How to make boards better is an age-old question. Research has shown time and again that they’re critical for decision-making and that when groups rather than individual leaders are made accountable, it increases a company’s odds of success. But how well do boards perform against this ideal?
Research conducted by Harvey Nash in association with London Business School’s Leadership Institute indicates that boards around the world could do much better.
More than 650 non-executive directors and chairs from across the UK, Nordics and Asia Pacific region were asked: how comprehensive is your digital strategy? The results showed that 86% of boards struggle to set a digital strategy despite the clear need for a more integrated approach.
As Christine de Largy, Chair of the UK Board Practice at Harvey Nash said at a recent Leadership Institute event: “You’re either a disruptor or you become disrupted.” More and more we are seeing companies battle their way through digital unknowns with the help of technical experts. CIOs are taking up boardroom seats as the “defenders of disruption”. But how should boards deal with such a high level of technical expertise?
There’s a danger that when technical specialists take up boardroom positions the rest of the board defers collective responsibility. Logic might suggest that the more experts the better, but in practice it can sap the board’s ability to make complex decisions based on their valuable experiences, business acumen and sound questioning, in addition to technical expertise. Moreover, relying on a CIO can lead to ‘cognitive entrenchment’ by the expert – often, the more specialist a CIO is, the less able they are to flex their thinking.
As with any technical speciality, it’s helpful to rely on expertise, but the board must also share collective responsibility. Consider upskilling the board through education, mentoring and discussion, or perhaps introduce specialist committees to bring relevant information to the board’s attention.
One of my own areas of research shows that information sharing, broad participation, cohesiveness, clear decision-making processes and goal clarity all predict group performance. When senior executive teams collaborate effectively as a group, the company achieves better financial outcomes.
Alarmingly, more than a quarter of board members report never having experienced an external effectiveness review, suggesting that many boards do not prioritise how they operate as a group. One of the hygiene factors of high-performing teams is how they share information. This principle is not limited to how well board members share information with each other, it’s also far-reaching: the board must ask for the right amount of information from the business itself.
Be warned: when non-executive directors reach too far into the business, they often find themselves wading through irrelevant, granular detail. They should know when to say, “Enough is enough!”
Paul Myners CBE, who has been on the board of 12 FTSE 100 companies, offered clarity on the topic at the Leadership Institute event. He said that boards must receive appropriate information in a timely manner and recalled the best boardroom report he ever experienced.
“I was on the board of a company where the CEO’s English was not great,” he said. “As a result, the papers were short and more focused.” The snappy information meant that the board asked critical big-picture questions and took a longer-term view, he said.
Too many boards are drowning in too much meaningless information, meaning they’re unequipped to ask the right strategic-level questions. A good board will say, “This information is not helpful, we need information on X, Y and Z instead”.
Board members need to constructively challenge and be a ‘critical friend’ to management. To do this, board members need two feel two things simultaneously. First, they need to feel that they have a unique contribution to make (diversity), and second, they need to feel that they belong to the group (they want to be a part of the group and the group wants them). Candidates are too often brought in primarily to ‘fit in’ which serves the feeling of belonging but does not serve the unique contribution point. And sometimes boards search for diverse perspectives but do very little to make the new members feel that they belong there.
Note here that the meaning of diversity varies from region to region. According to the report, the Nordics seek diversity through international skills while the Asia Pacific region looks for diversity through cultural and academic backgrounds. Boards in the Asia Pacific region are also less likely to seek either gender diversity or functional expertise than their UK or Nordic counterparts.
So how effective are boards at finding diverse perspectives? The answer here again is “could do better”. Less than half of respondents have created internal commitments to diversity (43%) and only a third (29%) are using external search firms to assist them in identifying candidates from outside of their existing networks. The talent pool from which boards are drawn is often too narrow and the search begins and ends within a closed network. Not surprisingly, even where there may be some degree of visible diversity, that diversity does not always achieve different perspectives typically associated with greater innovation and financial performance.
Along those lines, one respondent from the Nordics, Pia Gideon, Chair at Klövern AB, said: “Diversity is not about numbers – it is about attitude.” Believing that diversity is a tick-box exercise consisting of gender, race or national origin is an easy trap to fall into. But it's all of that and more. Non-executive directors need to be a ‘critical friend’ – they must question the status quo to head off groupthink and push for the best company decisions.
If directors are appointed because they meet diversity criteria – say, race, expertise or gender – but they exhibit the same attitudes, skills and behaviours as the rest of the board, has the level of board diversity really moved on? Conflict is a catalyst that drives change in a group, so too many “yes” people equates to slow progress. Only half (49%) of board members feel that addressing diversity on their board is a concern.
You need to ask whether your board is inclusive as well as diverse. Board-member selection needs to embrace two seemingly contradictory ideas – candidates do need to ‘fit in’ but they also need to have a unique and relevant perspective. Great board inductions reinforce both similarity and difference with the rest of the board. Effective board members are able to engage in a rich, honest debate, offer differing perspectives and question each other – and they interact with each other as they would a friend.
In 2002, Lord Myners wrote a template letter for new non-executive directors. To this day it remains largely unchanged. It sets out that board members should be inquisitive by nature and reads in part: “The board should question intelligently, debate constructively, challenge rigorously and decide dispassionately. The board should listen sensitively to the views of others inside and outside the board.”
Binding together collective responsibility, better information sharing and diverse thinking is the propensity for curiosity. It takes a curious board member to question rigorously and assess, for example, risk. But it’s down to the chair to ward off unhelpful contrarian behaviour and manage conflict.
In reaching for better boards, organisations must start to prioritise inclusive cultures. When “return on inclusion” becomes a business imperative instead of a nice-to-have, boards will accelerate their impact and create the kind of superior value their company and shareholders truly deserve.
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