How to create a healthy board culture
There are numerous ways to define a board's culture. Perhaps the simplest definition is a set of written or unwritten rules that guide and influence the relationships between board members and, as a result, influence board decisions. These rules have been described as "mindsets, hidden assumptions, group norms, beliefs, values and artifacts (such as the board agenda)" that influence discussions, engagement and levels of trust.
Board culture has also been described as "powerful norms derived from shared values that influence behavior." And Herb Kelleher, the former chief executive officer of Southwest Airlines, characterized culture as "what people do when no one is looking."
Unfortunately, it is often easier to spot board cultures that are wanting. Recent examples are plentiful:
- Samsung – The Galaxy Note 7 smartphone that burst into flames was a revelatory crisis for the company. At the core of a series of operational shortcuts, "Samsung pushed the envelope in terms of hardware design to command a premium for its devices."
- Volkswagen – Company engineers installed defeat devices designed to make some its automobiles appear to be in compliance with the Environmental Protection Agency's emissions test. The company was required to pay over $15 billion in damages.
- Wells Fargo – Beginning in 2011, company employees created "about 1.5 million accounts and another half-million credit card accounts for the bank's existing customers," which were, for the most part, not authorized and caused customers to pay fees "for accounts they didn't know they had."
It's difficult to imagine that a healthy board culture would have allowed these incidents of corporate malfeasance to develop. One of the board's primary roles is to provide the company with long-term perspective, to counterbalance the short-term 'quarterly earnings' pressure that the CEO often faces.
Because boards meet infrequently and, unless impacted by a crisis, shareholder pressure, or corporate restructuring through merger or significant acquisition, 'board cultures tend to evolve slowly.'
What steps can then be taken to fix a broken culture or hopefully maintain a strong culture?
Creating a Healthy Board Culture
Make a decision about the type of board that is desired
This is a difficult task because there are so many factors that contribute to an effective board. No board wants to become so rigidly defined as to lose necessary flexibility. And yet paradigms of successful boards can offer guidance. Spencer Stuart has identified four models:
- Inquisitive: Boards that place a premium on "the exchange of ideas and the exploration of alternatives."
- Decisive: These boards place a great deal of importance on "measurable results, driving a focused agenda and outcome-oriented decisions."
- Collaborative: These boards "value consensus and having a greater purpose."
- Disciplined: Boards that "emphasize consistency and managing risks and prioritize planning and adherence to protocols."
Of course, it is clear that most boards will determine that they operate with some blend of these four characteristics. The question that needs be asked regularly is how your board's blend is working for you. These four models help boards determine from their own results when it may be necessary to place more emphasis on one or more of these governing types.
Assess the composition of the board
There are many considerations that come into play when selecting a new director. Often, subject matter expertise becomes the primary focal point. For example, today's boards are more frequently considering a spot for directors with some level of cybersecurity expertise as they come to terms with this growing threat. Often, strong financial experience is a desired component. Boards are also paying more attention to diversity in the selection process in an effort to better reflect societal norms and the customer base constituency.
Less frequently perhaps does the board look to temperament in a candidate and ask how a director may be able to change the board's culture. One of the frequent criticisms of boards has been a preference for "getting along" at the expense of perhaps necessary conflicts that challenge complacent thinking. Activist board members, those focused upon changing the status quo, if that is essential to addressing current challenges, may be necessary even if the relative camaraderie of the boardroom is disrupted.
Consciously direct board discussion and activity to desired issues
If a board desires to shift its focus to encourage aggressive challenges to past approaches or to take a more deliberate approach to risk assessment, for example, it can do so by establishing a process to incorporate these or other approaches into various committee assignments or a specific agenda.
Leaders need to set the tone for the adoption of a chosen board culture
The board chairperson has an often untapped capacity to reinforce or transform a board culture. As mentioned above, often the best tool in this regard is the meeting agenda. As highlighted by Spencer Stuart:
"If the board needs to become more inquisitive, the chair may decide to reduce the time devoted to operational reviews to leave time for the exploration of strategic alternatives. On a board that has decided to become more disciplined, the chair can direct a change in the board materials and build more structure around discussion topics."
Individual directors need to take responsibility for encouraging the desired culture.
The board should be direct in educating its members about the importance of its culture and schedule discussions to assess the culture best suited for company goals. As individual directors learn more about the board's culture, each should also be encouraged to offer candid feedback when they feel that the board has drifted from its cultural goals. Despite an initial discomfort, it is often important that individual members understand the value of being willing to challenge others' behavior if it appears contrary to a board's culture.
A board should always be cognizant of its culture and its cultural goals. Such self-awareness is necessary for a board to be able to modify its culture in order to respond to sudden and significant change, such as a company restructuring, change in leadership or necessary shift in business strategy.
Truly successful boards not only exhibit strong cultural characteristics, but also consciously work with its members to thoroughly understand the factors that contribute to cultural excellence. This is hard, but necessary, work. In our complex and rapidly changing business environment, the ability of individual board members to take responsibility for maintaining a strong board culture that is aligned with the company's strategic goals is critical to overall success.