This interview is part of the Leading Asia series featuring in-depth conversations with the region’s most influential leaders on what it takes to lead in Asia today.
Over three-plus decades, Alison Watkins has held some of Australia’s most prominent executive and nonexecutive roles across a gamut of industries, including agriculture, banking, consumer goods, and retail. She was the CEO at Berri, then led two ASX-listed companies: agribusiness GrainCorp and regional beverage giant Coca-Cola Amatil. Today, her portfolio of nonexecutive leadership roles include being a board member of biotech company CSL, the Reserve Bank of Australia (Australia’s central bank), retail conglomerate Wesfarmers and the chancellor of the University of Tasmania.
Watkins’s varied leadership experience has given her a front row seat into the critical, controversial, and constantly evolving relationship between a company’s board and its CEO. When Watkins was in the early stages of her career, she found both groups to have a dominant “obsession with financial results.” Today, she thinks that organizations have become more rounded in their assessment of success, with far greater emphases placed on reputation, risk, sustainability, and other performance metrics.
In this interview, Watkins talks with McKinsey senior partner Joseph Tesvic about why hyperalignment between the CEO and the board is critical for organizational productivity, the role of enterprise risk management in helping leaders navigate through periods of crisis, and the importance of developing a learning mindset. An edited version of the conversation follows.
McKinsey: We have often heard that an important trait of a good CEO is their ability to recognize the board as a valuable resource to enable their organization to thrive. In your view, how has the relationship between the CEO and boards evolved over the years?
Alison Watkins: The most important thing in the relationship is to ensure absolute hyperalignment between the CEO and the board on the organization’s long-term direction and strategy, as well as nearer-term priorities. If you can achieve that alignment, you can work together extremely productively and largely remove any sort of tension, mistrust, and transparency concerns. These things can disappear if you really work on saying, “This is what we’re about, and this is what we’re trying to achieve,” and on using that framework for every interaction with the board.
Many boards and CEOs were obsessed with financial results in the past. Today, it is a lot more nuanced. CEOs and boards focus on a number of metrics. Financials are certainly in the mix, but much more prominent are metrics on customers, staff, sustainability, and risk. That lends itself to a more rounded alignment on what really matters and what success really looks like. If you combine this with the hyperalignment objective—and use that opportunity to structure your conversations with the board around all these objectives—it creates a much healthier balance between the board and the CEO.
The days of the omnipotent CEO, with the board being much less proactive, are over. I think that is a big and really healthy change. The boards of today work with CEOs, who don’t come across as big, powerful, egocentric individuals but just as people who are part of a team and want to work together with the board to achieve an outcome that everyone agrees on.
McKinsey: From your experience, what does the best composition of board members look like today?
Alison Watkins: A great board reflects the skills, experiences, and attributes that are relevant for that particular organization. These days, boards go through a thoughtful exercise where they will map out the kinds of skills and experience that they need represented on their board and determine the directors, and the composition of the board, accordingly.
That will include functional skills, legal skills, and accounting skills. It will also potentially include experience in areas that are really relevant to the strategy of the organization, be it M&A, digital transformation, or something else. It will also include a mix of backgrounds and attributes. Very often, this will include someone who has experience in running a profit and loss, has been a CEO, or has been involved in the governance of a listed company. Sometimes, it is hard to solve for everything that you would like on a board. Mostly you would want to have at least one or two CEOs, in my opinion. I find that people who bring legal or accounting skills are also very essential to a board because they pay attention to things that are quite different compared to what I focus on.
As directors, we all have to also think hard about the particular spike, specialty, or distinctiveness that we bring to a board and make sure that we are fulfilling that expectation. This is because your colleagues rely on you to bring what you can bring to bear—and vice versa. If we all looked the same—for example, if we were all former CEOs—it could be pretty horrendous. So it is definitely a “horses for courses” thing.
McKinsey: Given your vast leadership experience, what advice would you give to CEOs navigating the current age of uncertainty?
Alison Watkins: It certainly is a challenging time to be a CEO because the number of externalities that can impact your business is extraordinary at the moment. In times like this, enterprise risk management really comes into its own. I have seen this concept mature a lot over my career. Enterprise risk management has gone from being something that seemed vaguely theoretical, a bit bureaucratic, and unrelated to the real world to now becoming the source of some important strategic conversations. It can help leaders test out how to think about all the external forces that may affect the business, as well as things that could go wrong operationally.
Most organizations that I’m involved in at the moment are going through enterprise risk management. The apparel retailing businesses are thinking about how to diversify their supply chain strategies and try to bring back some of the capabilities onshore.
In general, pricing strategy for inflationary times is really important, so a good place to start for all companies is to road test these strategies through a structured enterprise risk conversation. Personally, when it gets overwhelming for me, I always try to take a step back with the team to zero in on what we can control. You may not be able to control the situation itself, but you always have choices in how you respond.
McKinsey: How did your broad industry experience, from banking to agriculture to consumer packaged goods, help you become a better CEO and leader?
Alison Watkins: One challenging aspect of coming from different industries and backgrounds is getting the credibility that you need to effect change as a leader. If you come in new, it is easy for the cynics within the business to say, “This person really doesn’t understand why we do things in a certain way, so we will sit back and watch them fail.” I remember getting that feeling in a few settings. You then have to work extra hard to build the credibility. And that comes from being able to listen, learn, and respect, which builds the confidence of the organization.
At the same time, you also need to strike a balance between respecting the way things are done—and why they might be done that way—and also bringing exactly what the board is looking for you to bring: some new thinking, challenging the status quo, and doing things differently. When a board has decided that they want an outsider rather than an internal successor, it is also really important to understand what is on the mind of the board and what the things are that they feel uncomfortable about.
In one setting that I came into, there were concerns about the culture in the organization, and the board couldn’t quite put their finger on it. Coming in from the outside, I could quickly see that my predecessor had a more “command and control” management style and had been extremely successful in delivering financial results. However, there were indications that the level of financial success might not be sustained. More transparency on financial information and feedback would have made it easier for leaders down the line to make the right judgement about which levers to pull and changes to make in the organization.
I thought this was a really important opportunity for me to ensure that the people on the front line really understood what we were trying to do and that they had a lot more discretion and ability to make decisions pertaining to their customers. So I focused on unleashing a more open and positive culture.
McKinsey: How has your CEO experience translated into your current directorship roles?
Alison Watkins: I have always been conscious not to be one of those CEOs who moves onto a board and thinks they’re still the CEO. I have encountered a few such types in my own career as a CEO; it is quite stifling, and you can find yourself being second-guessed. It also doesn’t really create a lot of value, from a board perspective, if you are prone to doing this as a director.
I have tried to avoid this by involving myself in industries and settings that I’m quite unfamiliar with. As a result, my tendencies for second-guessing are pretty well suppressed, since I am consciously on a learning curve. It is really important to understand the line between the management and the board and to hold the CEO and the management team to account for their actions. If you are stepping over that line constantly, you start to blow those accountabilities.
McKinsey: The COVID-19 pandemic and economic crisis has, at times, elevated the role companies play in enabling positive change in society. How might CEOs and boards think about stakeholder capitalism and the role companies should play moving forward?
Alison Watkins: I have challenged myself hard over the years to think about the role of a company, how it creates value, and the idea of stakeholder capitalism. I do think that, as a company, if you take capital from shareholders, you are expected to deliver a return. It is impossible to compromise or focus on other things and ignore long-run shareholder returns.
At the companies that I’ve led, particularly at Coca-Cola Amatil, now Coca-Cola Europacific Partners, we really thought deeply about this issue. We were clear that our objective was to create value for shareholders in a way that also created value for our society. We wanted to deliver on shareholder value and take a long-term horizon on how we judged ourselves on that delivery. And we wanted to do that in a way that also created value for society. That way of thinking worked really well and enabled us to make tremendous progress on some of the issues we were confronting at the time, including concerns around sugar, plastic and recycling, and emissions.
Managing this balance has become clearer now, as shareholders and other providers of capital, including lenders, have become more focused on the creation of value through environmental and community metrics. So shareholder conversations are now as much about environment, sustainability, and reputation as they are about financial metrics. That has allowed our companies to aspire to create a positive difference to the societies that they operate in.
McKinsey: On a more personal note, what advice would you give your younger self?
Alison Watkins: I should say at the outset that I have tried this advice on my kids, and I don’t think they necessarily take a lot of notice. My number-one piece of advice would be to just have a go and give it a try. When I look back on my career, I moved around quite a lot and tried different things. Every step added another string to my bow. Often, I have done things that I thought I wouldn’t like or be good at. But it is amazing how you can end up doing something completely different and loving it.
The second piece of advice is to work with great people. All my opportunities and development came from people, not so much the organizations. Always zero in on, “Who are the people I will be surrounded with, and are they people that I like, admire, respect, and can learn from?”
Third, I always believe there is so much that you can control just through how you think. Our mind is an amazing thing, and I never really appreciated that until probably halfway through my career. You should never let yourself get into a victim mindset. Try to always reframe the thinking to say, “Something bad has happened. What did I learn from it? What can I go on and do now? How can I take accountability for the things that are happening so that I can influence them?”
My final advice would be to try and keep the balance in your life. It is very easy to feel like you have to work really hard, impress people, and sacrifice the balance in your life, whether that relates to family, exercise, or involvement in the community. These things really, really matter. I would be more systematic about this from earlier on in my career, if I had known what I know now. If you have the right balance in your life, you can deal with pretty much anything that comes your way.