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Arun Hariharan

Quality Insider

Quality Starts at the Board

Does your company consider its customers key stakeholders?

Published: Tuesday, April 17, 2012 - 11:03

Close your eyes and make a mental list of companies worldwide that use quality as their strategic weapon for achieving value for shareholders. Chances are you have some great examples, but most likely it’s a small list. Given the huge number of companies in every industry that aren’t on your list, I'd like to highlight an aspect of corporate governance that deserves much more focus than it receives in most organizations.

Do boards in the companies you know do a good job representing their customers as key stakeholders? We’re talking about the customer who pays for the company’s product or service here. Why don’t we have more names on our lists? Isn’t this a great opportunity for sustained financial performance just waiting to be tapped across industries and countries?

Perhaps you missed a few names, given the one-minute constraint you were working with. However, the responsibility for your short list, in large part, lies with companies’ boards. What is a board’s role in helping companies make quality a key strategic weapon? For this article, “quality” means the combination of product or service quality, customer-focus, productivity, cost and waste awareness, and continual improvement.

Do boards adequately represent their customers?

In most companies, the quality of products and service as experienced by customers is what differentiates the company from its competition. In that case, shouldn’t quality be a board meeting topic? Unless one is only interested in the very short term, customer satisfaction is a key determinant of sustained financial results and shareholder value.

The average CEO’s tenure is getting shorter. This could be one reason why few CEOs look beyond short-term financial outcomes. Although there are notable exceptions, most CEOs have no clear thoughts on institution building or sustaining the financial outcomes beyond the short term. Many CEOs never get questioned on anything beyond their results for the last quarter, or their plans for the next quarter, or at best, the next year. Some CEOs are required to present their plan for the next year or more, but these presentations rarely go beyond guesstimates of sales and profit numbers.

The board becomes the instigator

For this level of accountability to change, the first thing that must happen is for the board to start asking questions at board meetings that it has never asked before.
• What are our customers saying... about our company... about competition?
• How many customer complaints did we get last month? Last quarter?
• What are the most frequent complaints?
• What percent of these complaints were resolved within our target time?
• What improvement actions were done as part of the process to prevent such defects?

Also, the board must insist on receiving this information:
• Examples of continuous, permanent improvements during the last quarter
• Examples of identification and elimination of waste
• Examples of productivity improvement or cost reduction

Avoiding death by detail

Some may argue that these questions and examples are “too tactical” or “operational,” and that boards should focus more on “strategic” questions. However, these questions are well worth the board’s time. If quality is a key determinant of your company’s competitive success, sustained financial performance, and shareholder value creation, then quality most certainly is the board’s business. Obviously, the board’s involvement can be kept at a reasonably high level while ensuring that the CEO and senior executives go into more detail.

In addition to allotting time to discussing these questions and examples during board meetings, companies could have a “quality committee” similar to other (often statutory) committees for auditing, investment, and risk management. The quality committee could be headed by one of the board’s directors.

Why can’t one director represent the customer as a key stakeholder?

While on paper boards are expected to represent the interests of various stakeholders, in practice, most boards end up only representing the interests of the larger shareholders. If a company has several directors on the board, do they all need to be asking the same kind of financial and regulatory questions? No doubt, financial and compliance aspects are important, and boards must govern these. But why can’t a couple of directors focus on these aspects, while at least one director represents the interests of the customers who pay for the company’s products?

Why the board must ask these questions

Whose job is quality? The answer is everybody’s, but it must begin at the top. The questions the board must ask and information the board must insist upon must start with the board; if the board doesn’t ask these questions, CEOs won’t ask these questions. And if CEOs don’t ask these questions, no one in the organization will ask these questions.

Although this may seem to be common sense, the sad truth is that many CEOs today have a short-term agenda because they are seldom questioned about institution building. This short-term focus could actually prove to be harmful to the interests of customers (and eventually to the business and shareholders).

The following are some indicators of organizations with progressive boards that focus on quality and customers:
• Quality is an agenda item at board meetings
• Quality- and customer-related measures form part of the CEO’s performance evaluation
• The board encourages thinking and measuring performance from the customer’s perspective
• There are distinct and dedicated teams focused on continuous improvement and quality for customers. These teams are empowered and encouraged to act as the “representative of the customer.”
• Senior management is appointed and held accountable for quality and continuous improvement

Conclusion

Board members, including independent directors, must start asking quality- and customer-related questions at board meetings, and ask them regularly and repeatedly. If boards don’t ask these questions, there will be no quality; without quality, there will be no customers; and without customers, there will be no business. Competitors whose boards do ask these questions will walk away with your customers and your business.

Discuss

About The Author

Arun Hariharan’s picture

Arun Hariharan

Arun Hariharan, author of Continuous Permanent Improvement (ASQ 2014), and The Strategic Knowledge Management Handbook (ASQ 2015) is a strategic quality, knowledge management (KM), and performance management practitioner with nearly three decades of experience in these fields. He has worked with several large companies and helped them achieve substantial and sustained results through quality and customer focus. He is the founder and CEO of The CPi Coach, a company that provides partnership, consulting, and training in business excellence and related areas. Former roles held by Hariharan include president of quality and knowledge management at Reliance Capital Ltd, and senior vice-president of quality and knowledge management at Bharti Airtel Ltd, India. He is a frequent speaker at quality and KM events around the world. He is also the author of more than 50 published papers on quality and KM.