Boards turn a blind eye to climate change
A board that does not function is a recipe for scandal. Following high-profile data breaches and technology failures from household names such as British Airways and Facebook, public trust of business is low and customers, investors, workers and society are demanding better.
But are boards answering the call?
This week saw the launch of The Uncomfortable Boardroom: The New Normal?, new research from Harvey Nash/Alumni created in partnership with the London Business School's Leadership Institute. Now in its fifth year, the report combines quantitative and qualitative data and insights from LBS to reveal the biggest concerns facing today'ss businesses and the effectiveness of their boards.
The findings were launched at an event hosted by LBS, bringing together over 100 chairs, non-executive directors and academics to discuss how to build better boards.
Presenting the findings, Christine de Largy, Chair Board Services, Alumni/Harvey Nash explained the research is anchored in the Financial Reporting Council's newly updated UK Corporate Governance Code, which sets standards for best practice.
The report suggests directorships are changing as boards are forced to embrace new skill sets and have difficult discussions about topics such as diversity and climate change with people that don't all look like them.
"Boardrooms shouldn't necessarily be comfortable places," said de Largy. "You want your board to know where they're running risks. You want your board to challenge. You want your board to have diversity of thought that stimulates debate."
A major finding of the report shows that for the first time, corporate governance is no longer the top priority for board executives, falling instead to third place behind cyber security and digital transformation.
Cyber security is now the top concern for 72 per cent of board. This is likely a response to high-profile breaches and the start of General Data Protection Regulation (GDPR) in the European Union.
The report also indicates that organisations see "change is the new normal" and there is an increasing sense of urgency to remove any blockages to digitally enabled transformation. However, a lack of technology skills remains a barrier for 30 per cent of respondents.
Boards are dealing with more complex issues than ever before, which is increasingly challenging the traditional notion of a board as a group of generalists who are boards handling these debates and ensuring disparate views are heard?
Speaking at the event, Randall S. Peterson, Academic Director of the Leadership Institute and Professor of Organisational Behaviour at LBS, discussed the findings on how boards are managing relationships and coordinating efforts.
"Thankfully, the research shows that most boards appear to be functioning as expected," said Professor Peterson. "But upwards of one-third report either no debate (31 per cent), excessive interpersonal conflict (31 per cent) or having to make decisions over and over again (33 per cent)."
In the absence of opportunities for discussion, boards miss out on the potential for new ideas and also managing risk - this can lead to poor decision making. Professor Peterson highlighted in his presentation that poor management of conflict has an impact on everything: decision quality, organisational culture, management capability and strategic clarity.
Added to this, he explained the need for creating a "culture of leadership" and standards of behaviour for everyone. It is not just a chair issue, everyone should be involved in raising the standard of debate.
The data shows 30 per cent of respondents don't believe their board is effective and 30 per cent of boards have also not had an external evaluation.
"This 30 per cent is waiting for the next scandal or disruption," said Professor Randall. "To fix this, boards require great chairs and great leadership. Chairs need to be open to opinions but also have one for themselves."
The research combined 674 survey responses with 68 in-depth interviews with chairs and non-executives, to test boardroom realities with the findings.
Offering a further insider’s view at the launch, Debbie Hewitt, experienced Chair and Non-Executive Director covering many different sectors, shared her experiences of both functioning and dysfunctional boards.
Lesson number one: Leadership is situational. "You only realise the successes when you have the failures," said Hewitt. "Though often it is the failures where you learn the most."
Hewitt shared her views on good governance theory and how today’s boards measure up.
Strategy - analytics vs culture
Boards are typically good at strategy and analytics but what undoes this is the culture - will the culture enable the strategy or will it hinder execution?
Skills - generalists vs experts
You need a balance of both. The experts are narrow but understand the specifics, the generalists typically pick up the broad themes and trends.
Regulation - advisors vs accountability
The advisors' voices can dominate, but ultimately the accountability sits with the directors - this should not be forgotten.
Risks & priorities - fraud v strategy
Fraud happens and in spite of all the checks, balances and controls there are some very clever people who will hoodwink you. Where boards typically get caught out on risk assessment is strategic risks, where the landscape changes, often rapidly, making the business model no longer fit for purpose.
Board dynamics - dysfunctional vs value add
All boards need some conflict to be effective. A board that always agrees on everything has a high risk of group think and complacency. Highly effective Boards surface conflict and use it to test their assumptions. This can be difficult in a crowded board agenda as dealing with conflict takes time. Sometimes offline conversations are necessary for reflection, though - it becomes a problem if the only way to deal with conflict is outside of the boardroom.
Hewitt concluded by offering a few of her top tips for boards and questions to consider.
Two stood out in particular and act as a great reminder for board executives.
- Check whether your decisions pass the 'Joe Public' test. If the public were sitting watching your board meeting are there decisions your board has made that you would be proud of and on the contrary, embarrassed about?
- Ask yourself, am I influencing/learning/happy to be with these people? Always be sure to have two and you are more likely than not to be adding value.
The event finished with a lively panel Q&A with all of the speakers. The first three questions focused on diversity and management of boardroom discussions.
How do you improve cognitive diversity in the boardroom?
- Create a sense of belonging where all views are welcome.
- Be aware of your own bias.
- Consider as part of the induction of a new board member, discussing openly - in their first meeting - what this board is like at its best and what it is at its worst.
How do you manage conflict?
- Calling it out in the boardroom. This can be quite hard, but a board that surfaces and explores what is behind the conflict is much more likely to be successful.
- The chair needs to make a decision how to handle this, whether it is dealt with in the room or taken offline.
How do you resolve a board that ignores views of key stakeholders?
- Ask the question - are we debating the same issue? You have to first agree on the issue. Seek to understand before you seek to be understood.
- Boards need to be more explicit about what good behaviours look like and show them.
For more information about the research, please visit: www.harveynash.com/boardresearch.