Over the past 20 to 25 years, corporate governance has evolved into a flow of best practices, regulations and guidelines. There is now a multitude of information on structure and a list of benchmarks for different boards of directors; however, many boards still lack an understanding of human dynamics, of how members work together and share power and control with management.
In a recent webinar for The Conference Board of Canada called “Boards Behaving Badly-How to Improve Boardroom Culture,” John Dinner, president of John T. Dinner Board Governance Services, stressed the importance of fostering and defining board culture. After consulting with boards for more than 20 years, he shared his insight on how to achieve better performance across various sectors.
“Board structure and process are important,” he says, “but without culture, good structure doesn’t get you very far. The culture of the relationship, how power and control are shared and what motivates people, is really the crux of many issues.”
In turn, this culture affects how well boards perform and affects the organizations they represent, serving as a “competitive advantage.” Yet, despite increasing recognition of the impact culture has on good governance, Dinner says some boards remain passive, without a roadmap, focusing more on input over output.
Issues impeding change
“There is a lack of leadership on behalf of boards to attack the issues and make deliberate changes and shape the culture,” he says, pointing to reasons such as concern over not knowing where changes may lead or the broader aspect of society.
As a Western society, we tend to be more individualistic, he says; many people lack team-work experience. As such, individuals who are recruited to boards are accustomed to making unilateral decisions, rather than collaborative decisions with people they may or may not choose as board members. Collective thinking dominates as individuals show influence over a group. This results in little freedom for different perspectives.
Other negative factors interfering with defining board culture include blindly following generic best practices to meet “mere compliance” or explain loopholes. “A lot of boards have become handcuffed,” Dinner says, “trying to live up to new or emerging guidelines, many which may or may not meet the needs of the boards they serve.” He encourages clients to analyze and question if such practices will help them perform better or if they’re being adopted in a “half-hearted manner.”
Such as the passive response to gender imbalance in Canadian boardrooms. “There are individuals speaking publicly, but still not a lot of intake,” he says, adding that as thresholds are being applied in other countries, lack of board leadership in Canada means boards will be forced to comply with thresholds in a culture that has been “static” rather than decide what needs to be proactively addressed.
With no passionate appetite for culture change, and no process in place to assess culture, Dinner suggests five questions every board should try to answer to implement proactive change for broader issues or to deal with individuals, like boardroom bullies. The idea is that boards spend a half-hour on each question, one per meeting.
What does governance mean for your organization?
Rather than using standardized definitions, it is important to think about how each director would define governance and what it means for the organization. When Dinner attends client board meetings, he often hears words like ‘compliance’ or ‘leadership.’ These words focus on input rather than outcomes and a diversity of views tells him that the board members haven’t taken the time to figure out what governance means for them. There should be a common understanding of the board’s role.
What would be lost if your board ceased to exist?
Or, more specifically, what would organizations lose and what value would be diminished if the board no longer existed? When Dinner poses this question to his clients, he says very few have a “ready answer.” He suggests that if regulations and guidelines are meant to produce good governance, then a board should define its contribution to the organization it oversees and what strategic value it generates that makes an organization more competitive.
What is the boardroom culture?
Boards rarely define boardroom culture; however it is much more effective to proactively define the culture a board wants to have or commits to. Rather than applying a code of conduct, which is often a list of rules, Dinner suggests boards embrace a covenant to conduct themselves in a certain manner, with an established meeting tone or tenor that they build over time. Culture must be defined along with management, identifying current gaps and looking to the future together, since an organization’s core values are parameters for both management and boards. Issues can be approached from a risk perspective, identifying, owning and finally working through the problems.
What is the working relationship between the board and the CEO?
Many CEOs are often unsure of how they can relate to a board, especially if each member shares a different perspective on how the board should be operated. Despite diverse responsibilities between the two dynamics, an understanding of shared power is key. Often, says Dinner, the board chair assumes the role of a conduit between the vertical hierarchy of management and the horizontal organization of a board, an “inherently faulty structure” that spurs challenges in this working relationship. Issues must be dealt with together, before conflict occurs, while recognizing the reliance boards have on its management group, balanced with an understanding of how to maintain independence.
What does the board aspire to become?
Looking into the future is perhaps the most powerful tool. All boards should pose this question: “If we could fast forward, what would we want our legacy to be?” Dinner says he worked with a challenging stakeholder board dealing with various power politics. “But what they were able to do was come up with a vision to say this is what we commit to becoming down the road,” he says. “That really served as a touchstone, a filter for doing the right things.” Consequently, postures between board and management evolved with the constant reminder of a long-term goal to be recognized as one of the best boards in Canada—a goal this board achieved three years later.
Rebecca Melnyk is online editor of Canadian Property Management and Building Strategies & Sustainability.