Identity, Power and Influence in the Boardroom

Actionable Strategies for Developing High Impact Directors and Boards

Meena Thuraisingham

• Publisher: Routledge
• Year: 2019
• ISBN:
  9781351039482
• Edition: 1
• Topic: Business
• Subtopic: Management
• Index: Business

Over the last decade, the role of the board of directors in deciding on potentially value-creating decisions has gained greater prominence. Following extensive board research into the origins, reasons, effects and consequences of boardroom influence of directors, this book prepares directors for playing a more influential role in shaping such decisions.

Boards are only as effective as the relationships their members have with each other. Despite this, many of the published guides on board work do not focus sufficiently on the human dimension of governance, nor has there been a comprehensive understanding of the effect that group membership has on the decision behaviour of the individual director, or vice versa.

The author offers the reader actionable strategies to successfully navigate the complex dynamics that are inevitable when a group of powerful individuals with strong individual identities has to work together. Without a realistic understanding of the silent risks that a suboptimal dynamic may pose to the processes of making critical decisions, boards may find their decision outcomes compromised. Despite the best intentions, such dynamics can have a chilling effect on an individual director's contribution, marginalising or diminishing the value of their contribution and their influence on the board.

This book will be a valuable resource guide for aspiring and experienced company directors wishing to strengthen their effectiveness in the advisory role and develop a more influential voice in shaping the strategic direction of their companies.

Part I

Part I, comprising five chapters, looks closely at the board’s role in developing and deciding strategy. In doing so, it recognises that governance does not occur in a social vacuum. Boards are complex social systems, in which accountability is socially accomplished through shared expectations, beliefs, norms and routines. Through their history of interactions with one another on a given board, NEDs are continually reassessing their value and place in the group and adapt their influencing behaviour accordingly. The decision dynamic that results has a self-regulating nature and can enable or inhibit influencing behaviours. These insights have been drawn from extensive inductive, exploratory research into how directors approached the task of shaping and deciding on a transformative strategy in the 15 public companies studied.

The first chapter distinguishes between the theory and the reality in how boards actually exercise their accountability for developing and determining strategy. The remaining chapters draw the distinction between hard and soft governance: hard governance relating to formal instruments of governance such as codes, frameworks, charters, regulation and compliance regimes and structure; soft governance relating to the shared interactional history and ways of working that emerge in a group that has to work with each other, in particular the effects of identification and power distribution on director behaviour. Hard governance does not guarantee effectiveness it provides the conditions for good governace to take hold. Soft governance, on the other hand, determines effectiveness. Both are equally critical for good governance. Part I concludes by suggesting that to be truly effective as an NED and to develop high-impact, influential boards, directors and boards need to pay more attention to soft governance. Nominations committees in particular may be wise to consider the implications for how they go about selecting and on-boarding new directors.

1 The board’s role and accountability in developing and deciding strategy

The theory and reality

This chapter in summary

This chapter describes established theories on the role of boards, especially in strategy, and poses a challenge to these conventions. In particular, it challenges the ‘under-socialised’ explanations that these theories promote, suggesting that they tell us little about how boards really function and even less about how the decision culture of boards can be strengthened. Drawing from extensive research conducted by the author, the chapter contrasts theory with reality that shows a wide variation in how NEDs involve themselves in strategy and the extent to which they engage in a genuinely co-creative process of determining strategy with management. In doing so, it reveals the exercising of board accountability as a relational process. For example, while NEDs might share similar beliefs about board accountability, they differ behaviourally in how they go about exercising this accountability.

Despite this, accountability is often viewed in organisations as a hierarchical process or tool for economic or operational control, and formal instruments of accountability, such as mandates, codes and charters, are often referred to when describing board accountability. This chapter challenges this conventional view that assumes agency prescribed definitions of shareholder rights and claims. A more nuanced view is presented in this chapter, recognising that boards are highly complex social systems and the process of accountability is contextual and socially accomplished through role expectation, routines and interactions between members of a given group.

The chapter concludes with actionable strategies that boards, and especially chairs and subcommittee chairs, can take to ensure that there is real clarity about NEDs’ roles in developing and determining strategy, paying special attention to the social dimension in how accountability for strategy is exercised.

The very idea of a board is based on the belief that the task of governing a company is beyond the capacity and capability of one person and that the collective capability of a group of people is better placed to do the task. To put this another way, it is assumed that the knowledge, skills, insights and networks that directors collectively bring to bear on their decision-making tasks are much greater in value than that of a single individual, no matter how experienced they are. Combining this collective knowledge and these skills, insights and networks is also more likely to neutralise any implicit biases that a single individual’s perspectives may bring.

That is to say that directing is a relational concept in which agency occurs through interactions with others and this process is dynamic rather than additive (Thuraisingham 2018). Part 1 of this book reports on research that addresses this issue of the antecedents and moderators of board influence from a behavioural perspective. First, an outline of the formal and legal conventions relating to the role of the board is necessary.

The role of the board—theory and practice

There are seven major theoretical streams used to describe the role of the board in governing the corporation. These are agency theory (Fama 1980; Fama & Jensen 1983; Zahra & Pearce 1989), stewardship theory (Hillman & Dalziel 2003), resource dependence theory (Gulati & Westphal 1999; Pfeffer & Salancik 1978), resource-based theory (Barney 1991), class hegemony theory (Filatotchev, Jackson & Nakajima 2013; Judge & Zeithaml 1992; Mace 1991), managerial hegemony theory (Stiles & Taylor 2001) and stakeholder theory (Donaldson & Preston 1995; Sternberg 1997).

None of these theories on their own can describe, capture or fully explain the complexity of governing a corporation. Further, at various stages of a corporation’s life cycle, different perspectives may be more relevant in explaining what is happening. For example, the life cycle of a company, transformation within the sector, competitive forces, disruptive technologies and systemic sector risk may bring one or more aspects into prominence. Changing societal expectations and stakeholder expectations, financial conditions and crises that may trigger regulation or re-regulation may also require a board to play different roles at different times. What is the task that boards need to accomplish? Generally, the board of directors has three interrelated tasks they have to accomplish.

First, a board is involved in setting the strategic context by providing overall direction on corporate strategy, mission or vision and overseeing the strategic development of a company, including approving strategic proposals. This is often characterised in literature as an ‘advisory role’ (Demb & Neubauer 1992; Ruigrok, Peck & Keller 2006). Second, a board manages succession for a CEO role, both hiring and firing a CEO, evaluating performance and providing wise counsel to a CEO and executive directors based on their experience and expertise; this is characterised as a board’s ‘service role’. Third, a board controls, supervises or monitors progress towards its objectives, including overseeing financial and other forms of risk. This role, which is focussed on the protection of shareholder interests, is often characterised as the ‘control role’. All three (advisory, service and control) components of a board’s accountability require extensive communication and deliberation, and members must learn to trust each other’s judgement and expertise. Following decades of focus on the control or monitoring role, researchers into board work and board life have started adding a deeper understanding of the inherent challenges associated with all roles and tasks of boards. Leading this movement were process researchers such as Pettigrew (1992, 2001), Pye (2002), Pye and Pettigrew (2005), Maitlis and Lawrence (2003) and Samra-Fredericks (2003), who adopted a ‘social actor’-driven and context-rich explanation of board function to suggest that boards are only as effective as the relationships their members have with each other. They argued that board work is often characterised by uncertainty, incomplete information and interdependency and, hence, relationship trust is key (Pettigrew & McNulty 1995b; Pye & Pettigrew 2005).

However, there is a fourth role. This is related to the links that directors provide a company to its external environment, including performing functions to enhance a company’s legitimacy. This is sometimes characterised as a director’s ‘resource provision role’ and is explained by the resource dependence theory (Pearce & Zahra 1992; Ruigrok, Peck & Keller 2006). Recent research has examined how those external links enhance the director’s legitimacy in the eyes of their peers, which determines how their attempts at influence are received and responded to (Thuraisingham 2018). These social effects and their consequences are explored more fully in Chapter 3.

Despite the somewhat ‘linear’ descriptions advanced by researchers and academics, the reality is more complex as directors are confronted with several paradoxes inherent in their roles. There are three paradoxes facing boards (regardless of governance jurisdiction) that reveal significant role and task complexity. The first paradox relates to board authority; in a relative sense, management exercises considerably more power through the control of infrastructure, information and knowledge than board members, regardless of how well informed they may try to be. Second, board members are expected to provide critical judgement on management performance. This presumes a depth of knowledge and intimacy with the workings of the company, and yet, at the same time, the board must assure that their judgement is independent, which requires detachment and distance from the workings of the company. The third paradox relates to the collective strength of the board as a close-knit group, yet members must be independent personalities resisting ‘groupthink’ by raising critical questions with their equally experienced peers. In relation to this third paradox, we know that just because NEDs are independent of the company does not presume they are independent minded.

These three paradoxes were succinctly captured by Roberts, McNulty and Stiles (2005) following an extensive study of UK-based directors and chairs that led to the Higgs review into board governance in the UK as three behavioural couplets: engaged but non-executive, challenging but supportive, independent but involved.

The author’s own research has built on these ‘couplets’ reported in the McNulty et al (2005) study and reveals a rounded, fuller picture of the dilemmas directors face when shaping strategy. Dilemmas unlike problems cannot be solved, only managed. Therefore, it requires NEDs to use a skilled combination of behaviour to manage the many dilemmas they encounter when dealing with management and with each other:

When interacting with management with respect to exercising the board role

• Informed but Heedful
• Challenging but Supportive
• Detached but Involved

When interacting with board peers with respect to dealing with the collective task at hand

• Skill and will/courage
• Tenured experience and beginner’s eye
• Allegiances/personal ties and independent mindedness

For instance, with regard to the skill and will balance when interacting with board peers, NEDs are faced with a power structure into which they must fit and it may demand some courage to challenge a view advocated by others who are perceived to have a more powerful place in the group by dent of their accumulated experience, reputation and connections. When NEDs are not able to manage this boardroom dilemma skilfully it can result in deviant views being more easily controlled and conflict potentially surpressed by more powerful or influential subgroups. Revisions of confidence, opinion conformity and self-censorship of divergent views of those in the out-group may result. At the same time, in-groups can engage with misplaced confidence, marginalisation or dismissal of valid concerns and intolerance for dissent or disagreement (sometimes using subtle non-verbal strategies). These findings from the author’s study (detailed in Chapters 2 and 3) further add support for viewing the exercise of board accountability as a contextual and relational process, with trust between individuals at the core of such interactions.

The skill differences in how each director navigates these paradoxes and dilemmas (described more fully in Chapter 4), is compounded by will differences. This is because, within a given board context directors develop a history of successful interactions which, in turn, influences the expectations, conduct and routines (heuristics) associated with their board activities, creating a self-perpetuating system. Directors will differ in their willingness to ‘buck the system’. That is to say they will differ in their willingness to act in ways that are counter to the weight of this interactional history. Therefore, the actual practice of corporate governance can deviate from prescribed principles enshrined in governance codes. Furthermore, the study of instruments of board governance, such as board meetings, strategy days, closed-door sessions, board field visits and extraordinary meetings, commonly found in most modern boards vary widely in the different institutional settings in which they are applied. As such, director interactions and practices associated with the routine use of such instruments of governance are best studied in the context of social and behavioural psychology.

Seen through this prism of social psychology, groups such as boards are complex social systems with their own power structures, affiliations and stated and unstated goals. This relatively recent acknowledgement that corporate governance does not occur in a social vacuum has resulted in an emerging area of study the author calls behavioural or soft governance. As the author’s recent research has shown, social factors, in particular factors such as power and identity, influence the process of making major strategic decisions on which both the personal reputations of directors and the company rides (Thuraisingham 2018). What these effects are, how they occur and their consequences are fully discussed in the remaining chapters of Part 1. The next section focusses on both the theory and the reality of the role directors play in the strategy of the company.

Board contribution to strategy: the theory and the reality

While there is not much argument about the complex tasks facing directors, there continues to be controversy over the director’s role in strategic decisions. This controversy relates...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Contents
• List of figures
• List of tables
• About the author
• Acknowledgements
• List of abbreviations
• Introduction
• Part I
• Part II
• Index