Center for
Issue #48
September 2023
Setting the Tone at the Top: How Boards Can Help Teamness in the Executive Suite

The Top Management Team (TMT) is expected to set the tone for people´s behavior in the organization since it serves as a role model for middle managers and employees. Given that teamwork, collaboration, and integration are inherent elements of the design, rhetoric, and climate of many organizations, as well of factors that contribute to their effectiveness, board members should be worried when they see TMT members exhibiting individualistic and self-centered behavior. Research has shown that a lack of TMT teamness is associated with lower-quality strategic decisions, as well as a corrosive organizational climate and lower productivity. Yet, what can board members do to monitor and manage the TMT´s teamness? Moreover, how integrated as a group should the board itself be? Three types of activities can help the board in this area.
First, put TMT teamness on the board agenda and engage board members and executives in discussions on how much of a team they should be, and what exactly that means. Executives may not immediately see the value of teamwork at the top, saying that it´s not realistic or undesirable at the highest echelon. For example, they may be worried that more teamness may lead to endless debates to achieve consensus, to a lack of accountability, to power struggles and conflict, or groupthink and tunnel vision. The common “one -captain-on-a-ship” mindset may also stand in the way, as well as negative experiences of the past. Therefore, an open discussion about how much teamwork is desired and realistic should be part of a yearly evaluation and reflection among TMT members themselves and should then be on the agenda of the board as well.
Second, a key window of opportunity arises with the appointment of a new CEO and every new TMT member. While the list of desirable CEO characteristics is generally long, a CEO’s level of self-awareness should be a key component. As much as we like to imagine that one person can be “complete” in all respects, the reality of course is that a single person is inherently limited in their perspective, style, and processing capacity. Given the current volatility and unrest in the world, it´s of key importance that top executives are crystal clear about their strengths and weaknesses. With that, the board can ensure that the TMT has the set of members with the required capabilities and who can balance and complement each other. Also, targeted coaching may be put in place right from the start. Boardrooms and executive suites can be challenging and politically charged environments, so open discussions on strengths and weaknesses don’t always take place. Board members should set the tone and open this up as an explicit area of discussion.
Third, board members benefit from much of the same benefits of teamwork as TMTs, though the amount of time they spend together is significantly less, and their meetings and agendas are usually highly regulated. To reach a degree of teamness where board members feel that they can truly rely on each other and openly share information and resources, investments in trust building and informal communication are recommendable. This is even more important when explicit attempts are made to achieve more diversity on the board, and board members may not necessarily share similar backgrounds and social circles. Explicitly scheduling and prioritizing informal meetings and reflection sessions is then even more necessary and should not be taken for granted. The bottom line is that, as with all relationships, the development and maintenance of TMT and board teamness takes time, effort, and shared experiences. In the context of an overload of priorities, it often takes an explicit awareness, commitment, and prioritization to make teamness work. But it’s worth it, as investments at the top level have a tremendous effect on the culture and outcomes of the organization as a whole. 
Corporate Governance Trends and News.

As part of the European Corporate Governance Institute's Corporate Purpose initiative, a conference on "Perspectives on corporate purpose" will take place on September 21, 2023. In this conference academic scholars and business leaders will reflect on different relevant aspects of corporate purpose.
Know more about the event here
Managing the CEO succession process and finding the right candidate to lead a company in the current times of high uncertainties and risks can be challenging. Deloitte offers some interesting reflections on the CEO succession process and some relevant factors to consider when dealing with this process nowadays. 
Read more here
The recent issue of the IFRS S1 and S2 Sustainability Disclosure Standards will put more pressure on how boards manage sustainability related risks, metrics and reporting. The International Sustainability Standards Boards has published several documents that summarize the most relevant aspects of IFRS S1 and IFRS S2. 
Read more here
The universal proxy rules for director election that came into effect last September were expected to give a major boost to activist investors willing to remove board directors. However, according to a data analysis of the 2023 proxy season conducted by Kirkland and Ellis, even if activism levels continued to be high, activists did not nominate more candidates per slate. 
Read more here
The approach of companies to ESG continues to evolve as they have to balance competing demands from different stakeholders. Spencer Stuart and Diligent Institute’s ESG survey offers a useful update on how board members are addressing ESG and sustainability. 
Read more here
IESE's Recent Research.

Cohen, S., Kadach, I., Ormazabal, G. (2023). Institutional Investors, Climate Disclosure, and carbon emissions. Journal of Accounting and Economics, 81.
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Bonetti, P., Ormazabal, G. (2023). Boosting Foreign Investment: The Role of cerfitication of corporate governance. Journal of Accounting Research, 61(1), 95-140.
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Fernandes, N. (2023). Climate Finance.
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Cohen, S., Kadach, I., Ormazabal, G., Reichelstein, S. (2023). Executive Compensation Tied to ESG Performance: International Evidence. Journal of Accounting Research, 61 (3), 805-853.
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Almandoz, J. (2023). Inside-out and outside-in perspectives on corporate purpose. Strategy Science.
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Canals, J. (2023). Boards of Directors in Disruptive Times. Cambridge: Cambridge University Press.
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