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Too many boards are ineffective and risk scandal, according to a survey run in partnership with London Business School’s (LBS) Leadership Institute. The survey charts the issues faced by boards globally. Asked “How effective is your board?” 30% of respondents said theirs was partially effective, largely ineffective or totally ineffective, the Harvey Nash/Alumni Board Report 2018/19 found.
“About 30% of boards appear to be handling debates less constructively than we’d like,” says Randall Peterson, Professor of Organisational Behaviour at LBS and Academic Director of the Leadership Institute. “If we've got that number of boards really not managing their conflict, letting it get personal, putting the business at risk, each one is the next scandal waiting to be made public.”
The high rate of dysfunction is a direct consequence of “worryingly” low numbers of board evaluations, argues Professor Peterson, with less than a third taking advantage of an external review. “An effective dynamic in the boardroom is much more about creating a culture of learning rather than compliance,” he says. “When people are open for learning, in the boardroom they're much more likely to make better decisions than if they're over-worried about compliance.
“The culture you want to create in the boardroom is much more around learning. Board members are then far less scared about maintaining status in the boardroom, which is a good outcome.”
Debbie Hewitt, whose portfolio of board roles includes chairing clothing company White Stuff, says boards need the right kind of evaluation.
“The most useful evaluation is to take a decision that you've made, that's either gone really well or hasn’t gone as well as you thought, and to have it evaluated. From when the idea first came in until the documentation that you reviewed, to the board minutes, to the email trail around it, to the ultimate conclusion. It’s what you've done, not what you thought you said, or your memory. It's there for all to see.”
Leadership Institute’s guidance role
Vyla Rollins, Executive Director, LBS Leadership Institute, says that with guidance a board’s effectiveness can “radically” improve. It is a conclusion that has prompted the development of a framework of board competencies. The Institute is also in process of working directly with certain boards to boost competencies.
“There are boards that I've left after three years, where I felt my values were offended”
“We continue to appreciate that many insights and recommendations we offer are seen by some as difficult, if not frightening, to consider addressing,” says Rollins. “But we feel it is business-critical, responsible and ethical to commit to work on the issues raised. Developing an effective board is a process – which starts with the commitment to exploring what strategies, processes, insights, conversations and commitments can help to create a more effective board.
“We are encouraged that an overwhelming majority of respondents believe external evaluations can improve board effectiveness. The needle is moving in the right direction in regard to evaluation activity, but we challenge those commissioning and undertaking audits to ensure they couple their efforts with definitive, time-bound development recommendations.”
When to resign from a board
The effectiveness of the working relationship between key members of the board and the executive team is a persistent issue for businesses. An ineffective working relationship can lead to conflict within the board and result in low-level lobbying, discussion and decision-making taking place outside the boardroom, which has the potential to harm board integrity.
Almost one in 10 respondents admitted to often or always making decisions outside the boardroom. 77% of respondents said they would resign if they were unhappy with the standards of governance, despite any legal obligation to correct issues.
According to recruiters Harvey Nash, it may be a tempting moral stance to resign when faced with failures in governance but the board has a legal and moral duty of care to act in the best interests of the organisation, which includes all stakeholders, shareholders, staff and customers. Staying and seeing through changes may be the correct thing to do and on other occasions a clean break is required.
“There are boards that I've left after three years, where I felt my values were offended,” says Debbie Hewitt. “Either I've felt isolated or frustrated that I haven't been able to influence anything.
“I resigned from one board over a transaction, where we had a vote. I thought we should sell the business. Two of us felt we should sell the business and everybody else felt we shouldn't, it was the wrong price. I stepped down with a really heavy heart, because I loved the business. I thought I was influencing it, and I felt, from then on in, I was going to be right or wrong. There was never going to be any middle ground. Either the board was going to go on to great things and everybody would be saying, ‘And you wanted to sell this, didn't you?’ Or if the board got into difficulty, I'd be feeling that everybody would be thinking, ‘I told you so.’
“In those situations it's important that you can still feel you can execute that independence, and when seismic things like that were happening, I needed to step down.”
Failures in governance are now widely broadcast with catastrophic repercussions for profits and reputations. For the past four years of the Harvey Nash survey, governance and risk has taken first place on the agenda but this year it is in third place behind cyber security and digital innovation.
Cyber security has jumped to first place on the agenda from fifth place last year, with 72% of boards discussing it more now than three years ago.
“We challenge those commissioning and undertaking audits to ensure they couple their efforts with definitive, time-bound development recommendations.”
Elsewhere, digital challenges are soaking up more boardroom attention and the environment is falling off the agenda. The environmental impact of businesses is not being discussed by 56% of boards. Even in the manufacturing and energy industries, 33% and 41% of respective boards spent no time discussing climate change.
Skills and diversity
Skills shortages remain a problem for the majority of board respondents and the most frequently cited barrier to creating an effective board and business. Diversity is becoming “more a way of thinking than a box-ticking exercise”, the report finds. Almost half of respondents said a lack of diversity in the boardroom is a concern and 42% of boards have discussed the issue, figures that have trended upwards over the past three years.
“Creating real cognitive diversity in the boardroom is not just simply selecting a diverse group of people and somehow hoping for the best,” says Professor Randall Peterson. “It's a much more in-depth, complicated process. People need to feel that they have a role, they belong, they know why they're there and they know what the expectation is for them to contribute.
“What the research is showing is that the most important thing is this sense of belonging. That may sound crazy – you've been appointed to a board so somehow you belong – but when you walk into the boardroom, everybody else knows each other and you're new, the chair comes to you and says, ‘Did you come in on a private jet or did you have to fly commercial?’ You instantly feel, okay, why am I really here? These power games get played in the boardroom. These don't help you when it comes to getting that real cognitive diversity. You need to find ways to make sure that everybody understands their role, where they belong and how they fit in that boardroom.
“If they believe and they understand the role, they will raise issues and you'll get that level of cooperation and competition you're looking for.”
Harvey Nash’s global board practice helps some of the world’s most forward-thinking companies attract, assess and develop their board. Harvey Nash provides evaluation – reviewing the effectiveness of existing boards and recruitment – finding exceptional talent to add strength to the boardroom team.
The mission of LBS’s Leadership Institute is to have a profound impact on the world through supporting the generation and application of rigorous research on leadership. The Institute places the generation and curation of high-quality research at its core, creating multiple platforms to illustrate how evidence-based research can help inform effective leadership practice.
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