How boards can make better decisions

December 24, 2019

Boards are the ultimate defender of organisational sustainability. They anticipate where the next big challenges will come from and adapt accordingly, or prepare well-thought-out solutions, irrespective of whether the threat or opportunity for competitive advantage might arise from considerable advances in technology, cyber security, bedding down a compliance discipline, or introducing sensitive stewardship that establishes a forward-thinking, dynamic culture.

At least, that’s the theory. The reality today is that compliance requirements largely overwhelm stewardship, resulting in many boards being viewed as unduly formal and distant to the point of being insensitive or, worst of all, completely out of touch. This veneer of impeccable logic often masks a counterproductive boardroom culture which sometimes leads to difficult-to-understand decision-making processes.

Boardrooms are emotive arenas which shape strategic decision-making. Unaddressed, these emotions can act as energisers of power and status which deflect attention from addressing known concerns and generate a lack of productive interaction between board members.

Our ongoing research into boardroom dynamics continually highlights tension and conflict as an inherent part of life in the boardroom. However, the emergence of these emotions is understandable when viewed from the perspective of board directors who are under considerable pressure to make sound strategic and operational decisions.

These individuals have to minimise risk and defend reputation which, if left unattended, will significantly impact the organisation and its stakeholders. The level of detail and information available, and on which boards base their decisions, is often ambiguous, incomplete and subject to a moment’s change. Boards must therefore weigh up multiple and competing strategic demands and stakeholder interests which, due to the dynamics involved, leaves the choices they make open to scrutiny and criticism.

Additionally, board decision-making occurs under time pressures, meaning boards have to work through high task diversity utilising a deep intellectual appreciation of the underlying tensions involved. Factor into this that not all board members share a comparable perspective regarding the prime function of governance – namely oversight of the assets under their care – and calamity can ensue.

For the non-executive members of the board, including the chair, maintaining independence in order to provide meaningful oversight is challenging to achieve, but a fiercely-guarded objective.

In theory, the same applies to executive members, including the CEO, CFO and others who sit on the board. Yet their role is to balance executive tasks and responsibilities against a collective perspective that needs to emerge from reaching a shared view on which strategies to pursue, and the oversight required to police emergent strategic direction.

It is hardly surprising that tension, uncertainty, doubt and stress are inextricably linked with the board decision-making process. Emotions run high but are often controlled in the context of the board meeting. However, underneath this deceptively calm surface lies a diversity of board member interests, beliefs, motivations and passions, all of which set the scene for conflicts in relationships, power plays and unwelcome political interactions.

Emotions are an inherent part of the boardroom struggle
Left unchecked, high emotions will limit the board’s receptivity to new information and making accurate assessments of current and future events. In the context of disagreeable emotions, the board’s willingness to share information and remain connected to the decisions it faces are undermined.

This is often evidenced by directors who pay lip service to others’ viewpoints. The ultimate impact is a ‘paralysed’ board, where directors are intimately aware of the issues at hand, but feel unable to contribute or even raise unwelcome issues for fear of repercussions.

Knowing what to do and how to do it, and then still doing nothing, is the ultimate nightmare scenario for a board. The numerous scandals, corporate collapses and hostile M&As that have taken a disastrous turn have often done so because the board was emotionally compromised and unable to address key challenges.

Unproductive boardroom emotions have both short- and long-term consequences. The end goal is for a board to build trust among its members, and this demand falls squarely on the chair’s shoulders who must negotiate and manage emotions positively.

It is critical that a sense of comfort among board members is nurtured. As the leader of the board, the chair must work through any prevailing negative emotions and speak to each director’s sense of responsibility.

To ensure the issues are not sidelined, the chair must add their evidence-based perspective on how unproductive boardroom dynamics undermine the development of the organisation by asking the question: ‘Do you really wish to contribute to the decline of this organisation, or do we do something about the negatives, and the passivity that is plaguing us?’

How can boards display respect to colleagues?
Being confronted with the impact of their actions, the board directors will face a stark choice – do they continue and further damage the enterprise or face up to the situation? The resulting conversation can focus on how to create sufficient comfort so that meaningful debate can take place.

The tone in the board will become more welcoming to certain critical questions, including:

How do we create safe spaces?

How do we display respect to our board colleagues?

How do we build on and not undermine others’ contributions?

How do we ensure positive boardroom dynamics?’
Arising from all of these challenges is the ultimate question: ‘What is required from the chair to reach a meaningful and balanced view?’

Having set the groundwork for a refreshed and positive dynamic, the chair can work through existing misalignments with respect and appreciation between all board members. By facilitating the resulting conversations, the chair is also recognised as the central point of influence in determining productive boardroom interactions because they have nurtured a sense of comfort enabling all to contribute.

In the words of one director contributing to our research: “X is the seasoned chair and has his finger on the boardroom pulse. When debate appears to be out of kilter, he would say, ‘there is insufficient information, let us move on. I suggest that we revisit this at our next meeting,’ which he always does.”

However, if the chair is unable to harness these emotions effectively, the outcome will be a significantly damaged board, with an emergent dynamic where contributions are largely ignored, or more suppressed than before, and ‘out of favour’ board directors are sidelined.

Within this negative spiral rational deliberation takes second place. Boards deviate off task, and board directors are left with little more than frustration, anger, a feeling of disconnectedness and worst of all, disinterest.

Unpredictability leads to a lack of trust
In the words of one director: “We take half-hearted decisions. What happens to a decision depends on who really agrees or disagrees with it. That makes us unpredictable, and not a body to be trusted.”

The diversity of issues that confront boards make misalignment between directors a normal phenomenon and it should be embraced as such. The core problem involves allowing matters to remain unattended. Such inaction leads to the boardroom’s temperature quickly escalating. Working through these misalignments requires a positive engagement mindset – this is key to nurturing strong relationships – and in doing so the chair’s contribution will be continually tested.

Smart chairs pay close attention to compliance, but they also concentrate on the underlying emotions at play. A board that becomes truly comfortable with working through emotions has its members duly exercise their stewardship responsibilities.

In the words of one chair we spoke to: “Lockdowns have major economic consequences which add to the cost of Covid’s disruption of our supply chains and our workforce. We had to deal with health issues, social isolation, economic uncertainty and fear.

“The use of digital technology, particularly video, can abridge distance but is a poor media for dealing with sensitive issues when the ‘mercury’s rising.’ How we really dealt with that was up to me and the comfort I nurtured on the board. On that, the jury is still out.”

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March 17, 2020

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March 17, 2020

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March 17, 2020

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