Board Dynamics A key driver of business performance

Board dynamics is about how directors interact with each other.

I think that most of us who have served on boards would understand how it is supposed to work.

A group of insightful and knowledgeable individuals comes together to form a board.

They have a clear understanding what they are there to do. In board meetings, they discuss the right issues at the right level of detail based on adequate information.

Each of them contributes to the discussion, and they test and challenge the proposals of management in a robust but constructive manner.

Based on their own insights, they also support management with promising new lines of inquiry.

Finally, they make rational and objective decisions in the best interests of the organisation, both for the short and longer term.

In theory, this group decision-making process should generate better decisions than would have been possible if it were all left up to one person, however talented that person might be.

But we all know that things don’t always work out in this idealised manner.

When we look back at corporate collapses, scandals or poor performance, the cause can often be traced back to the functioning of the board. And specifically, how board members were interacting with each other.

In some cases, directors may simply not be up to the job. They don’t have the right expertise. They lack an inquisitive mindset. They may simply be along for the ride. We have all met directors like that.

Sometimes it may be the formal processes and procedures of the board that are at fault. They get in the way of proper discussion or may not exist at all.

But there are plenty of cases where neither of these things are true. The directors may have high levels of intelligence, motivation and expertise and yet still fail to deliver a good outcome.

This happens all the time. It is naïve to believe that, just because you have got a tremendous group of people around the table, things will work out.

It seems that when board dynamics go wrong, there are often quite complex psychological factors at play which should not be underestimated.

Directors usually do not make it on to a board if they are lacking in cognitive abilities. But they are human beings, and human beings are not quite as rational or objective as many of us sometimes like to think they are.

Let me highlight a few factors than can affect board interactions in an adverse way.

The first is power dynamics. Some directors dominate the board because they possess – or are perceived as possessing – more power than the others. This may be particularly true of the CEO, the Chair or a director who represents a major shareholder.

As far as the rest of the board is concerned, it may appear like a thankless task to challenge their views to any significant extent. The dominant player may appear particularly unassailable if their tenure has been highly successful up to that point. This can easily lead to a sense of apathy or disempowerment amongst board members.

A second problem is groupthink. This is where the board is populated by people whose overwhelming desire is to fit into the group and maintain harmony and consensus.

The desire to fit in is a powerful social force. Who wants to be thought of as ‘difficult’ in a group of people that you respect and who affirm your social status?

Groupthink can easily lead to biases in board discussions such as confirmation bias or insider/outsider discrimination – the conviction that those inside the group are invariably right and those outside the group are not.

We don’t just see groupthink on boards – it’s a big problem in politics and on social media.

A third problem is that there is too little or too much diversity. Too little diversity can be a driver of groupthink and may result in poor decision-making due to inadequate insight into changing markets or societal attitudes.

Too much diversity (from a cognitive perspective) can lead to fracture or deadlock amongst people who can’t relate to each other.

A fourth issue is where board members become excessively focused on their personal risk and liability, which is a problem afflicting many boards in the current business environment.

Regulatory demands and reputational risks weigh ever more heavily on directors. This can deflect them from focusing on what really matters to the success of the organisation – like innovation and strategy.

Finally, some boards have an inability to manage conflict. This is the opposite problem to that facing supine or apathetic boards.

In these cases, certain individuals may disrupt board discussions – either due to their own ego needs or because their underlying vision or purpose for the organisation fundamentally differs from the others. If boards can’t resolve these conflicts, they will disintegrate.

This is not a comprehensive list of the pathologies affecting board dynamics, but it accounts for a fair proportion of them.

Are there any solutions?

The most obvious one is appointing the right people to the board in the first place, with the right skills and mindset, and the right degree of diversity. If the wrong people sit on the board, then everything else will be an uphill struggle.

If it becomes clear that the wrong person has been appointed, the situation should be addressed in decisive manner. It also makes sense to define term limits for directors – which provide a built-in juncture at which to reevaluate the composition of the board.

Second, ensure that the board doesn’t become too insulated from the outside world. Boards can easily operate within a bubble. To counter this danger, visit company premises and talk with customers and staff at all levels; invite outside speakers to board meetings who challenge the board’s perspective; and undertake a regular board evaluation with an independent assessor.

Third, take care to ensure that board leadership is impartial and inclusive. During a board discussion, Chairs shouldn’t express their own opinions prematurely, or seek to impose their views on everyone else. They should give everyone the chance to speak and place their concerns on the table.

Fourth, give the board sufficient space to have meaningful discussions. Alternative courses of action should always be examined. The board should never be bounced into decisions, due to time constraints or a manufactured sense of urgency.

Fifth, encourage the participation of introverts. Introverts may not necessarily push themselves forward, but they may have the best ideas.

Sixth, appoint a Devil’s Advocate. A Devil’s Advocate is a board member who is given a mandate to put forward contrary opinions or dissenting views. Their job is to get alternative perspectives onto the board’s radar, even if those perspectives are ultimately rejected.

Finally, provide board members with the opportunity to analyse major issues in advance of group discussions. This enables them to start developing their own views without at this stage being influenced by other board members. Studies have shown this approach delivers better outcomes in comparison to a pure group brainstorming process.

About the author

image of Dr Roger Barker

Dr. Roger Barker

Director of Policy and Corporate Governance, IoD

Dr. Roger Barker is Director of Policy and Governance at the Institute of Directors, and a member of the Management Board. Dr. Barker is the author of numerous books and articles on corporate governance and board effectiveness, including the recent volume: ‘The Law and Governance of Decentralised Business Models: Between Hierarchies and Markets’ (Routledge, 2020). He is a former member of the European Economic and Social Committee and the founder of a successful corporate governance advisory company. A former investment banker, Dr. Barker spent almost 15 years in a variety of equity research and senior management roles at UBS and Bank Vontobel, both in the UK and Switzerland. He has a doctorate from Oxford University and taught politics at Merton College, Oxford (2005-2008).

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