More humility for better boards

The burden of legislation and regulation on directors has never been heavier. With more in sight. Even so, we may get no better results from boards, than in the past, unless more attention is paid to board behaviours.

In his major review of financial institutions, Sir David Walker was asked whether the Corporate Governance framework, developed painstakingly over several decades, was ‘fit for purpose’.  He concluded that it was, but added that principal deficiencies in boards of financial institutions (notably, the 2008 Great Financial Crash) related much more to patterns of behaviour than to organisation.

One of his recommendations was that ‘The chairman, non-executive directors (NEDs), executive directors (EDs) and the board as a whole should be independently assessed at appointment and annually.’  He explained that a full psychological assessment includes ‘assessment of behaviour, experience, knowledge, motivation and intellect.’

Therein lies the rub.  Ask anyone if they relish the prospect of a detailed psychological assessment – odds are they will make a face.  But if we don’t all step up and embrace these types of assessment, there is a danger we will never see the blindspots in our own performance, whose resolution is key to improved board performance.

Neither is this view purely a theoretical one: Cass Business School undertook a piece of research – ‘Roads to Ruin’ – on the most notable and costly risk management failures in recent years.  Their analysis identifies ‘Board Risk Blindness’ as one of the main causes.

In separate research, Professor Max Bazerman of Harvard identified so-called psychological  ‘blindspots’ as a serious impediment to good decision-making.

And Professor Philip Zimbardo, in his wonderfully named book The Lucifer Effect describes how the vast majority of us are susceptible to poor decision-making as a result of (now, well-defined) psychological vulnerabilities.

What to do? The advice of Alcoholics Anonymous is apt in the circumstances: the first step is to admit the problem. If we don’t all own up to being victims of these psychological filters, biases and illusions, how can we ever address them?

A no-blame culture is an essential pre-requisite to allow these psychological challenges to be addressed effectively.  What this means in practice is each director becoming aware of his own psychological make-up, and that of fellow-directors.  This enables better challenge and debate – and, ultimately, better decision-making.   There are numerous instruments and approaches that allow directors to explore this area with confidence.

The skills of the chair should not be underestimated in overseeing this process.   The ability to read colleagues’ styles and concerns can make an enormous difference to the journey that the board, as a collective, takes towards improved behaviours.

Company secretaries – as champions of governance – have an important role to play.  So too do skilled independent facilitators.

It is striking that research identifies that of many director attributes, humility is the one that declines most precipitously as individuals climb the corporate ladder to the boardroom.  What we need is more humility to address boardroom behaviours. Otherwise all the corporate governance laws, regulations and policies will count for nothing.

(from an address on board dynamics at the Isle of Man Conference of the ICSA)


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