Addressing the Negative Impacts of some Corporate Boards

Speeches and publications regularly stress the importance of responsible board leadership, effective corporate governance and clear strategic direction. They advocate various ways of improving the contribution of corporate boards and increasing the value they add. There are fewer references to reducing the negative impacts of some directors and boards. Should more attention be given to how to restrain weak boards and prevent them from damaging the prospects of companies, or how to stop them from holding back progress, missing opportunities or alienating stakeholders? With many boards, the whole is less than the sum of their parts. The case for boards can be strengthened by addressing those that fall short.

Does a focus on adding more value and increasing contributions reflect a reality that many directors and boards could do such much more, and that the activities of some of them are harmful? Boards that are blinkered or mistaken can frustrate ambition, limit creativity and block innovation. The thinking of some boards moves ahead of that of executives of the organisations for whom they are responsible. Such gaps in comprehension might be bridged by engagement, communication, involvement and sharing, but one finds other boards that lag far behind. People who are not understood or appreciated may take their ideas elsewhere.

Mutual respect and trust between leaders and led is especially important in turbulent times and when significant changes of direction, approach or objectives are required. The same goes for the stakeholder groups, especially customers and suppliers, with whom long-term supply or purchase arrangements and contractual commitments may be in place. The directors of an energy company who decide to discontinue the extraction and delivery of fossil fuels by a certain date might expect customers to be concerned, especially if the rationale for the decision and proposed transition and support arrangements are not explained.

Coping with Unprecedented Events

Confidence and trust can be undermined when a board regularly seems to be reacting to events that perhaps should have been foreseen and struggling to keep up. Having coped with previous circumstances and market conditions, some boards suddenly find themselves out of their depths. They do not know to whom to turn and flounder about. Sometimes they attach themselves to those heading up blind alleys or in a worse position to themselves. When situations change, reliance upon uninformed, inappropriate or erroneous advice can be a fatal flaw from which intelligent directors with strong track records are not immune.

Coping with pressures from a boardroom perspective can sometimes be like the wrap up of a crime novel in which clues and red herrings abound. Some weak boards might be thankful for external interventions such as Government actions that force their hands and take away their decision making discretion. More engaged, proactive and resolute boards might view such moves as time limited impediments or signposts to a transition they are seeking to bring about to cope with a changing business environment and pursue new possibilities.

Adversity can result in people pulling together, but as pressure increases they may later fall apart. A desire for unity should not be allowed to drive out diversity of thought and lively discussion. In crisis situations some directors coalesce prematurely around a flawed course of action, because of desperation for some semblance of movement. Sometimes one needs to hold one’s nerve and prolong debate long enough to determine a better way forward, while being open to further refinement and course corrections en route. Rather than lie low, some directors and boards rise to the occasion. They use a crisis situation as an opportunity to re-establish their authority, legitimacy and respect and to build relationships.

Repositioning and Rebalancing Relationships

Some directors underestimate the ability of people to understand a bigger picture when it is .explained to them. They should not be surprised if they are distrusted by those who are kept in the dark, not involved or engaged, and whose interests are not taken into account. Too often people are told what is going to happen to them, but not invited to participate in a more desirable, viable and sustainable journey. They need to understand why changes are needed and what they can do to help to bring it about. Could they become partners in the co-creation of a better future, rather than recipients of one-way and top-down messages?

Relationships with CEOs and executive teams can become strained as boards strive to balance oversight and direction with the provision of support. For some companies the Covid-19 pandemic has increased the overlap of board and executive responsibilities. Some directors have felt it necessary to step in and then pull back again. Sometimes a CEO who was considered appropriate for a pre-pandemic world might not be the best person to lead a transition to a new business and operating model and the next stage of a company’s development. The board is responsible for ensuring appropriate executive leadership is in place and should be alert to executive development requirements and possible burnout.

When unexpected developments happen, innovation and fundamental changes are likely to occur and/or any periods of stability might be temporary, agility, flexibility, speed of reaction and rapid adjustment can be critical. Corporate boards need to be able to quickly review, refine and/or adapt. They and the people of organisations must quickly learn from new experiences and act and/or react. Feedback from customers and the front line can be critical. Directors may need to be in listening mode and ensure that arrangements are in place to quickly alter course, speed and even destination as circumstances and possibilities change.

Riding Technological Waves

Technologies can rapidly develop and evolve in terms of their capabilities and potential applications. More determined, open-minded and positive directors might consider them enabling rather than disruptive. Various digital and other technologies have demonstrated exponential improvement for many years and in some cases almost from the moment of their introduction. Boards should ensure that people for whom they are responsible continually explore ways of exploiting their full potential and that of corporate activities. However, some boards act as obstacles to change rather than encourage initiative and innovation?

Companies that periodically restructure and reengineer at great cost to jump to a higher level of operation, with the change process sub-contracted to an external team, sometimes find themselves subsequently over-taken by those who continually improve. This is more likely to occur when knowledge is not transferred from an external consultancy to an internal team. Adaptation, innovation and change should be continuous rather than periodic activities. Exponential learning and development enables some early movers to pull away from others and secure a reputation for resilience in uncertain times. Momentum keeps them on top.

Directors should look ahead and encourage exploration and the active creation of better futures. A failure to embrace technologies that have demonstrated exponential improvement can result in a company dropping out and not being able to catch up. At the same time directors should be alert to wider developments, discontinuities and interdependencies. Some boards assume that past trends will continue, or persist with strategic planning that cannot cope with unexpected events or steer a course in turbulent times. The current business context is particularly challenging for those endeavoring to predict the future. Alternative scenarios sometimes abound and more than one hare might need to be set running.

Risk Aversion and Dated Risk Appetites

A longstanding issue with many boards is their aversion to risk and a related unwillingness to change. Some independent directors focus excessively upon raising potential problems and obstruction. They grill executives on various things that could go wrong with any steps they propose. Extreme caution is sometimes evident in discussions of risk appetite. This attitude and delays due to calls for additional information and revision to take further issues into account can be frustrating for ambitious managers and their teams. Given the uncertainties inherent in the global pandemic and climate change should higher levels of risk be accepted?

Some cautious directors cause further delays by invariably commissioning consultants to review proposals. They rarely show a green light and are reluctant to stick their necks out and support internal initiatives until an external endorsement is obtained and financials are independently checked. In fluid and uncertain situations, where there is an imperative to change and/or innovation is required and/or technological breakthroughs are creating exciting possibilities for early movers, and/or when there is a diminishing window of opportunity to act, acceptance and tolerance of higher levels of risk may be required.

Many directors would benefit from being more self-aware and seeing themselves as others view them. Some would gain from being closer to customers and other stakeholders, perhaps by listening more to those in the front-line rather than those in air conditioned head offices remote from customers whose purchases fund their salaries. CEOs are sometimes cocooned by people who agree with their strategies and initiatives, and insulated from those who would point out their flaws if given the opportunity. On occasion, their allies and fellow travellers on a board may be among the last people to still believe that a doomed project might succeed.

Constructive and Responsible Challenge

While avoiding negative obstructionism, board chairs should ensure directors challenge and scrutinize proposals they receive from a CEO, executive directors and senior executives. Independent directors and Stakeholders should be especially vigilant if a board chair is weak, too close to a CEO or holds both offices. Experienced, strong and independent directors who are alert to signs of collusion and sensitive to attempts to push or rush business through with insufficient challenge might intervene. In contrast, weaker personalities and those who do not want to risk losing their director’s remuneration, or are simply too busy to commit the time required to question or investigate, may lie low and go with the flow of events.

It can take courage, commitment, perseverance and resilience to challenge a determined combination of board chair and CEO when others, including external consultants, are intent on keeping in with them. Directors should be alert to bias in what is presented to a board to support a proposed action and avoid over-reliance upon the independence of consultants and auditors for whom a relationship with a CEO is close and a company represents a significant element of their business. Directors should exercise independent judgment and objectively assess the independence of those who advise a board and its members. They should avoid arrogance and be open to the views of stakeholders and others with shared interests.

Remaining Open and Receptive

Trust is important in relation to Governance applications of digital technologies, including those that allow other interested parties to express their opinions and provide feedback. For example, virtual AGMs give people who might not have time to travel to a physical meeting the opportunity to participate. However, might they also enable difficult and/or critical questions to be avoided? Could moderation be used to protect key players from challenge? Recorded AGMs can be made available after an event and opened up to further stakeholder groups. Might an increase in viewing encourage the careful screening of those wishing to comment? Should there be equivalents of AGMs for stakeholder groups other than investors?

People who feel strongly about the desirability of particular developments or initiatives are sometimes frustrated when boards appear diffident, disinterested and hesitant rather than give a lead and take the initiative in seeking to influence external views and events. Directors may have to make judgment calls in relation to meeting current requirements, while at the same time exploring and suggesting other and more sustainable ways of achieving stakeholder aspirations. Moving too far ahead of external opinion and receptiveness can be costly, but so too can be failing to benefit from early progress along a learning curve. Should more independent directors take the initiative and encourage, embolden and inspire rather than act as watchdogs that discourage or inspectors who restrain and prevent?

Missing the Moment

Perhaps the biggest failing of many directors and boards, for which they may be cursed by future generations is the lack of responsible leadership in relation to what is arguably mankind’s greatest challenge and business opportunity, namely climate change. On occasion, the abdication of responsibility and culpable continuation of activities known to be damaging has been blatant. The ignoring of evidence and the failure to call for collective responses has been woeful. Almost as depressing for younger generations has been the lack of vision and courage to imagine and create a more sustainable future and, where it may already be too late, a reluctance to take mitigating action to protect them from consequences of these omissions.

Millions of people have been condemned to live and work on the wrong side of history because directors and boards have not been up to challenge of changing direction while there is still time. Opportunities abound to transform lifestyles and living and working environments. In urban areas and cities a proportion of streets could be reclaimed from cars for the use of people, whether for walking, cycling or outdoor eating. Neighborhood services could be provided to support new patterns of work. Millions of trees could be planted to provide shade, lower temperatures and remove atmospheric pollution. The reconfiguration of homes and creation of new parks and forests could involve large numbers of people. Improved ventilation and outdoor activities could help to curb respiratory viruses.

Rising to the Challenge

The scale and range of the possibilities that is open to us using known technologies and developments in the pipeline are such that there are plenty of opportunities for most companies. Few enterprises that are open-minded and/or entrepreneurs who are willing to have a go need be at a permanent disadvantage in the face of opportunities that may be new for most companies. Effective leadership and learning from contact with both challenges and endeavors to do new and different things go hand in hand. Standing at frontiers offers hope and prospects of renewal, reinvention and innovation. Moving forward requires adventurous spirits and the inspiring board leadership that many people in organisations long for.

It seems bizarre that so many talented people with transferable skills are held back and denied the opportunity to help build a healthier and more fulfilling, inclusive and sustainable future by small groups of directors who are held back by self-imposed constraints. A lack of self-belief and courage, an absence of curiosity and diversity, a dispiriting fog of negativism and a reluctance to trust others and unleash their energies can be a toxic combination. There has rarely been such an opportune moment for honesty in recognising the negative impacts of some boards and initiating their transition from constraint to enabler and a source of inspiration rather than frustration. Start the process and catch the moment and the trickles of latent enterprise might quickly become a flood of positive energy and purpose.