Lean Manufacturing Executives and the External Board of Directors

Toyota follows a traditional Japanese model of an internal Board of Directors. Executives of the company are on the board and the Chairman of the board is a former President-CEO.

Toyota follows a traditional Japanese model of an internal Board of Directors.  Executives of the company are on the board and the Chairman of the board is a former President-CEO.  The board in Toyota meets often and discussions are based on a comprehensive understanding of the overall situation inside and outside the company.  All of the specialties of the company are represented, executive VPs of manufacturing, R&D, finance, public affairs, purchasing, and more.  These specialists are expected to represent a deep understanding of their specialty globally to the board.  Below this level are managing officers from Toyota regions throughout the world who report regularly providing even deeper, more nuanced perspectives.  All of the board members and managing officers have worked themselves up through the hierarchy and learned the Toyota Way, providing unified leadership.  Thus, while publicly traded, Toyota takes a long-term perspective and makes decisions as if they were a closely held private company.

Many companies throughout the world, private and public, have an external board of directors. These boards can have enormous power, even to the point of replacing the CEO.  They may be selected because of great accomplishments in their fields and because they have money to invest.  This provides a set of outside, objective eyes to evaluate the business and recommend sometimes difficult policies the company leaders would find hard to make.

What the outsiders lack is a deep understanding of the company culture or the responsibility for shaping that culture over time.  They see snapshots of the business, mainly through financial indicators, and view the company in transactional terms—what should the company buy and sell and do to restructure itself? Their own compensation may well depend on short-term profitability of the company and their decisions will reflect that.  This can mean that they lack the basic foundation needed for a lean enterprise—a long-term perspective on growth, development, and evolution of the culture.( Why Management Must Support Lean Initiatives)

In this environment often a vice president has the assignment to lead the “lean initiative,” delegating it to a staff organization, and expecting quick results that can be reported to the board of directors.  The result: broad scale, superficial change aimed at finding the low hanging fruit to get quick wins.

So what can be done?  First, the governance structure of the board can vary.  A company with a strong vision of its desired culture may be able to select a board compatible with its values and keep those who contribute effectively on the board over a long period of time.

Second, an effective CEO with a strong vision and a high skill level can work toward building the desired lean culture, while delivering the results the board requires.

Third, the board can be educated to look beyond the financial metrics and get to know the company and its business.  Some companies hire lean coaches for the CEO and Board of Directors to educate them on lean and take them on gemba walks to see the actual processes and where the strengths and weaknesses of the company are.

Finally, top leaders and boards with little passion to even learn about lean need to be wowed with results.  This may require a focus of lean in the early stages on quick wins and impressive results led by experts.  After wowing the board and chief executives you now have an opening to begin to educate them on the longer-term benefits of lean manufacturing.

Dr. Jeffrey Liker is professor of industrial and operations engineering at the University of Michigan and author of The Toyota Way.  He leads Liker Lean Advisors, LLC and his latest book (with Gary Convis) is The Toyota Way to Lean Leadership.

Click here to read more about management’s role in lean.

 

    November 12, 2012

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