Company transformations have a miserable success rate. In three out of four instances, they fail to deliver the anticipated benefits, or are abandoned altogether. And the way in which organizations succeed or fail, has a huge effect on their public image. With such high stakes, how can supervisory boards contribute to a successful transformation?
It was 2010 and Helsinki-based Stora Enso was in full survival mode. Over ten thousand employees were laid off, property was being sold and all remaining luxury was eliminated. Rapid digitalization and dropping paper prices, combined with a worldwide financial crisis, suddenly put the pulp and paper manufacturer, which traces its roots back to 1288, on the verge of bankruptcy.
This existential crisis would mark the beginning of what turned out to be an extremely successful turnaround for the company. Today, Stora Enso is a leading provider of renewable solutions in packaging, biomaterials and wooden constructions globally. Lars Häggström, Senior Advisor at IMD Business School and former EVP HR at Stora Enso, shared the transformation journey with the participants of a recent online KPMG RAAD session, the board program of KPMG.
Lack of diversity
Looking back, it is clear that a lack of diversity in the board of directors and board of supervisors prevented the company from seeing the writing on the wall. Both boards were too homogenous. Most directors and supervisors were of a certain age, of North European origin, and had long careers in the paper industry.
They assumed prices would soon rebound and demand would come back, Lars told the audience. But they were too heavily invested in the paper industry to recognize trends happening outside of their realm. When the crisis hit, the company found itself in a sudden fight for its very existence and all actions that contributed to avoiding bankruptcy were ‘applauded’, according to Lars.
With the immediate risk of insolvency averted, the supervisory board identified trends that the company could use to its advantage going forward, among them urbanization, income growth, eco awareness and climate change. In short, this meant, if the company was to survive, it had to transform from a European paper producer into a global renewable materials company.
But before it could get to that, the root causes of the crisis needed to be addressed. The CEO thanked his fellow board members for their efforts in saving the company and their decades-long dedication to the organization. At the same time, he told them that this homogenous group would not be the team to take Stora Enso into the future. A culture change had to come, and it had to come quick.
Criticism and cynicism
Company transformation is often prompted by crises. But in order to have a successful transformation, Lars lectured, companies not only have to run from dying, they also have to run towards new goals. “Organizations have to articulate the reasons of why they transform. On the one hand it is clear that you cannot stay who you are. But you also have to determine what you truly aspire for.”
In the case of Stora Enso, this was to ‘do good for people and the planet’. This new purpose lead to some criticism and cynicism, Lars freely acknowledged. “Some people thought it was rubbish. We fired thousands of people and now suddenly we wanted to do good?”
The criticism was completely understandable, and it was up to company leadership to prove they were being serious. A change of strategy is worth nothing if culture doesn’t follow suit. The company soon started recruiting new members for its executive team, and involved the entire company in building the path forward. In company-wide strategic sessions, the CEO and entry-level employees sat at the same table.
Don’t step forward, step back
“Sometimes leadership means not stepping forward, but taking a step back and offering room to other people”, Lars said. “We were thoroughly convinced that involving the next generation within our company was critical. Not because they are right all the time, but because if we cannot get them on board, we will surely not reach the next generation of customers either.”
The same holds true for diversifying the executive board and the supervisory board. “You do not increase diversity to be nice, but to have a broad outlook on the world that is required for success.”
Turning the culture of the company around was not realized with replacing members of the executive board and a couple of strategic sessions with employees. It was a long, years-long struggle that took rigor. There were plenty moments of tension, especially with the ‘old guard’. In some companies, those attitudes persist, and may doom a transformation, yet Stora Enso persisted.
“It was exactly the kind of attitude we wanted to leave behind. We anticipated those moments and hired experts to deal with the tension.”