Board Behavioral Dynamics: Implications for Board Effectiveness
Understanding board behavioral dynamics is essential for effective corporate governance. Traditional views have often focused on economic and legal aspects of board dynamics, but there's growing interest in the behavioral processes that influence decision-making in the boardroom. Here, I'll outline some practical insights and strategies board members should keep in mind for enhancing board effectiveness through improved behavioral dynamics.
First, it's important to recognize that board members, like all humans, are not purely rational actors with complete information, but rather use a set of filters when processing incoming information to ultimately make strategic choices. To counteract this, fostering a well-functioning team is crucial, so that the unique perspective of each board member can be incorporated. This implies the importance of “teamness” or behavioral integration, where board members collaborate, share information openly, and leverage each other’s strengths. Research shows that high teamness in executive teams and boards improves both strategic decision quality and organizational performance. To achieve a high level of teamness, it is important to encourage diverse perspectives and in-depth discussions of decision alternatives.
Second, the role of the Chair in managing the group process should not be underestimated. Board members typically come from different organizations, with their own perspectives and experiences regarding the degree to which a board should and is capable of being a team. The Chair can play a key role in discussing the expectations that board members have of each other, along with the norms of the board´s discussion processes. When board discussions move in an undesirable direction, the Chair´s voice is critical for steering them towards a more appropriate tone.
Third, the way the Chair and the board manage conflict is a vitally important part of the board´s behavioral dynamics. If there is too much conflict on the board, the precious time that board members spend together will be wasted, while the willingness to speak openly and honestly may diminish. Too little conflict is equally disturbing, since this may signal that board members are reaching agreements prematurely at the expense of open conversation and hearing the full spectrum of – possibly conflicting – perspectives. Therefore, the Chair should try to sustain an appropriate level of conflict. When conflict becomes too intense, emotional or personal, the Chair should help board members find consensus and identify common ground. When conflict is absent and everyone seems to agree without due discussion, the Chair should explicitly invite and encourage disagreement.
Directors interested in understanding, and possibly improving, board behavioral dynamics can gain insights from best practices based on Top Management Team (TMT) research. For example, board members can carry out a comprehensive assessment of their interpersonal dynamics as a base for a yearly internal evaluation. Such an assessment can include measures of teamness, the degree of beneficial task-related disagreements, and the degree of dysfunctional conflict. Measures of these processes can be taken by having board members complete a survey, by analyzing meeting dynamics through specialized software, or by having a facilitator engage in conversations with the board.
All in all, taking a behavioral perspective of boards invites members and researchers to consider how boards can get the most out of different perspectives and make decisions more effectively by specifically considering the interpersonal dynamics of teamness and conflict.
2024 IESE ECGI CORPORATE GOVERNANCE CONFERENCE
The 2024 IESE-ECGI Corporate Governance Conference focused on the theme: “Towards a New Model of Boards of Directors”. The different speakers helped analize and debate how boards of directors can navigate challenges like climate change and sustainability, strategy and digital transformation, and CEO succession planning. Leading scholars from various fields, along with CEOs and chairpersons, offered insights on improving governance in today’s disruptive environment.
The IESE 2024 Survey of Boards of Directors provides a unique description of how board directors understand and organize solutions to some critical challenges for their companies: corporate purpose, the board as a team, CEO and leadership development and succession and the role of the board in strategy. This report provides an analysis of the results. You can download the IESE 2024 Survey here.
NEWS&TRENDS.
In an ongoing dialogue with CEOs and board directors, Spencer Stuart recently published a report on major risks that companies face today, and the priorities that boards of directors are placing to the different challenges. Corporate culture emerges as the top priority for board directors and CEOs, followed by access to talent. See the report here.
The evolving role of the Audit Committee is extremely important in times of rising geopolitical, technological and financial risks. This recent KPMG report highlights some of these risks and the questions that both Audit Committees and investors should ask about them. See the report here.
The diversity of climate and sustainability frameworks continues to be an important challenge for companies and boards of directors willing to speed up decarbonization and provide adequate disclosure on policies, goals and results achieved. A recent ISS report sheds some light on this issue and offers some guide on how to operate across different sustainability reporting rules. See the report here.
A Glass Lewis report presents interesting results in the US in the 2024 annual shareholders’ meeting regarding proxy voting and the support for ESG-related shareholder proposals and the views of major assets managers. See the report here.
Activist investor Nelson Peltz and his Trian Fund Management launched a proxy contest against the board of The Wall Disney Company at its 2024 Annual Shareholders Meeting. The Disney board won the contest. One of the key issues that Peltz and his associates raised was the Disney CEO succession planning. This is the major theme of the recent IESE case on Disney and its leadership succession process:F. Arribas and J. Canals (2024): SM-1763-E The Walt Disney Company in 2023: In search of the new CEO. See the case summary here.
