Setting the right boardroom culture

How to ensure team of directors pulls strongly in the right direction.

George Savvides AM FAICD has seen occasional examples over the years of bad boardroom culture that affects management and damages firm culture.

“It’s often little things: a director checking his or her emails or glancing at a news story during a board meeting, for example. Or being dismissive or disrespectful to their board colleagues, engaging in one-upmanship to appear smarter than other directors, or gossiping.” Worse, bad boardroom practices can damage relationships with management. “I’ve heard of boards that have aggressive cultures that make executives apprehensive about presenting,” says Savvides. “As a result, managers become reluctant to send bad news up the line to boards, organisation transparency suffers and there is a divide with the board.”

Savvides, a former CEO of Medibank Private, chairs ASX-listed biotech Next Science, is Deputy Chair of public broadcaster SBS Corporation, and a non-executive director of Insurance Australia Group and Ryman Healthcare. He has a strong interest in human-capital issues through his advisory role at Sodia, a consultancy that helps align brand, leadership and culture.

Savvides believes management sometimes mirror bad boardroom behaviours. “It sends a terrible message to management when a director looks like he or she does not want to be at the meeting. If the boardroom has a poor culture, there’s a good chance the management team will project a similar attitude and hence culture. And if directors dismiss customer concerns, management probably will too. If there’s no heartbeat or passion at the board for organisation stakeholders – and a genuine long-term commitment to them – it’s a real concern.”

Equally damaging are boardrooms with cultures that are sedate, says Savvides. “The last thing you want is a ‘clubby’ boardroom culture where everybody agrees with everything that’s said, and where group-think sets in. Good boards find a balance of a collegiate, professional boardroom culture with one that is always questioning and facilitates constructive disagreement.”

There has been much talk on the board’s role in organisation culture after last year’s Banking Royal Commission and the Australian Prudential Regulation Authority’s 2018 report on the Commonwealth Bank and its implications for the governance of organisational culture. Far less considered are cultures within boardrooms and how they influence overall firm culture.

The Australian Securities and Investments Commission (ASIC) tried to shed light on this by putting a psychologist in the boardrooms of major listed companies last year. Although useful, it’s possible that the very act of observing boards might have influenced their behaviour in board meetings, and there has been less thought on how boards build strong cultures.

Also, the practicalities of building and maintaining positive boardroom cultures do not get enough attention. How does a board create a strong culture when non-executive directors might only physically be together a dozen days each year for board meetings, site visits or strategy days?

How is boardroom culture maintained when more board work is done online or in digital teams? Or when extra board work is delegated to committees that do not feature all directors?

How does greater diversity among directors – hugely positive for governance – affect boardroom culture? What steps are needed to ensure boardroom culture benefits from a better mix of gender, age, ethnic and skills diversity?

Savvides says the starting point is recognising different organisations have different boardroom cultures. “The culture of a board on an emerging tech firm will be different to the board of a long-established company. Also, each board has its own ‘signature’, in my experience. A director on four boards might, for example, observe four quite different boardroom cultures.”

He believes Chairpersons should create extra time for directors to discuss “shared experiences” in their organisation – for example, at dinner the night before the board meeting. “The main board meeting is usually very busy and has a packed agenda. There’s not a lot of time for directors to share what they’re seeing in the organisation and reflect on those experiences through conversations with other directors.”

Site tours and stakeholder discussions are a useful way to build shared experiences among directors, says Savvides. At Ryman, directors meet with residents and staff of its retirement villages. “The site visits really help directors understand organisation mission and culture through the eyes of stakeholders and provides information for directors to share.”

Savvides says meetings with stakeholders create a healthy boardroom culture. “Directors have a better understanding of the organisation’s role and the people it serves. Being more closely connected to the organisation's mission helps bring the board together around a shared purpose and positively influences boardroom culture.” Boards, says Savvides, should avoid creating extra time to help directors “get to know each other”. “Boards are not social clubs. You don’t want directors chewing up valuable time at a dinner before the board meeting discussing their next holiday. You want them talking about what they are seeing on the ground through their discussions with customers, employees and other stakeholders. And building a three-dimensional view of the organisation that involves right-brain thinking; not just the two-dimensional view that comes from reading board papers or industry reports.”

Savvides says board surveys help test culture. “It’s important for boards to do a light temperature check each year on their culture and a more in-depth review every two years. You want to know if an individual director is a ‘red sock’ staining the culture in the wash.”

Building social systems in boards

Company director John Barrington AM FAICD, says too many boards overlook the fact that they are “social systems”. “Board meetings are usually very busy and meeting efficiency is everything. You leave when the meeting finishes and might not talk to those directors again in person for another four weeks. There’s not a lot of time to build the board’s social fabric.”

Barrington has experienced different boardroom cultures. He is Executive Chairman of Artrya, a promising artificial-intelligence healthcare start-up; a director of Harry Perkins Institute of Medical Research, Creative Partnerships Australia, and John Curtin Gallery; and Chair of the Curtin University’s School of Management Advisory Board. He too believes the Chair should build in extra time around meetings to build the board’s social fabric. “That doesn’t mean creating a social forum for directors or encouraging them to become best friends. Rather, it creates time for directors to step back, reflect and share their views and experiences of the organisation and its stakeholders. It’s difficult to do that during meetings, yet it’s these types of discussions that build the board’s social fabric.”

Boards that have directors who fly in for meetings often have richer cultures, says Barrington. “Directors who live interstate or overseas usually get to the board meeting the day before and a dinner is arranged. These directors often make more of an effort to talk informally with their board colleagues because they know they will spend less time with them in person.”

Building the right boardroom culture can be even harder in the not-for-profit sector, says Barrington. “NFP boards are usually bound by the organisation’s mission and values. But the flipside is NFP directors typically are unpaid and may have less capacity for board dinners the night before or site visits. Creating a strong boardroom culture for volunteer directors can be challenging.”

Barrington, a management and governance consultant in Perth, says boards must think carefully about the design of surveys that test board culture. “You need open-ended interviews where directors can talk freely about how they gauge their performance and that of their board colleagues, how they interact with the Chair and other directors, and their view on the board’s culture and where it might improve.”

A long-term view of boardroom culture is needed, Barrington says. “You can’t judge boardroom culture by observing a single meeting or through one board survey. You have to look at results over several years and understand if and how the culture is evolving, or whether more change is required to align the board’s culture with the desired organisation culture.”