Director observations on the warning signs of board dysfunction and potential interventions that can be employed as a countermeasure.
Dysfunction has many guises in a boardroom. The most extreme of these might include frequent involvement of external lawyers, increasing regulator concerns and letters, increased workplace complaints, solvency concerns, a tight focus on conformance instead of performance or strategy, and reports of open warfare on a board.
Sometimes, there are less extreme simmering issues over a longer period of time that culminate in dysfunction if they are not addressed. These include ineffectiveness in execution, poor strategy development, suboptimal behaviour of particular board directors to each other and to management, and poor discipline generally from the chair and the board in response to this. It is often unclear what a board can do, once it recognises a red flag, to reduce the risk of actual dysfunction down the track.
At an AICD panel — Inside the Boardroom: Solving board dysfunction — held in Sydney on 31 July, directors discussed the most common red flags they have experienced across corporate and not-for-profit (NFP) boards, and explained some of the interventions they have used to mitigate or overcome such behaviours.
Spotting the red flags
Lack of leadership, or having, for example, an elected president who doubles as chair of the board in a membership organisation can be a conflict of interest and potentially impede good board governance. The chair needs to have leadership skills, be a competent meeting facilitator, efficient and effective, and free from bias.
While a lack of board discipline is ultimately expected to be an issue for the chair to manage, all directors are responsible for holding each other accountable for behaviours they see as red flags. Directors should be clear about their duties, attend committee meetings, arrive on time and be prepared. The governance requirements for NFP and corporate boards are the same, including commitment to the organisation and an expectation that a board member can commit to the workload the role requires.
Board directors not listening or cutting off alternative viewpoints, as opposed to respectful dialogue and well-made arguments, present another form of dysfunction, because enabling diversity of opinion in the boardroom creates an environment for better decision-making.
If board members develop factions or use meetings to push either their own or sectional interests, this might require the chair to step in. In some cases, director training courses could help to guide members on the appropriate topics and methods of discussion in the boardroom.
It can be a problem if the meeting structure has become formulaic, as it can reduce efficiency and frustrate directors. It can also lead to boredom, inattention and lengthy meetings that waste time, rather than producing actions and decisions to assist with the good governance of the organisation. Agendas that are predominantly operational can be a sign of an inexperienced board, an inexperienced chair, a lack of trust in management or personalities with a lack of trust or high control traits.
Constant board crises can suggest the board is not holding management to account — via the CEO — perhaps because of board dysfunction.
Actions to assist directors
Educating directors on how to make contributions to the meeting is a must. This can be done in real time or outside the meeting by an experienced chair or non-executive director on the board, or via feedback from an experienced external governance or organisational psychology consultant invited to observe the board meeting.
An induction process can help to ensure all new board members are aware of the commitment required, including interstate travel, engagement with members, employees and stakeholders, if required. The chair should offer an exit plan to any director unwilling or unable to commit for the next 12 months.
Improving the meeting structure and reviewing the meeting papers to ensure there is enough information for the board to make an informed decision should assist with director engagement. Consider board size and whether the committees and reporting are enabling the board to perform optimally, and take action if needed.
Engage an external board governance consultant to observe board behaviour and work with the board to improve performance — and the structure of reporting, if needed. Consultants can be legally trained governance experts, HR consultants or organisational psychologists, depending on the board and its issues.
Some conflict within a board is acceptable, as the most effective boards are those that invite and manage differences of experience. However, the cause of the conflict needs to be addressed — by the board and the chair, if necessary. Directors might be able to manage interpersonal negative behaviours themselves, but engaging a mediator can be more productive. It is critically important for all directors to feel aligned to focus on the organisation’s business, rather than on the interests of individuals, especially in the NFP sector.
Dysfunctional boards have often already noted some of the red flags. Taking action is critical. Boards need to ask, what does good governance mean for this board? Do we need help on this? Should we get an external consultant? Do some board directors or the chair need to move on? Blindly following the chair is not good for the performance of an organisation and directors have duties to our members, stakeholders, shareholders and communities to govern to the very best of our abilities.
Jennifer H Martin GAICD is a non-executive director and a member of the AICD’s NSW Divisional Council and the AICD corporate governance committee.
This article first appeared under the headline 'Reading the Signs’ in the October 2024 issue of Company Director magazine.
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