Shining a light on the dark shadows of board culture

Shining a light on the dark shadows of board culture Board Benchmarking

Shining a light on the dark shadows of board culture

Written by Board Benchmarking Principal, Dr Susan Mravlek

Media headlines are littered with commentary about poor board oversight, and dysfunctional and ineffective boards. The recent PWC saga is an unfortunate case in point. These issues around board conduct that have made headlines only skim the surface of what’s really going on. There’s more that happens behind closed doors that we often get to see that never makes the public domain.

In our experience, unhealthy board cultures are not isolated to any one sector. Having done almost 500 board reviews, we have found that up to a quarter of boards have some element of dysfunction. And it’s probably worse as dysfunctional boards are less likely to open themselves up for a board review.

This article addresses the hard issues about the soft stuff. It’s about values, emotions and behaviours, which many boards are not good at dealing with. It’s about the invisible stuff we feel and experience, and it occurs out of our awareness most of the time. So, to understand how a Board can shape workplace culture, we need to understand the disturbances that often prevent a healthy board culture.

What is board culture?

Boards like any group or organisational system, are made up of complex multi-faceted and yes, they are imperfect human beings, who are often in their own right highly successful, ambitious, competitive and proud individuals.

Each director brings their habits, preferences, past experiences, and individual biases into the board domain. These all impact the board’s culture and decision-making.

What directors do and say sets the tone for the rest of their organisation. They influence the decisions executives make, how they lead with integrity and instil ethical conduct throughout an organisation.

When rut, rot and permeation of toxicity sets in…

When thinking about a healthy board culture, we must also understand what creates an unhealthy one. No boardroom has a perfect culture!

A board, like the executive team, can easily get seduced into a false sense of infallibility, entitlement and an inability to recognise their collective failings. Cognitive bias and emotions amongst the board, therefore get disregarded and suppressed in favour of fact and reason. It comes at a cost to group functioning.

Boards can’t achieve a truly constructive culture without taking into account various coping strategies that get acted out, especially when disruptive events or significant change is imposed on the organisation.When we’re working with boards, it is not uncommon to observe directors and executives behaving in unhealthy ways, often out of their awareness. Consequently, they’re perplexed by the breakdown in relations and there’s much questioning of how an organisation’s culture got in disarray. What’s often neglected to be called out and addressed are various destructive coping strategies, more generally control, avoidance, denial and hubris.

This confluence of factors under certain conditions may lead to the manifestation of dysfunctional dynamics within a board. Where there is also a proneness for paralysis or conflict to occur, not only within the board but may cross boundaries into the operational domains of an organisation, this perfect storm occurs and is when the rot sets in.

Coping strategies

When we’re working with boards, it is not uncommon to observe directors and executives behaving in unhealthy ways, often out of their awareness. Consequently, they’re perplexed by the breakdown in relations and there’s much questioning of how an organisation’s culture got in disarray. What’s often neglected to be called out and addressed are various destructive coping strategies, more generally control, avoidance, denial and hubris. These can be briefly summarised as:

1. Control

Typically, the role of control as a coping strategy is to obfuscate the reality that integrity and ethical conduct has gone into decay. Some warning signs around controlling behaviours may involve:

  • Opinions being dismissed by those with greater power and influence
  • Silencing differing views or dissent
  • Overbearing or dominating directors
  • Directors and executives may feel devalued or minimised for raising issues
  • Factions form and you have ‘in groups’ that exclude minority board members or executives – culminating in an ‘us versus them’
  • Cronyism, commonly referred to as the ‘boys club’. And yes, it still exists
  • Similarity attachments – resulting in rigidity in thinking

2. Avoidance

Generally, avoidant behaviour gets acted out and/or experienced as:

  • Discussions derailed or deflected
  • Side conversations outside the boardroom
  • Withholding opinions or information from the CEO/executives or the board
  • Politeness – Passivity or appeasement to avoid conflict /hard conversation
  • Deference of a greater perceived authority
  • Conformity
  • Not listening and closed-mindedness

The above may occur when there is a difficult conversation on a matter that points to neglect or a failure in oversight or a director’s capability deficiency. This may appear ageist, however, it is not uncommon for some older directors to think their knowledge is superior and dismiss it without listening to their younger contemporaries. They can be confronted by contemporary thinking and alternative perspectives.

3. Denial and hubris

Denial and hubris mostly occurs when directors endeavour to distract attention away from wrongdoing or the exposure of a defect in the board’s or organisation’s functioning by:

  • Scapegoating or blaming others
  • Colluding with others
  • Turning a blind eye to unhealthy or wrongful conduct
  • Superiority mindset – we’re better than you, don’t have to listen
  • Masking issues – nothing to see or ask here, everything is perfect

Top 10 causes of dysfunction

To understand a board’s culture, functioning and influence on organisational life, we must also understand what lies beneath these coping strategies and the triggers for dysfunction:

  1. Pressure – real and tacit
  2. Power imbalance
  3. Competing interests
  4. Profit before purpose
  5. Lack of board diversity and inclusion
  6. Capability deficiency /lack of competence
  7. Aversion to financial responsibility
  8. Survival – merger, divestment, collapse
  9. Reputation – individual and collective
  10.  Regulatory scrutiny and reform

These typically occur in the aftermath of some form of transgression or a significant disruptive event, be it internal or external, that may expose the board and the organisation’s deficiencies and lack of adherence to due process.

Yet, all too often this is only spoken about in the safety of an individual interview or a coaching session with directors, but it is not considered safe enough to openly discuss within a board meeting for fear of reprisal. The following outlines summarise these dysfunctions.

1. Pressure – real and tacit

There is ever-increasing social pressure on boards and executives, be it from the public or various stakeholders – investors, media, regulators and government for organisations to pursue perpetual growth or rapid change that is either unrealistic or unsustainable. Much pressure in placed on the board and then filtered down to the executive to develop highly ambitious strategic plans or high-performance targets. These pressures, especially when coming from external stakeholders, may be incongruent with the company’s best interest.

2. Power imbalance

This stems from several interrelated factors that include how the board is composed or structured, a lack of renewal, authority bias, idealisation around the status/reputation of an incoming Chair or CEO, expertise gaps, deference to directors who have long tenures, and of course gender discrimination.

3. Competing interests

Similar to external pressure, this can occur where a board may be split by the stakeholder interests they each represent with some pushing agendas that may deviate from the organisation’s purpose and values, and/or not be in the best interest of the company. This causes much anxiety and tension that then gets projected down to the executive to manage. The C-Suite are expected to solve this tension and much burden is placed on them to manage the stakeholder relations.

4. Profit before purpose

This generally occurs when an organisation’s purpose has been compromised in the pursuit of profit, causing much cognitive dissonance among individual directors and collectively amongst the board, which is then down poured down into the rest of the organisation.

5. Lack of board diversity and inclusion

Diversity intends to encourage inclusivity and prevent similarity attachments as well as various biases to occur in decision-making and board functioning. It can also be a double edge sword, where those in the minority may not be considered by the rest of the board as having the same status or level of expertise as others and get treated as token members. We often hear in interviews, how those in the minority feel excluded, disempowered or discriminated against based on their demographic status. This can be viewed as an unconscious bias to a dislike for difference.

6. Capability deficiency/lack of competence

A key source of frustration and tension around boards is capability deficiencies. Succession planning for boards and executives is vital to ensure the board and organisation are fit for future success. For boards this centres around composition and ongoing renewal. Getting the right directors with the right capabilities is paramount. This all feeds into how the right composition of a board can shape the board’s culture.

7. Aversion to financial responsibility

Similar to lack of capability, especially in the context of fiduciary responsibility, decision-making and scrutinization of reports get passed on to those directors with the financial expertise (ie. the accountants in the room). This poses significant risk around a lack of individual accountability and asking the hard questions of executives around organisational performance. One of the dangers is complacency.

8. Survival – merger, divestment, collapse

This is often an unspoken cause, yet when probed comes out in discussions on what directors consider the big risks to the board and the organisation. Not enough focus or scrutiny is given on this area and yet, in human behaviour, this is one of the most significant causes for contagion to occur in workplace relations and is a major destabiliser culturally.

9. Reputation – individual and collective

This is another common concern raised by directors in interviews, particularly for fear of a big ambitious strategy failing. We have experienced numerous conversations where directors were anxious about the reputational damage to themselves and how the board would be seen/judged in the eyes of various stakeholders. Generally, this occurs where there is a lack of understanding or confidence around the execution of strategy.

10. Regulatory scrutiny and reform

Being scrutinised by external parties is another cause in which the exposure of any internal deficiencies is experienced as shameful by the board and executive. It is often fiercely defended against.

The ‘F’ word

The one underlying factor to all these signs of dysfunction is FEAR. Fear of being exposed as deficient or failing. Fear of uncertainty, the fear of the unknown. Fear of reputations being tarnished. Fear of failure can have devastating impacts.

It is a hidden cultural characteristic that is at the crux of all cultural disorders and tensions. It is hard to tease out since directors and executives mask their fear of each other and others in many ways.

In our experience and based on research, fear subverts good governance and is a topic that is fiercely avoided or defended against. Yet, it’s at the heart of much unhealthy conduct and culture. The source of fear can be from a range of reasons – changing consumer wants, day-to-day competition, economic downturns, critical media, pushy fund managers/investors who want to re-order the company’s priorities, demanding regulators, intrusive shareholders, rogue direct reports whose actions will reflect badly on the CEO and so on.

When you think about fear from an organisational context, there’s generally quite a bit of catastrophizing around the board and executive fears.

Tackling dysfunction in boards

1. Annual Reviews

A board that aspires to develop and grow a healthy board culture should be open to having an annual health check in the form of a board review. It is common practice for boards to do a deeper dive board review every three years and a lighter touch review in the intervening years.

The process should be impartial with boards not being afraid to have a light shone into dark places that would normally be glossed over and ignored. As external advisors, we’re well versed to go to the pain points, to help a board and the organisation identify and resolve any cultural issues.

Regular annual reviews ensure you have the appropriate mechanisms to keep any potential breakdowns in check. Our experience shows benchmarked surveys are a highly effective way to identify any ‘hot spots’ quickly.

2. Interviews

The other method we use to get to the crux of matters is individual one on one interviews. They’re highly beneficial and the richness that can be synthesized and shared is very insightful and invaluable.

Interviews can include directors, key executives that present to the board regularly and stakeholders that have dealings with your board. Interviewing, all of those with different lived experience of the board provides a good holistic picture of what’s going on behind the scenes.

3. Observations

Other alternative forms of qualitative inquiry include board observations. This enables us to observe in situ what’s playing out dynamically and what might be occurring out of a board’s awareness. This is useful when wanting to understand what may be projected onto the organisation’s culture.

4. Protecting anonymity

We synthesise all our findings and report in an anonymous and unattributed manner so that participants are assured of confidentiality. This approach ensures that people involved in the process, trust the process, and can give candid feedback, because that’s what is needed.

5. Facilitated interventions

Then, of course, there are facilitated workshops on bespoke interventions to deal with issues of unhealthy board culture:

  • Conduct a culture review – review of the board’s current culture and character and then determine what is desired. The desired culture and character must align with the organisation’s values and promote integrity and ethical conduct
  • Develop a Leadership Code – this is a well-articulated set of behavioural expectations that are mutually agreed upon by each director and executive, is committed to, signed off and actively role modelled
  • Facilitated workshop that creates a safe space – these are used for the board and executive to explore concerns, fears and anxieties around an underlying issue (ie., an unspoken elephant in the room). The workshop addresses how the issue is impacting board functioning and develops corrective actions to restore trust /rebuild relationships
  • Clarifying expectations – Another bespoke approach is using a fishbowl method, particularly where there has been a breakdown in relations between the board and the executive. This allows for transparency and openness as each party actively listens, learns and develops actions around meeting each other’s expectations
  • Other interventions – we often prescribe other interventions that are appropriate to the circumstances. Examples can include facilitated board dinners or activities in a less formal setting, buddying up of directors who are most different to get to know each other better and the like

Thriving rather than just surviving

A healthy board culture requires sustained attention and constant vigilance.

It occurs when board meetings are a psychologically safe space in which directors and executives feel comfortable being vulnerable and not being all-knowing. All concerned need to feel free to talk openly and honestly without fear of being criticised.

A healthy board culture also requires a strong and united sense of purpose where directors and executives collectively live and role model the organisation’s values. The Chair and CEO will take a leadership role in role modelling good behaviour, instilling values, promoting good relations and high performance across the organisation.

It’s about enabling good working relationships to thrive between directors, and with their CEO and executive team. Trust, respect and connectedness are imperative. The board and CEO need to be aligned and unified about the organisation’s challenges, opportunities and its long-term direction.

Ultimately, it’s where relations are of inclusion, encouraging creative and innovative thinking. It’s enabling executives presenting to the board to have constructive robust discussions with directors where all views are heard and divergent or dissenting views are embraced.

A healthy board culture will build resilience to disruption and crisis that can trigger fears about uncertainty, not knowing, doubt and ambiguity.

To sum up…

Board culture is no different to organisational culture. It is established at a deep level often out of our awareness and affects the dynamics of the group, especially concerning leadership and the way we take up our roles.

But culture comes down from above and not the reverse which is why board culture is so important to an organisation’s success. If you want a healthy organisation culture, you better start with a healthy board culture.

The benefits of a healthy board culture are many. Why not list your own? Here are some:

  • It sets a high tone from the top in terms of integrity, ethics, behaviours, performance and risk management. That’s a great example for the CEO, executives and employees of the organisation to follow
  • It empowers and ensures actions are aligned with the best interests of the fund/organisation
  • It values good listening and forward-thinking. It is not stuck in biased or outdated modes of thinking
  • It promotes inclusion, a sense of belonging, and alignment to purpose and it values diversity

It’s also much more fun working in a healthy board culture so let’s make it happen. The opposite is very hard work and certainly not fun!

Need help? Contact us

If you would like to learn more about how we can assist you, please contact us.

Subscribe to our insights

Get our latest insights and research delivered straight to your inbox.