Patricia Hui FCG HKFCG(PE), lawyer and governance professional, highlights the way better board dynamics leads to a more effective board and better governance.

There are two essential aspects to boardroom dynamics. The first aspect focuses on the dynamics of boardroom interactions that we might observe in a board meeting. It relates to how boards behave and interact rather than the tasks they perform, and how they discuss issues and make decisions rather than the issues themselves.  

The second aspect relates to how these dynamics shape, and are shaped by, culture and behaviour outside the boardroom. This broader aspect includes the topics of culture and systemic stakeholder engagement, but this article will focus on the first aspect described above.

The importance of boardroom dynamics

Since the Cadbury Commission produced the first UK corporate governance code in 1992, corporate codes around the world have outlined – with increasing sophistication – what boards are supposed to do, what outcomes they should focus on and what structures they should use to achieve this. 

However, an emerging view is that while this focus is important and necessary, more is needed for boards to achieve their responsibilities in practice. In addition to what tasks boards must do and what outcomes they must achieve, we also need to consider how they function, the group processes that underpin them and the behaviours that board members may display individually and as a team. 

There are a few reasons why boardroom dynamics has gained recognition in recent years. There have been (and unfortunately continue to be) multiple governance failures even though board compliance boxes are ticked on paper. Enron and Volkswagen are classic cases of externally lauded but internally flawed boardrooms, which highlight that while code compliance is necessary it is not sufficient on its own. The ultimate impact of these high-profile failures is that people start to question, not whether the more structural elements of compliance are correct, but rather whether they are enough. Also, if they are not sufficient, what other factors might play a key role in appropriate governance? 

A second driver of boardroom dynamics recognition is how behavioural aspects have been increasingly included in the latest versions of governance codes. Taking the UK’s corporate governance code as an example, in 2010 the code only included a requirement to evaluate the ‘balance of skills, experience, independence and knowledge on the board’. In the 2018 version, not only is diversity an additional consideration, but ‘how effectively members work together to achieve objectives’ is also included (in Principle L). Similarly, Principle J, which relates to board composition, mentions the need to account for ‘cognitive and personal strengths’ when considering appointments and succession. 

Similarly, the updated version of the Guidance on Board Effectiveness (the Guidance), published by the UK’s Financial Reporting Council in 2018, provides more rigorous and practical advice on culture (37 mentions), behaviours (26 mentions) and even dynamics (2 mentions). The Guidance also points out that the role of the nomination committee is to select directors with a diversity of personal attributes, and that the committee ‘will want to ensure the board is comprised of individuals who display a range of softer skills, such as... sources of intellect, critical assessment and judgement, courage, openness, honesty, tact, ability to listen, ability to forge relationships, ability to develop trust [and] strength of character’. This is one example of how codes ensure that boards are now more cognisant of the behavioural elements of their practice. 

Various human factors are gaining wider recognition in the workplace, including talent management, company culture, stakeholder voice, employee engagement, resilience and well-being, and they are bubbling to the board. There has also been a recent shift in our understanding of how best to lead in the modern workplace from traditional authority-based, command-and-control hierarchical methods to more authentic, democratic, relational and systems-based leadership. Leadership is less about a particular person and more about leadership behaviours that can be exhibited by, and be the responsibility of, everyone in the team. 

There has also recently been an increased focus on corporate ethics and reputation. Again, there is a growing appreciation that ethics does not come from simply ticking boxes – it is inherently psychological. The emerging interest in human factors, the shifts in approaches to leadership and the refocus on ethics more generally are laying the groundwork for a ‘psychological perspective’ to become one of the ways to approach governance.

Towards a broader concept of corporate governance

All of these developments have led us to a point where we can turn to look at a broader model of corporate governance. The ‘11Cs Governance Model’ created by Jeremy Cross, a Chartered Psychologist and consultant specialising in boardroom dynamics, considers both the structural and behavioural factors, as well as the individual and board group level factors, involved in building an effective governance framework.  

The 11Cs are organised into four categories, the fourth of which relates to boardroom dynamics. This category includes cohesion, challenge and culture. Cohesion is a dynamic process reflected in a team’s tendency to stick together and remain united in pursuing its goals and objectives despite difficulties and setbacks. Cohesion has several benefits – enhanced decision-making, team motivation and commitment – and is often viewed as a key asset in boards. However cohesion is a double-edged sword. Too high a level of cohesiveness may lead to groupthink, which occurs when the desire for group consensus overrides people’s common sense desire to present alternatives, critique a position or express an unpopular opinion. Groupthink reduces independent and critical thinking. It is therefore important that there is a balance of cohesion and challenge within the board. 

The third C in the boardroom dynamics category is culture. In recent years, culture has become increasingly recognised as a key aspect of good governance. Studies have shown that a healthy corporate culture increases productivity, improves branding and reputation and generates strong loyalty amongst customers, all of which directly contribute to the overall strength and profitability of the corporation, and thus positive long-term shareholder value. 

Board culture can influence, and be influenced by, the wider stakeholder environment, but at its core it is created by the unconscious and invisible values held by individual directors and the board that are manifested in boardroom behaviours. In essence, how your board members communicate and work with each other as a team to make decisions all define your board’s culture.   

While there are many elements of a strong and healthy board culture, one of the most important goals is to establish a ‘culture of inquiry’, where a board fully enlists different ideas and viewpoints, unique vantage points and areas of expertise, and informed questions to cultivate strong collective wisdom. By doing so, boards engage and energise their members, establish trust and candour between board members, use meeting time efficiently, own and support their decisions, and ultimately come to a more thoughtful resolution of issues or disagreements. 

Practical ways of improving boardroom dynamics

1. Awareness of group dynamics

‘Listen to the silence, it has a lot to say.’ This quote, from the 13th-century Persian poet Rumi, highlights the importance of mindful listening and observation in governance. Addressing group dynamics on the board requires:

• deliberate cultivation of an all-encompassing awareness of biases and assumptions, including our own
• embracing acceptance of diverse views
• fostering attention to not only the spoken words but also unspoken cues and subtleties, and
• discerning incongruities as these often give clues to the unsaid.

2. Talent management

A board should ensure that its members represent an appropriate balance between experience and knowledge of the organisation, and specialist expertise or a fresh perspective. Directors should also be considered on their emotional quotient, behavioural competencies and resilience, as these additional qualities will influence the relationships around the boardroom table and their contribution to discussions and decision-making. 

A board should ensure it has a governance structure allowing it to incorporate behavioural aspects into the nomination process. A comprehensive induction process is required to ensure new directors can contribute quickly and appropriately. This process should not only be focused on learning facts about the organisation, but it should also induct the director into the boardroom culture, set ethical expectations for director behaviours, and provide opportunities for new directors to get to know both their fellow board members and members of the management team.  

Reboarding is a process of re-energising and refreshing the board without changing any of the existing players. Reboarding is useful for directors who have been on a board for a very long time, or for an organisation that has changed its business or operational paradigm significantly during the tenure of the existing board. It can help a tenured board better understand how the business operates in its new domain and the new risks (such as cyber risk) the company faces.   

Whether onboarding a new director or reboarding tenured ones, it is important to look at the particular passions, expertise and backgrounds of board members. The programme should be individually tailored to ensure each member has access to the right information and makes the right connections with appropriate members of management. 

Robust succession planning is an important way to maintain healthy dynamics and to ensure things stay on track when tenure changes. Boards should look to develop leadership talent from within by monitoring the performance of members of committees, and succession should be a clearly understood, well-defined and open process.

3. Board team processes

Board directors are appointed because of the experience and insights they can offer, which they have generally developed in positions of authority in their own businesses or other major organisations. If directors don’t understand why others have reached different conclusions, then healthy tension can pivot toward unhealthy conflict. 

It is therefore essential that a board can facilitate processes that generate a team mind so that the directors can trust each other to share information, but also enable them to express high levels of cognitive conflict to enable appropriate challenge. Having a policy framework that sets out an agreed-upon and clear decision-making protocol would be helpful. The policy framework helps the board to shape both the board and organisational behaviours. 

For example, a board-specific code of conduct setting out the board’s ethical expectations for director behaviour and some unwritten rules of board meetings can encourage better decision-making at board meetings, and better relationships between board members, the board and management, thus improving the board’s performance as a whole. 

4. Effective board meetings 

Good internal processes and procedures ensure that adequate information is communicated promptly and clearly to the board, resulting in informed decision-making. Enhancements to board meeting processes, agendas, board papers and the committee structure can make the difference between mediocre and high-performing boards. For example, directors should be encouraged to have input on the agenda – in particular whether they think that the right issues are on the meeting agenda and in the correct order – before the agenda is finalised. Important issues should be put first on the agenda and sufficient time should be allowed for healthy debate and discussion on the important agenda items. Start on time and end on time to show respect for the directors’ time and contributions.

5. Diversity and inclusion

Groups with greater diversity of thought have more significant cognitive potential to generate alternative solutions, to communicate unique insights between group members and, importantly, to reduce the risk of unchallenged decision-making. To realise this potential, the board must also have a culture that supports individuals prepared to share their thoughts and carefully consider what others say. All board members should have a seat at the table and a genuine voice. Inclusion, independence and psychological safety are essential elements of this culture. 

Psychological safety is the shared belief that a group is safe from interpersonal risk-taking. It is about being able to be and show oneself without fear of experiencing negative consequences to self-image, status or career. Psychologically safe group members feel both accepted and respected. Boards can develop an environment of psychological safety by being curious about what other board members think and why they hold a particular perspective. This practice encourages empathy and supports an inclusive culture. It reduces the risk that specific board members may dominate the boardroom discussion and in that way block the opportunity to benefit from the full range of views present.  

When boards achieve a high degree of psychological safety, they have fertile ground for independence of mind, expression and openness to constructive challenge, all hallmarks of the best board decision-making processes.

6. Board evaluation

Boards should know their strengths and weaknesses to govern efficiently and effectively. A board evaluation is when an evaluator from the outside examines the board, its effectiveness, the quality of its decision-making and strategy, and its relationship with executive management. It involves looking at the performance of each director and the various committees, at how risks are managed, and at the internal controls and financial reporting processes. An effective board evaluation process can provide a forum for directors to review and reinforce appropriate boardroom behaviours and ensure that any issues are identified and addressed. To be most effective, a board evaluation should be objective, and the board should embrace its findings and recommendations.

7. Managing conflicts       

Challenge and debate are key to a board’s effective management oversight, stimulating new ideas and leading to robust decision-making. When appropriately managed, tension and conflict are integral to boardroom dynamics. Healthy tension can present as discomfort when discussing difficult topics, during open information exchanges and when directors are engaged in robust debate. Conflict arises when that tension becomes aggressive and escalates to unresolvable levels.  

Identifying red flags that signify a conflict may be brewing in the boardroom is important. There are strategies that the chair or the governance professional can consider to manage tension and minimise the likelihood of tensions escalating into conflicts, including explicitly acknowledging and addressing concerns during the board meetings, holding face-to-face conversations between the chair and the conflicted parties ahead of board meetings in informal settings outside the boardroom, and reminding board members of the higher purpose of what they are working toward (the mission, vision and values statement).

Conclusion

Boards can have the structures, the boxes ticked, and the protocols and policies on paper. Still, if they are not led properly, if they don’t behave as a high-performing team, and if they don’t have proper oversight over the management, they won’t be as effective as they could otherwise be. Therefore better board dynamics leads to a more effective board and better governance. 

Patricia Hui FCG HKFCG(PE)  
Lawyer and governance professional  

Earlier this year, Ms Hui presented a series of seminars – How to Serve the Board Better – as part of the Institute’s CSP Training Series.