Functional board dynamics can help build culture and avoid conflicts of interest, explains Didier Cossin in his comprehensive guide to best-practice governance.
Over the past decade, we have witnessed dramatic and unprecedented developments in business, politics and society. The main upshot of this has been the growing realisation that governance is the determining factor behind the success and failure of organisations. With fresh evidence of abdication of duty in the corporate and policymaking spheres emerging on a weekly basis, there are growing demands for better governance in different countries, and for all types of organisations — businesses, governments, NGOs and many others.
Governance encompasses the quality of decision-making and implementation at the top of organisations — and the processes to ensure these. Increasingly, boards are seen as having a key responsibility and role as the “owner” of governance in an organisation. It is their competence, structures and integrity — and their interactions with CEOs and management teams — that shape the governance DNA of organisations.
Until a few years ago, governance and boards were considered to be well-understood and operating along standard and predictable lines. As a result, the subject attracted relatively little attention from researchers. The situation changed significantly as more stories of corporate malfeasance appeared in mainstream media, industry publications and academic journals, inevitably accompanied by the question, “Where was the board?”
Indeed, events during the past decade have made it clear that boards can fail in various ways. They have failed to manage risks, failed to contribute proactively to firm strategy, failed to identify the “right” team and, in some cases, failed to deal with integrity issues and possibly outright fraud.
Partly as a consequence of these much- publicised and damaging failures, today’s boards are eager to improve their performance and to continually fine-tune their effectiveness. They have become more cognisant than ever of their role in supporting their organisations’ long-term success by aiming for world-class governance.
Four pillars of board effectiveness
So, if business as usual is not an option for boards, what are the main dimensions to target when trying to make a board function better? How do we distil the key factors that contribute to board effectiveness?
In our work over the years, inspiring the boards of organisations around the world towards greater success, my team and I have identified four discrete pillars of board effectiveness. These are people quality, focus and dedication; information architecture; structures and processes; and group dynamics and board culture.
This simple framework for assessing a board’s effectiveness has a deep-rooted underlying rationale, and its practical application has helped to transform boards for the better in many different contexts. These include large publicly traded companies, family-owned businesses, non-profit organisations and governments across all geographies and in developed and developing contexts.
The four-pillar methodology, focusing on systematic and continuous improvement along each dimension, has proven to be a strong asset for all types of organisations.
The Group Dynamics and Board Culture pillar concerns how board members interact as a group, and what they individually bring to and collectively take away from their discussions. Over time, these dynamics give rise to a specific board culture — a set of customs, practices and often unspoken rules about “how we get things done around here”.
Group dynamics and board culture
As with any group, it sometimes doesn’t take much for a board to go down the path of inefficiency and dysfunction. Sleepy, low-energy boards are sadly quite common. In some cases, dysfunctional dynamics are intentionally used to set a board up for governance failure — for example, through late distribution of meeting documents and not making relevant information available.
But some of the more benign board pathologies can be just as destructive. These include the presence of disruptive or dominating members on the board, or a tendency towards groupthink, where board members avoid any paths less travelled in an effort to ingratiate themselves with the group.
These dysfunctions are often symptoms of a deeper issue, such as a lack of trust or overlapping roles. Governance is enriched by directors’ different opinions and constructive dissent. Having a critical view of assumptions makes for an effective strategy. Yet some firms appoint directors who are close associates of the company’s founder or CEO. They may be prominent figures in their respective industries, but their role on the board is circumscribed by their relationship with a dominant figure in the company.
Interactions between the board and senior management are an important aspect of this pillar. Canadian software company BlackBerry (formerly Research in Motion) once thrived on the long- running partnership and friendship of its two co- CEOs. Once they stepped aside, deep divisions surfaced within the company and the board regarding its flagship product, key technology alliance and planned China expansion, with the new CEO actively canvassing behind the scenes to kill off some of these initiatives. BlackBerry’s share price plummeted and its product offerings were considered late to market.
Although conflict is important for an open exchange of views, boards are more effective when discussions remain productive. This can only be achieved if a board makes its rules of engagement clear to all its members and promotes their equal participation and mutual respect. Functional board dynamics can help to avoid conflicts of interest, especially if the board culture emphasises accountability towards relevant stakeholders and is based on openness and constructive dissent. A culture that ensures board members are connected to reality also reduces the likelihood of them being overconfident.
The chair’s role is key to developing a successful board culture. This can be partly formalised in writing in order to be easily shared and understood. An awareness of discussion styles (such as fast thinking, influencing and the “false yes”) and decision styles (whether autocratic, consensual or indecisive) is similarly essential in managing group dynamics.
Even more fundamentally, boards are now increasingly discussing their common values and the level of stewardship they want to provide to the organisation. Do board members share the same long-term perspectives? Do they have a common view of their contributions to society and of their impact on employees, customers and other stakeholders?
Board effectiveness requires constantly sustaining the four pillars. A board cannot neglect the quality, focus and dedication of its members. Information architecture needs to be carefully designed in order to optimise its effectiveness. Successful boards continuously improve their structures and work processes as they become more sophisticated. Finally, effective board dynamics, based on a culture that promotes quality discussion, greatly contribute to the strategic coherence of the firm.
Excellence in these areas makes for sustainable success in board practices. Although the four pillars do not constitute a foolproof guarantee against board or company failures, they provide a solid foundation for good governance and help to make organisations more resilient. And good governance is becoming increasingly vital around the world.
This article first appeared under the headline ‘Building a Better Board’ in the December 2024/January 2025 issue of Company Director magazine.
An edited extract from the second edition of High Performance Boards: A practical guide to improving & energizing your governance (Wiley). Didier Cossin is founder and director of the IMD Global Board Center.
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