Taking up board membership is a different experience in different companies globally. But boards anywhere are social, complex places. While a two-tier board structure separates operating management from the supervisory corporate board, a unitary board has a single board of directors. It comprises executive and non-executive directors (NEDs) with one key purpose: acting in the best interests of the organisation (and the shareholders).
New members must bring something unique – their own personal stamp. They must add value to the group dynamic. So before asking, “Am I ready?” you need to answer hard questions such as, who are the main players? Are you compatible with the other members? And where does the board fit into the organisation it oversees?
Enron’s bankruptcy in 2001 is an example of what happens when boards go wrong. The group was made up of 15 external directors with hundreds of years’ experience between them: they were highly qualified. Yet the company’s decisions showed poor judgement.
In 2002, management professor Jeffrey Sonnenfeld examined seemingly ‘failed’ boards, including Enron. He concluded that board accountability was a “tricky problem for CEOs”. In a survey of CEOs at the time, he discovered that board members didn’t appreciate the complexity of the businesses they directed. He said: “We’ve all seen the instances when individual responsibility is dissolved in large groups. This certainly appears to have happened at Enron: practically everyone involved has pointed the finger of blame at others.” So, what can we learn?
Rob Goffee, Emeritus Professor of Organisational Behaviour at London Business School, has extensive knowledge on what it takes to be an NED. He has assessed boards as an external facilitator in the UK for 20 years. The questions he asks about the performance of individual members are telling.
Do they bring a particular expertise or experience?
Do they listen?
Do they get to the heart of things?
Are they well prepared? Do they care?
Board members should avoid overselling and under-delivering. They should also get to the point quickly: lengthy unfocused contributions result in other directors not listening and switching off. The underprepared – those who don’t read the papers and don’t know the numbers – get found out.
Professor Goffee’s view on what makes an attractive candidate, as well as a value-adding member once in position, include the following five characteristics. Members need to:
Directors are typically appointed for their experience or expertise, so they have an obligation to prove that their knowledge is well-matched to the board’s needs. “When board appointments are made, members are looking for a particular profile or expertise that’s not already covered. Candidates need an acute awareness of what they bring because, ultimately, the board is looking for someone to fit.
“Take a finance company, for example. Because the delivery of service is becoming more high-tech, a board might look for someone to fill that technical gap. If that’s you: you’d better be good at tech.”
Past success doesn’t necessarily mean future success. Often the very traits that have opened the boardroom door, such as authority on a particular topic, are the traits that derail directorships.
Put in the work
A new board member should work hard to understand all aspects of the business. Boards don’t want members who will only discuss operational issues in areas they understand.
“When you speak, make it count,” advises Professor Goffee. Valuable contributions take work. Some say directors should spend two days a month on board duties. Elsewhere 35 days each year is still not enough. However much time is invested, directors need a long-term view. They are people who “put in the work to benefit in-depth, strategic conversations”.
The next skill helps to achieve this.
It is behaviour as well as expertise that often determines success in the boardroom, says Professor Goffee. While intellectual intelligence – such as the aptitude for analysis and making a strong case for change – can land you a spot at the table, emotional intelligence will keep you there. Listening helps with building relationships and strong bonds: much-needed qualities for good teamwork and effective negotiations.
“There’s great wisdom sitting around the table. Some directors have been on the board for years. You have to tap into that. Sometimes the wisest people are the company secretaries.
“Boards often experience turnover every three to six years. Time and again secretaries outlive members; some have been there for 15 years or more. They can be a good source of insight. They know how a place ticks.”
Are you willing to put the company’s best interests before your own? NEDs are the trustees of their organisations. This means serving the best interests of the organisation at all times.
Professor Goffee says: “If what you understand is narrow, that’s a problem. You need to show that you can see something beyond your area of expertise.” When functional heads become directors the propensity can be to represent the views of their department. However, those responsibilities shouldn’t exclude the rest of the business. You need a broad perspective.
As professor of psychology Dacher Keltner wrote in The Power Paradox, power can go to your head. The path to power often comes from being a good person, being well-networked and acting for the good of others. But, once in power, people can turn bad. Would-be directors should aim to be powerful and caring.
Challenge with an independent view
NEDs have a critical role to play in bringing objectivity to discussions. They should bring an impartial, outside perspective in, based on honesty and best judgement. Board members also need a powerful bond of trust.
Independence of mind is critical, states Professor Goffee. “Directors need to be willing to make a stand for the good of the business.” When self-interest creeps in, so too does compromise. It also leads to a loss of collective independence, which can infect the board.
Boards are designed to keep watch over companies but also to engage at a much deeper level. To test whether you have enough resolve, ask yourself if you would have challenged Enron’s high-risk accounting practices, or the independence of directors perhaps compromised by financial ties.
Boards need to manage their social architecture
While agreed action is a key objective for board meetings, it doesn’t always happen. Real opinions can be hard to unpick – particularly when directors wait to hear other members’ views before offering commitment. Arguably, too many CEOs have been under-challenged by their boards. Think of RBS, VW and Enron.
“Boards need to balance sociability and solidarity,” says Professor Goffee. Sociability is the degree to which people are friendly and compassionate. Sociable board members help each other because they want to. Solidarity, on the other hand, is concerned with “the head rather than the heart”. Members are acutely aware of their shared purpose – and shared interests. They help each other whether they like each other or not.
A board with good social architecture stops short at the cosy club unwilling to challenge (too much sociability) and at the group excessively focused on goals and oppressive measures (too much solidarity).
Effective boards should offer good oversight and strategic direction for the long-term benefit of organisations. But that’s hard, too. In 2016, McKinsey surveyed 1,119 board directors representing varied roles, regions, industries and company sizes. It showed that 52% of directors would like more time dedicated to strategy. It also revealed that ‘ineffective-board directors’ reported a low level of trust.
Professor Goffee says trust is a complex concept. “Effective boards have high levels of sociable trust, in other words, ‘I like you, I trust you’, and high levels of solidarity trust, ‘I trust you because you deliver’. They are two different things. Boards typically need both.”
Trust is fragile, it can’t be faked. It allows for straight talking and cutting to the chase – useful tools for meetings that happen six times a year for a few hours. Trust is also driven by corporate culture.
Boards can help shape guiding organisational values (“This is the way we do things around here”) as well as day-to-day behaviours (“This is my assumption of normal”). High sociability can create higher levels of enjoyment and creativity. On the downside it can encourage indulgence and the formation of cliques. High solidarity can bring focus to tasks and fast response in times of crisis, but can also spark turf battles.
“It’s hard to be friendly and focused at the same time. An NED’s responsibility is both to challenge and support. Support is connected to sociability – being friendly and helpful. Challenge is linked with solidarity – the ability to fully air differences and pull together in the name of action. It’s a delicate dance. But it’s every board member’s responsibility to help to get it right.”