Navigating the Human Side of Boardroom Interactions

Improving Relationships at the Top

Thomas Sieber

• Publisher: Business Expert Press
• Year: 2022
• ISBN:
  9781637422182
• Topic: Business
• Subtopic: Corporate Governance
• Index: Business

Board members often struggle to identify their true role, caught between the Chair and the executive board. As a result, board members frequently have doubts about their role and personal impact; doubts which are rarely acknowledged nor addressed. By focusing on the most impactful driver of success – the human behavior – the author explores how to create a strong board team whose members are clear about the team's role, are able to talk about their concerns, and are therefore also comfortable to listen, to challenge, and to support.

Based on around 60 interviews around the globe and his own board experience, this book will help Chairs to form a strong team, build a resilient relationship with the CEO, assess how to use their considerable power, and when to show self-restraint. Navigating the Boardroom supports board members and managers in reflecting on how to navigate the complex web of boardroom relations and provides both practical and attitudinal tips.

PART I

The Board of Directors

CHAPTER 1

The Picture From the Past

The best time to plant a tree is twenty years ago. The second-best time is today.

—Chinese Proverb

Grant me the serenity to accept the things I cannot change, the courage to change things I can, and the wisdom to know the difference.

—Reinhold Niebuhr

Boards Were Passive and Formal Institutions

Boards were traditionally considered to be formal and passive institutions (Mace 1971). The prevailing wisdom was to get along and not expose yourself (Sonnenfeld, Kusin, and Walton 2013). As one CEO describes the phenomenon: “In the boardroom, the thinking is: ‘You have to be equal. Don’t be overwhelming or dominant, don’t hurt feelings, and don’t take someone’s chair’” (Sonnenfeld et al. 2013). So, rather than playing to win, you play to avoid losing:

BM: I am in—I want to get along. No reason to expose myself.

As a traditional board member, you may be delighted to belong to a prestigious circle providing external admiration and decent financial benefit, especially considering the time spent on the board’s mandate.

You were likely chosen to join the board by a Chair who knows you well. You could therefore feel stronger loyalty to the Chair than to the company. In the event of doubts about raising your voice on a critical issue, this could make you more likely to choose to be silent.

Indeed, my quantitative research (Sieber 2019a) confirmed that. The relational silence motive—not to speak up because you want to protect a relationship—is a strong motivator to remain silent. On this basis, boards who wish to debate should restrain themselves from recruiting from the “old boys” network.

BM: Sometimes board members are too good buddies of the Chair and therefore they are not ready to “rain on his parade.”

From an insider perspective and past experiences, it’s unsurprising that a strong Chair and management prefer a restrained board, where board members have prestige without putting in too much effort. Obligations outside of board member roles more central to their careers are another reason not to engage at full throttle. A likely outcome, then, is a somewhat passive board. Describing such a picture is a gross generalization. Still, I would be surprised if many board members disagreed with my overall painting of the reality of board members from the past.

The Wrong Focus on Formal Independence

For a long time, the academic world focused on seemingly quantitative topics like board member demographics and formal independence. A hot topic was the demand to get independent directors on the board. Jensen and Meckling (1976), in their influential agency theory, made the distinction between the “non-independent” (insider) director and the “independent” (outsider) director on boards. The general assumption was that independent directors lead to better board performance; “independence” meant being an outside director with a tenure of less than a specified number of years.

Corporate Governance Guidelines of proxy advisors like ISS or Glass Lewis stress formal independence. As an example, Ethos (2018), a Swiss advisor, had written—promisingly—in its proxy voting guidelines that “a person’s independence is fundamentally a question of character,” only to conclude: “It is thus necessary to evaluate the independence of board members against generally accepted objective criteria,” ending in a list of conditions to be fulfilled to qualify as independent. This point neatly shows our propensity to what can be measured, controlled, and even audited. But external parties can hardly address the real issue: independence in mind, to which I will return in Chapter 5.

Around the turn of the millennium, major crises hit the corporate world. A common perception was that those scandals could have been avoided if boards had taken their responsibilities more seriously. Lawmakers and regulators reacted: corporate governance was the salvation. I was general counsel and secretary of a board of a publicly listed company at that time, so to a certain extent formed its corporate governance structure. Corporate governance regulation and, quite often, “soft” law brought many good initiatives that it is hard to imagine today’s business world without. However, the new rules and regulations also led to a checkbox mentality, focusing on legal and structural issues since the lawmakers had no other access to board rooms.

Unfortunately, new scandals were still hitting the corporate world. Companies like Enron who had a stellar reputation and shining corporate governance—at least on paper—went bankrupt. What went wrong?

As it transpires, complying with governance requirements advocated by governing bodies, proxy advisors, and shareholder groups was insufficient (Griffin, Larcker, Miles, and Tayan 2017). Finkelstein and Mooney (2003) conclude that “academics, consultants, and reformers pursue the holy grail of independence” without success because they tend to look at the “usual suspects,” such as formal independence, which ultimately seem to be irrelevant.

Research has found no systematic relationship between either the board’s independence based on formal criteria (Dalton, Daily, Ellstrand, and Johnson 1998) or tenure (for an overview of research, Johnson, Schnatterly, and Hill 2013) and company performance. Stevenson and Radin (2015) concluded that formal “independence does not necessarily translate into the ability to influence others or result in the independence of decision making.”

While the law encounters significant hurdles in accessing inner dynamics and the often-hidden and unconscious sides of the decision-making process, the following quote from the Swiss Supreme Court (BGE 4a 129/2013 E 4.3) is remarkable: “It cannot be excluded that the wish of the Chair influenced the decision of the board to grant the loan and that the board members felt obliged or maybe did not want to risk their board seat.” The quote raises specifically the question of whether a board member is unwilling to risk his or her seat and, therefore, does not act as a genuinely independent director.

A Board Is a Group of Human Beings With a Social Contract

Researchers (Pettigrew 1992 or Finkelstein and Hambrick 1996) demanded that future research pay attention to the board’s behavior and decision-making process long ago instead of a demography–outcome approach. Lawrence (1997) pointedly states: “Traditional demographic indicators leave us at a loss as to the real psychological and social processes that are driving executive behavior.” The output of boards is mainly cognitive. Therefore, Forbes and Milliken (1999, p. 492) suggest “that the effectiveness of boards is likely to depend heavily on social-psychological processes, particularly those pertaining to group participation and interaction, the exchange of information and critical discussion.”

Roberts, McNulty, and Stiles (2005) argue that actual board effectiveness “depends upon the behavioral dynamics of a board, and how the web of interpersonal and group relationships” functions. Depending on board composition, behavior can trigger very different reactions, making it hard to draw the line between good and bad for the board. Looking at those intragroup dynamics—often referred to as “soft” issues—is less accessible and controllable but provides “the most significant learning opportunity for boards” (Griffin et al. 2017).

Frustrated with the superficial thinking of the industry around governance, William Donaldson says: “The most important part is the least examined: the board is a social entity. And the human beings on it—they act like human beings do in groups.” Donaldson is surprised that more work has not been done to illuminate “the social contract within a board” (Donaldson; cited in Sonnenfeld et al. 2013).

The public and the media have zero, and lawmakers and regulators have minimal access to boards’ inner dynamics. But with pressure to tame boards and managers, we should not be surprised that lawmakers were focused on formal issues which can be controlled and audited.

What about the investors? More prominent investors can gain access to board members, and the topic of corporate culture has finally got the investor’s attention. Culture is critical to a company’s long-term success, and boards must play their role in defining and shaping it (State Street 2019; BlackRock 2019). The Prudential Regulation Authority of the Bank of England (2018) also stresses the Chair and the CEO’s leading roles in shaping the right culture. We cannot talk about corporate culture without looking closely at the culture and interaction both within the board of directors and with the executive board. As a famous proverb states, “The fish begins to stink at the head.”

But what about the board members themselves? How keen are Chairs to have real debates in the board room? How ready is management to have a board team that asks questions? As I have already stressed, human beings, and board members, in particular, tend to shy away from personal issues or conflicts. Still, boards should tackle their responsibility to address the crucial problems that cannot be easily regulated.

The Challenge of Change in the Boardroom

Discussion of behavioral issues in business is becoming more common, even on boards. Many interviewees were open to discussing those issues, but the current board reality still lags behind, and western culture does little to support openness.

As Schein and Schein (2021, p. 68) put it:

We see U.S. culture reinforcing tacit assumptions of pragmatism, individualism, competition, and status through achievement. These assumptions introduce a strong bias for getting the job done, which, combined with individualism, leads to a relative devaluing of relationship building, teamwork, and collaboration, except as means to the end of t...

Table of contents

• Cover
• Half-Title Page
• Title Page
• Copyright
• Testimonials
• Description
• Contents
• List of Figures and Tables
• Preface
• Acknowledgments
• Introduction
• Part I The Board of Directors
• Part II Board Interactions
• Part III Reflection and Board Evaluation
• Summary
• Appendix 1: Board Members’ Self-Survey for Board Evaluation
• Appendix 2: Survey for Management’s Input for Board Review
• References
• About the Author
• Index
• Backcover