How to get the right boardroom dynamic
At its broadest level, a board has two fundamental responsibilities: To ensure compliance and to improve company performance.
However, as any directors will know, in practice it’s rarely this simple, with a heady mix of egos and senior level corporate experience clashing on a regular basis, each bringing their own agendas and experiences.
In extreme cases, boards can ‘blow up’ at the detriment of the business – famously happening with both the National Australia Bank over hedging losses and The Future Fund over the selection of a new chairman.
But for start-ups that are wondering where to start with their boards, there are ways to balance the boardroom dynamics, mitigate risk and create a board that is diverse and forward-thinking.
Here’s how you can avoid a boardroom blow up:
1. Selecting the right directors
While this sounds like an obvious point, selecting the right directors is a major component of ensuring an effectively operating board.
Choosing the right people will depend a lot on the needs and expectations of each board and, as such, it’s crucially important for all directors to have a strong understanding of the role of the board in general, as well as the expectations the company has of individual directors in terms of experience and personal qualities.
It’s therefore important to look for directors who know how to behave in a team situation and can put their points of view across strongly, but not offensively. In short, people of integrity, judgement and self-awareness.
2. Consider diversity
Don’t be afraid to challenge the status quo when it comes to selecting board members. For too long in this country, boards have been made up of a narrow socio-economic group; typically late middle-aged men with a background in running large corporations.
Indeed, there is increasingly a new breed of director emerging, selected on the basis of the board’s need for a range of skills, abilities and insights, not to mention diversity.
In fact, evidence from research on the ASX top 500 companies shows that the presence of women on a board consistently increases the company’s economic performance.
Diversifying a board can therefore help it function more effectively, as well as avoiding ego clashes as those with similar backgrounds, egos and expectations come together.
3. Spot the early warning signs
It is also worth learning to spot the early warning signs of a board malfunction. This can be hugely beneficial down the line and is a key skill in keeping boards working effectively. The list is long, but common warning signs can include:
- An overly dominant personality.
- Hurried decisions based on inadequate data.
- Serial restructuring and resignations of key executives.
- A “do as I say and not as I do” attitude from certain individuals.
- Some kind of cover up – for example, a board deciding not to discipline a breach of company policy, interfering with information flow, or favouring particular interests.
- A ‘pass the buck’ attitude.
- CEOs who do not know how to behave with respect to staff.
- Significant ongoing negative variances between forecast and actual results.
Of course, not all of these things mean there is about to be major issues in the boardroom, but learning to spot the early warning signs is an invaluable skill when it comes to governance improvement on the board.
Hidden agendas among directors are unfortunately too common in the boardroom and can be hugely damaging to the overall company function if not brought out in the open.
It’s therefore of huge importance for all directors to be completely transparent with other board members.
Any potential conflicts of interests, or background issues that could cause problems further down the line should be discussed, dealt with scrupulously and managed from the earliest possible stages.
There are a number of ‘best practice’ means to deal with this situation. For example, if directors are voting on particular issue, the conflicted director should declare their conflict of interest, leave the room and refrain from voting.
It is a good idea to develop your own processes around conflicts of interest.
A board operating with total transparency is far more likely to operate effectively than one without.
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5. Properly deal with difficult and contentious issues
If an item is seen to be contentious, then discuss beforehand how the matter should be resolved. If it’s not dealt with correctly and sensitively then it can cause a serious director rift, and also result in lack of effective decision-making.
Approaching the meeting with the right tone is essential – the goal should be to establish a collaborative climate where all members are treated with respect and civility.
Passionate advocacy should be balanced with the ability to listen and learn.
Also consider establishing guidelines for discussing contentious points, as this can help avoid unnecessary conflict, animosity or even anarchy.
Difficult issues should also be properly dealt with and failing to do so will cause problems further down the line.
Be prepared to spend adequate time on difficult issues – reaching consensus can’t be rushed. If it takes hours, then it takes hours, it is important to be prepared for that.
And remember, there’s nothing wrong with a strong debate and, in fact, any attempts to stifle or control discussions can backfire and harm the organisation more than a frank and open discussion.
6. Get a good chairman
Arguably, the chairman has the greatest impact on board performance. A good chairman is worth their weight in gold: a natural consensual leader, able to manage issues and interests from a range of people.
A good chairman should allow the right information to get to the board, the right level of discussion, and be clever and strong enough to bring it together.
They should not seek to force their own views though – if they do then they’re acting more like management.
A good chairman should also act as a mentor to the company’s chief executive. Particularly in SMEs, if the CEO and chairman work in harmony, complement and support each other, then the organisation is far likelier to perform strongly.
However, this is often not the case when the two clash, resulting in tension and conflict. To help things, a discussion of the respective roles and responsibilities of the chairman and CEO should be addressed in the early stages of a relationship, with clear mutual expectations and regular communication.
It is also a good idea for the CEO and chairman to be truthful with each other, communicate frequently, be forthcoming with bad news as well as the good, socialise, show respect to the other party, be responsive to the other person’s requests and ideas, and avoid competition – celebrating the other person’s accomplishments.
7. Use the facts and the data
Directors should approach each board meeting with the proper facts and data, from company financials, to market insight, to competitor activity.
Arguing over assumptions, hunches and beliefs not only wastes valuable time, but can also be damaging in the long run to company performance and also to board relationships.
Data is increasingly being used to improve decision-making and, remember, it’s much harder to argue over sound data than assumption.
But by the same token, don’t overload board meetings with raw, interpreted facts and figures, this approach can be very time consuming and frustrating.
It’s also a good idea to establish a standard reporting procedure for presenting board reports and papers.
A key role of the board should be to spend quality time on strategy. It’s surprising how little time is often dedicated to this important task.
Key issues to cover when dealing with strategy are to ensure agreement on basic purpose of the organisation, major goals and core tactics for getting there.
Any disagreements need to be collaboratively worked through. One of the biggest causes of board disagreements is a fundamental disagreement about the overall board strategy.
Clear strategic thought is also a key skill for board members to possess – individuals who have the ability to step outside the organisation and view it objectively.
Boards with strategic thinkers are much less likely to be overwhelmed by operational crises because they can view the current problems in a much more long-term context.
Effectively running a board is not easy by any means, but it is worth investing significant time in learning how processes and relationships can be improved.
A company with a harmonious board will be much more likely to be profitable, and successful.
But despite this, there unfortunately remains too little time dedicated to this important task, and as we all know, the consequences of a boardroom blow up can be severe.
James Beck and Geoffrey Kiel, are among the country’s leading governance experts and authors of the new Thomson Reuters book, Directors at Work: A Practical Guide for Boards. More information is available at www.thomsonreuters.com.au.