Issue 45: March 3, 2022
We have written over the past year highlighting the necessity of recognizing the many roles we play, whether the roles are assigned or expected. Human beings can appear to be many different people throughout the day dependent on the situation or environment. We assume different roles depending on the situation at hand, although our core values don’t change. These roles may blur from time to time, but it is critically important to recognize which role we are assuming and what is expected of us. For example, although we may be natural leaders, we may choose to play a subordinate role when appropriate.
Add to the mix in the roles we play, the subconscious and unconscious bias we carry with us is constantly acting and reacting to the stimuli in the situation or environment that we are in. With ingrained values and biases, everyone has to manage constituents’ expectations (with their own values and biases) in whatever role he or she assumes. Leaders’ actions and behaviors are monitored by others influencing decisions on whether to follow them. Those who serve in a public office are held to task by those that voted for them.
In businesses and organizations, board members, whether for a local charity, private business or public corporation are accountable to many constituents, all of whom have different expectations. Constituents trust a board member (like an elected official) to represent them and the issues or causes they care about. While taking on the responsibility to represent, individuals must also recognize their role and responsibilities to the organization and to their peers on a board. And the individual behaviors, biases and group dynamics at play. Tension results. The balancing act, then, is made even more complex by fiduciary responsibilities, policies and laws.
Boards and activist investors have been making headlines. Let’s take a look at the dynamics of human behaviors that often play out in the board room.
The Board Room
Most organizations have a board of directors. Board members are struggling to help lead in a disruptive economy, guide strategy in an ambiguous marketplace and manage multiple visions, wants and needs among constituents who believe they have all the answers.
Independent members of a board, by definition, are directed to serve with fiduciary responsibility that provides a framework for executive management to stay on strategy and ensure appropriate and required oversight on behalf of shareholders. They do not run the organization; they supervise the executive team in running the enterprise. Sounds simple, but boards may be the most extreme challenge of group dynamics with all its related good and bad behavior.
An effective board is more art than science. And ultimately more common sense than intellectual prowess. Directors must be aware of the shifting nature of their role in an organization and find the right balance between governance and management. We are not going to tackle board governance, business challenges, or question financial reporting — but we are here to bring forward the challenges our own human behaviors create when we assume a director’s role and come together as a group with a shared purpose.
It’s human nature that board directors and executive management come to the table with their values and beliefs baked into their conversation. One of the biggest threats to any organization is the statement, “This is the way we have always done things.” Seconded by board members who say, “This is how we did it at my company when I was CEO.” These attitudes are made even worse when the outcomes are continually disappointing. Holding onto legacy practices is a death knell.
Often boards are hostile to a director introducing new ideas and recommendations. Instead of considering new ideas, some board members dismiss innovation and continue their tried-and-true path living in the past, which is a predestined road to failure. This is particularly the case when the players are company founders or long-standing board members. Change makes individuals anxious and insecure. However, it is essential to create a board culture that is open to change, uses critical thinking to discuss new ideas and embraces change.
Authority bias is also an issue on a board when there is too much deference in favor of one or more people on the board. Authority bias can devolve into over-reliance on subject matter experts on the board, board member veterans who take on personal authority and the member that has the most commanding presence. One way to derail this bias is to call it out in a constructive way in private, supportive interventions.
Authority bias can be amplified by confirmation bias when directors overvalue evidence that confirms their own beliefs. In this case, a member chooses the data that aligns with their own beliefs as they gloss over inconvenient truths. It is exacerbated by a lack of diversity on the board with too much groupthink or selecting new members that won’t rock the boat.
Bias is also at play when members get off track and take the meetings down rabbit holes. These detours tend to serve the egos of members who resist the necessarily constrained agenda and often have something to prove on their own behalf.
2. Abuse of Power
Tension is a fact of life for boards. Disagreement is inevitable and tension in board interactions is not necessarily a bad thing when they can be leveraged for the greater good. In fact, according to Forbes, constructive tension may even be necessary to bring the best out of a board—to drive higher-quality dialogue, and therefore higher-quality outcomes if it is constructive rather than destructive. Dominant bullies can spoil otherwise positive group dynamics. The loudest voice may be only that, a noisy opinionated disruptor. Dissention is healthy when it’s not bombastic or strident.
A board is not expected to have unanimity, but rather a majority – similar to a jury. Harmony among members is a goal and consensus is the ideal. This is not to say that a board should fall victim to groupthink. An overly scripted agenda led by a CEO who does not give enough time for board members to debate and deliberate is a destructive powerplay. We advise clients that a meeting should take as long as it takes to thoughtfully consider the business at hand.
Power can also be abused when a CEO feels he or she is backed into a corner and comes out fighting with the battle cry, “I run this company.” Yes, the CEO runs the company under supervision by the board, which can irk entrepreneurial and first-time CEOs who are used to calling their own shots.
Body language can reveal all. When a CEO demonstrates discomfort and even anger, the tenor in the room (or on-screen) can turn subversive and counterproductive. What we find alarming is that when any director is unaware of exhibiting these emotions. This is a case of extreme subconscious or unconscious bias. The challenge is balancing tension with the need to maintain mutual respect, trust, and support.
3. Creating an Ecosystem
Boards have traditionally been comprised of the CEO’s allies and cronies. This sets up an inevitable legacy mindset that veers toward short-term thinking instead of strategic, long-term planning. Short-term thinking also has implications for more immediate financial gain for an executive team. McKinsey reports that while senior executives can be motivated by shorter-term incentives, board directors must take a long-term view of a deal’s value, and challenge biases that can cloud decision making and goal setting.
Paul Charron, former chair of the Campbell’s and Liz Claiborne’s boards says that the most important job you have as chair is board member selection. He warns to be careful of individuals with hidden agendas or who may be outright seditionists. “You have to have all the boxes checked off for expertise, but you also need individuals who are independent without being freelancers that go off in different directions. Disagreement needs to be collegial.”
An effective board needs to have highly engaged members who are talented, independent thinkers and open-minded. They also need to be niche domain experts aligned with the business and think like an owner. Good communicators who are experienced team players with leadership experience are key. They should be intellectually curious, empathetic and have good common-sense judgment.
What we have found as a nonstarter is a board that reflects the CEO’s viewpoint — without question. What is also destined for failure are board members that do not educate themselves to stay current with the changing dynamics of the market sector. A good example is a technology. McKinsey research reveals that “directors are feeling outmatched by the ferocity of changing technology, emerging risks, and new competitors.” What is the antidote to this lack of digital literacy? The research indicates that “successful boards must ask broader questions about technology and IT strategy. Deeper board involvement provides a mechanism to cut through company politics and focus executives on the big, integrated technology investments needed as digital weaves ever further into the fabric of today’s businesses. This, in turn, requires that CIOs, business executives, and board directors develop a shared language to discuss IT performance.”
A board is an ecosystem and as such requires inclusivity and diversity. The process is to use systems thinking approach examining every issue and opportunity holistically, without bias. Critical thinking, open, honest discussion and mutual respect result in high-performance results. Flexibility and the ability to pivot and embrace change is paramount in today’s highly dynamic marketplace.
Never surprise a board member. A common mistake for any CEO is to not bring initiatives to the board before making decisions. This shortsightedness could be inexperience or something more sinister. Pride, ego and a strong will prevent some CEOs from being transparent to the board. Trust is the single most important factor for any board to work together effectively. Without trust, there is no relationship or safeguard in place to protect the interests of stakeholders, let alone the employees. Many strong-willed CEOs feel they are being leashed by the board. We coach them to understand that the board is mandated to protect executive management, not act as a disciplinary parent. “We’ve got your back,” is the trust watchword for any board.
Trust is built on transparency. Ultimately, the numbers don’t lie, and any attempt at nondisclosure is revealed by objective, evidence-based data. How do you rebuild trust? Charron says, “Acknowledge there is a problem and don’t sweep it under the carpet. Build bridges with influential directors and transparency is critical.” He advises that CEOs establish honest relationships with each board member. And all directors and the chair need to be able to have complicated conversations. A board wants its CEO to succeed. In terms of trust, Forbes reports that “CEOs can convey their openness and humility to the board in many ways, but it requires the courage to be willing to engage in an authentic exchange. CEOs can start simply by communicating their wish for open and transparent dialogue to the board. They can also model how they want to communicate in the way they share both good and bad news (without hyping or downplaying), and in the way, they ask questions and listen. They can resist the urge to present only fully formed strategies, and instead, mobilize the board around emerging ideas and even encourage the board to develop strategic options that differ from the CEO’s own—and give the board enough information, as well as sufficient time and space, to do so.”
CEOs need to lead and manage up. According to Forbes, one of the most critical aspects of facilitating the board experience is the thoughtful curation and preparation of information. We often hear from directors that they are confronted by volumes of information without context and that are often irrelevant. The prevailing executive team practice is that more is better.
What’s often missing is the “why” of what board members are asked to digest. We believe that boards are only as good as the information they have access to. It is not their job to be investigative reporters. Decision-useful information and data is more important than an unimpressively long presentation deck. If reports and strategies are framed by the “why and “how” to support the financials, board members have a better opportunity to intelligently debate the issues. On the flip side, Forbes reports that “It’s very easy for a CEO and the management team to fall into a routine of information preparation that is always the same in its nature. You have the same financial information. The meetings fall into a rhythm and a cadence.” This repetitive programming can result in stultifying routine and complacency.
Charron reiterates to directors, “Be prepared. Read the deck. It’s amazing how many board directors do not read the presentation materials in advance. Furthermore, the executive team needs to deliver the presentation the Friday before the meeting, so directors have the weekend to read and review all the materials.” And he advises that the chair needs to prevent the group from going off on riffs, tangents and not staying on point.
Accountability is also essential to maintaining a functional board. We recommend that the CEO receive an annual review from the chair. Members should be peer-reviewed.
Board members can also benefit from communications with multiple levels within the organization. For example, board dinners should be seated strategically so that each individual benefits from exposure and time spent with a peer who can share expertise and experience.
Healthy workplace culture is one where employees feel empowered to contribute and speak up and have appropriate access to board members. The board also needs to ask the right questions to be informed about workplace cultural trends and issues. To support the organization’s mission and core values, directors need to be able to recognize any negative patterns that are emerging.
It’s important to have tough conversations about the human factors. We live in a fractious society and employees have a lot of power over their organizations regarding diversity, inclusivity, social and environmental issues. Human capital is literal, capital resources, Board members need to be aware of, and sensitive to, the critical concerns of employees including mental health, work/life balance and burnout. Board members also need to be assertive about understanding what talent and skillsets the organization will need to be prepared for the future.
Ultimately, being on a board is a 360-degree proposition, and in order to serve as a backstop for the executive team, members must be informed about all aspects of the organization that impact its financial performance.
Increasingly, board members are required to be renaissance women and men. McKinsey research reports greater responsibilities to require “increased commitments of time and energy, not only during board meetings but also between meetings to stay current and to learn more about the industry, the company, its competitors, and its customers. These responsibilities also raise the premium on carefully protecting the independence that makes boards valuable allies to senior executives, shareholders, and a diverse array of other stakeholders.” The research also indicates the best boards go beyond fiduciary responsibilities to take a more active role in constructively challenging and providing input on a broader range of matters. Since some of these are also the domain of executive management, finding the right place to draw the line between governance and management is as important for senior executives as it is for directors.
Finding Your North Star
At 2040 we work with organizations to lead them through transformation and change. We have expertise in helping CEOs maximize the support of their boards by managing expectations, providing clarity and fine-tuning procedures that lead to positive outcomes. Central to the success of any board interaction is a solid understanding of human behavior and group dynamics. We are here to help build a board and balance the needs of a group designed to lead an organization and stay true to its North Star.
Get “The Truth about Transformation”
The 2040 construct to change and transformation. What’s the biggest reason organizations fail? They don’t honor, respect, and acknowledge the human factor. We have compiled a playbook for organizations of all sizes to consider all the elements that comprise change and we have included some provocative case studies that illustrate how transformation can quickly derail.