mind. What is the most successful hedge fund strategy of the last 10 years? It's been activism, right? And activism is a governance play, of course. And frankly, it's a governance play mostly played on information. Where I see board the weakest today is on information. And it's not internal information, even so most of their internal information is financial. It's um it's external information. What's going on in the market, what's going on with substitutes, what's going on in the customer mind, what's going on with the regulator, what's going on with the government and government's evolution, right? Boards are really lacking a track of that. And it's a shame because with AI today, in the past, you know, it would cost $20 million of uh consultancies to do a really great analysis of that. And so the activists had, you know, an advantage because they put the $20 million, because they'd take a stake, whereas they'd make a few hundred million dollars out of that, right? Now, uh with AI, frankly, I mean, you replace McKinsey for I mean for quite cheap, right? For with uh Chat GPT or clothed subscription, right? And so it's uh uh frankly, I think there is no excuse for boards not to move there, but they have not moved there yet. So they are completely lacking the external landscape in a structured way and in a way that frames the board discussions. You give a certain pack of information, you get a certain discussion. We test it, by the way. I do experimentation with board members, uh, and the information you give produces an output. Every CEO knows that, right? And they tend to frame that. But I'm not talking about internal information, even so they're still missing things on culture, they're still not checking side glass doors so much, etc. Right, but it's mostly about the external information. This is a weakest people at large, not great, but it's okay, right? The uh structures and di the structures decent, right? The dynamics, as I'm saying, we have a lot of problems, they're really hard to resolve, right? But information, we have a lot of problems, and it's easy to resolve. You mentioned the issue is not lack of information. So if that's not the problem, what is preventing boards from acting when the direction when the information is clear?

Didier Cossin 19:46
I would say um for the weakest board, simply the lack of assurance. You know, we underestimate the lack of psychological safety that is on board. And that lack of psychological safety is not obvious, it's not because I mean, in the weakest board there is someone abusive or there is someone you know who's threatening, etc. But uh at large it tends to be beyond that. It can be the power of networks, uh influential owners, stakeholders that have systems behind there is a lot of underground forces that uh you know, a very prominent family, a very you know that you know you don't want to cross, right? There is uh there is that. But there is simply the fact that many of these board members lack courage. They lack uh it's they probably wouldn't say they're afraid of losing the position, but probably many of them are. I think when the HR search firms are going around, they're not going for courage, and it takes courage to be on a board and shape things. It takes mods, it takes psychology, right? But also takes courage. I think at large, board members are not the most courageous people around.

Steve Schmith 21:43
That's so eye-opening. I mean the the look inside the boardroom, the human look inside the boardroom from this conversation is is so so eye opening. We have also talked as part of this series with board members. Who sit at this intersection of long-term strategy and short-term value. In particular, we've already talked about automotive. As an example, we can talk about electric vehicles, huge capital investment, billions of dollars. And in the US, now we have some OEMs that are reporting billion dollar, you know, multi-billion dollar write-offs as an example of a long-term capital investment bet that failed. In those sorts of situations, what are you thinking are some of the trade-offs of short-term versus long-term strategy? And why do you think boards avoid either making those trade-off decisions or even understanding the real trade-off in those sorts of situations?

Didier Cossin 22:54
I wouldn't make short term in opposition to the long term. Long term is composed of many short terms, right? And so it's not that long-term success is constituted of many short-term sacrifices. No. It has to produce also in the short term, right? The trick is when do you need to sacrifice in the short term? Has to be the exception, right? But it has to happen from time to time as well. And so it takes it takes a lot of intelligence and it takes a lot of dedication to buy the way, and this is something we know all, right? When you want to really make a good deep decision in a conflicted environment, you need to figure out a lot of peace in yourself. You need to detach a lot, right? You need to elevate your thinking, not to be taken in that storm of little things coming around, right? And somehow this is the elevation that you need on a board as well, right? To see when the short-term sacrifice is in favor of the long term. Sometimes it's not. I remember you know, a large industrial company, electrical equipment, one of the biggest in the world, that after uh crisis decided to fire 5,000 people, uh, and uh one year later had to recruit 5,000 people because they had an uptaking their revenues. And they could, they had no debt, they could easily have afforded the 5,000 people. And it was so much more costly, right, to fire them and recruit again, right? And somehow, right, a short-term decision, sometimes you need to make tough short-term decisions, but a short-term decision that did not make sense. And people are saying, you know, public markets tend to be short-term like that. I don't think so. I think public markets, and by the way, you know, quarterly earnings are not going against long-term decision making. They're going actually for transparency, and transparency is not a bad thing. Investors are not stupid, right? And so the values are often of the long term. And so there is something in the short-term, long-term. I would say, and it's interesting, by the way, you push the long-term, short term, which is, in my view, one of the big stewardship questions. And the other big stewardship question is money. Self-interested or not? Is this, you know, is this money as bring it to me, or is it money as a performance measure? And Konosuke Matsushita, the founder of the electronics camera industry of Japan, in the 1930s, is the founder of techniques and of uh Panasonic. Uh, in the 1930s, had a very nice expression that profit is the best measure of how you're not wasting social capital, right? And this is this is a measure of profit, not for yourself, right? But as a sense of a good metric for the performance, right? And for the contribution. And so you see, a stewardship, long-term, short-term, and money are two of the big axis of dilemma that you need to figure out at the top of your board.

Philipp Willigmann 26:52
Well, there is so much, there's so much to unpack. Um, but I wanted to ask you a question. We have asked other board members, and we had a conversation about this in last year's uh class at IMD. Um, and it's about you know AI. Everybody talks about AI, and um only very few boards I feel like feel comfortable with it. Uh, and um, you know, a lot of decisions are made around AI today. And um the question is, you know, are there unintended consequences? Um, and and and how how can a board actually make decisions in a world where we really don't know where it is going? Would love to hear your perspective on that.

Didier Cossin 27:32
I mean, first, there are a couple of boards that are experimenting with full AI board membership, uh, meaning you have one AI that takes decisions and votes, right? The board of uh, so these tend to be you know marginal in our world and coming from governance environments that are more uh permissive than ours, let's say, uh kindly. Uh for example, the Samruk Casina, uh the sovereign wealth fund of Kazakhstan, has such um an AI agent, right? I think to me, so so interesting, right? But fine, not not uninteresting, right? And uh I see at the other end of the spectrum, right, simply AI as a contributor to board quality. That can be quite uh easy, right? I mean, I told you, so there is always a problem of confidentiality, uh, which is underestimated. Frankly, some platforms, right? I'm not gonna do marketing for board vantage or for diligence, but some platforms are integrating a little bit of AI. Not great, right? But clearly on information design, using AI for external information structuring, I mean, to me it's uh it's an obvious one, right? I mean, there is nothing confidential to external information, and there is a lot to scan, right? And synthesizing external information under the prompts and the guidance of the board is a big contribution. I think if you have a circumscribed AI, analysis in real time of board work, who's contributing the most, the tone of the board, you know, what are the uh psychological biases that are being heard? You know, I'm I'm amazed, right, at seeing, for example, a board that laughs, right? And no board member reflecting on why the board laughs, right? And uh, and of course, it's always a very strong signal, right? The board that laughs at the CEO success, right? Well, yeah, well, or or the board that laughs at the CEO failure, right? Uh each time, right? It's very instructive. And so this analysis done in an objective way can bring a lot.

Steve Schmith 30:12
Why don't we close with a view of the future? You mentioned earlier looking back 10 years. Why don't we turn the lens and look forward 10 years?

Didier Cossin 30:22
What will boards wish they had acted on earlier, but didn't so uh first, Steve, I want to confirm a point that you made earlier. That boards have evolved and uh they tend to be much more productive than they used to be 15-20 years ago. No question about that, right? It used to be an older's gentleman's club, now it's become you know uh quite some work, and certainly a fiduciary responsibility and a social responsibility, right? So that's that's one. Second, I have no doubt boards are gonna be completely different in 10 years from now. And that they're gonna be much more active, the demands are much stronger. By the way, the investors and the asset owners are much more demanding, and society at large and regulators are gonna be much more demanding. And by the way, I think the regulators during the last crisis put fines on companies, right? I think in the next crisis they will put board members to jail. And that's gonna be, and I see several regulators I interact with, that's their target, right? So I think the traction from the board, the discipline on the board, the board work at large, we are the beginning, but it's uh it's gonna keep uh being more there. I think the best boards today already know that. And I saw I think the best boards I already have the cheers. They're not impatient, they are active, meaning they don't get frustrated. They know they need to make the decisions and they make the sharp choices, and they do make these choices, and they will split the company across geographies, or they will actually take out a couple of board members without anybody noticing, and they have, you know, they do their things, and that is happening. Those that are not doing it, I am sure may regret it in 10 years from now. Exactly like any lame actor tends to regret. But regret is not very productive, and I tell you, those actors that are gonna be successful are neither in desire nor in regret, they're already in action.

Philipp Willigmann 32:50
Didier, thank you for your time. Such a great point of view. And again, the human theme that you brought to this conversation, I think was exceptional. So thank you for your time. Thank you. It was a pleasure. Thank you, Steve. Thank you, Philip. Thank you very much, Didi. Thank you. Boards aren't failing because they lack data. They're failing because they lack the selection criteria for courage. If you are listening and you wonder what questions you should ask to your board and leadership, here three Steve and I thought about. First, can we name the one gray rhino in the room? Second, if only 30% of boards are truly effective, what specific metric are we using to measure our judgment rather than just our compliance? And last but not least, the antenna check. Do we have a dedicated sensing organ that provides us with the ground truth unfiltered data?

Steve Schmith 33:54
Didier gave us the vision. In our next episode, Global CIO Larry Quinlan shows us the speed. If your board is finally awake, how do you turn the $20 billion battleship before the AI wave hits? That's next time on Boardrooms in Transition by Inside CVC. And before we go, a final special thanks to Emmy Award winning jazz musician Wayne Escoffee for partnering with us on the soundtrack for Boardrooms in Transition. You can find more of his work on iTunes or wherever you stream your music.