IMHO: It’s time to transform board culture and character

Houston (and Hamilton, Hastings, Hokitika…) we have a problem - with board culture

Boards play a critical role in driving the economic success and wellbeing of Aotearoa New Zealand. Strong and effective governance doesn’t come easily and needs constant attention to enable continuous improvement and to support trust and confidence in business and our institutions. Unsurprisingly, board character was identified as one of the IoD's top five issues for directors in 2022.

If our communities, societies, charities and organisations are to improve, we must make better judgements on the big decisions. To make better decisions we must encourage a culture in the boardroom that will initiate discussions which are truly creative and value adding and held in a thoughtful and productive atmosphere. Sadly this is not always the case.

I (Rex) recently facilitated an Institute of Directors’ event with a panel discussing the pitfalls of poor board character and culture and benefits of a developing and maintaining an effective board culture. Following is a summary of some of the key points made during the discussion and some recommendations for boards.

The panellists

Facilitator - Rex Williams
After a 30 year career in the building materials sector Rex has made a substantial contribution to governance in a range of sectors including tertiary education, health, transport, family business and local government.

Panellist - Catherine Brown
Over the past 20 years, Catherine has advised some of the world’s top public and private sector organisations on governance, organisation and risk management effectiveness. She currently lead’s Oliver Wyman’s work in these areas across Asia Pacific. Catherine is a partner board member of the (Global) Financial Market Standards Board.

Panellist - Sinéad Horgan
Sinéad has had a 30 year career in a wide range of commercial activities - holding senior roles in accounting and banking across the world. Sinéad presently holds governance roles in banking, the rural sector, waste management and high-tech manufacturing in addition to serving on charitable boards. 

Panellist - David Meates
David has worked in both the private and public sectors, in NZ and the UK.  He brings a wealth of experience on the requirements of leadership and governance, including those that are essential for system transformation. David was previously the Chief Executive of the Canterbury and West Coast District Health Boards – responsible for the health services for a community of 600,000. David led the Canterbury Health system’s response to NZ’s largest disasters including earthquakes, fires and a terror attack.

Board culture and leadership impact on the whole organisation

The tone and culture of an organisation starts at the top. David says that despite this, boards don’t necessarily understand they are living in a ‘glasshouse’. Boards should not see themselves as removed from the organisation at large. Boards have a role in supporting the development of teams and the culture of their organisations, and they have agency to address this more directly than they might realise.

Our panellists agreed that boards should see their role as broader than just interaction with the chief executive and should extend to other senior managers and staff in the organisation. David says that “boards should actively model teamwork and a positive culture – there’s nothing worse than those within an organisation being fearful of their board”.

Successful strategy development and execution is usually front-of-mind for boards. Unfortunately, elegant documentation is not enough to guarantee real-world success. David says that change happens at ‘the speed of trust’ and that governance, management and the organisation overall must be aligned to a common purpose.

Ultimately, the board seeing themselves as part of the team and working in collaboration with the wider organisation is a great step towards a more executable strategy whilst reducing the risk of the board functioning in an echo chamber.

Board appointments should prioritise diversity of thinking and a willingness to learn and contribute

Our panellists noted that a firm focus on the future, not the past, should be front of mind in making new board appointments. This can be a major challenge for appointers, who may bring their own biases, especially a “like-me” bias - favouring candidates who are similar to them. Typical board recruitment processes can exacerbate this - with those who are well known and established, often put forward by recruiters and existing board members.

Bringing together board members with different backgrounds, experiences and age profiles can contribute to different views if they are well led. Appointers should prioritise achieving a diversity of views around the table as well as shared values and complementarity skillsets.

It was acknowledged by our panel that it’s regularly challenging to work within a diverse thinking group, but this is where the best thinking comes to the fore. Sinéad says “you may need to work twice as hard to chair a board with diversity of thought, but it is worth it”.

Catherine adds that “the chemistry of the group is important but can be improved over time – diversity of views should be the priority.”

Leave the ego outside the boardroom

Although board members should bring different perspectives, these need to be brought together effectively. Regardless of the governance context, shared values and a common purpose are essential for ensuring these perspectives are maximised into better outcomes for the organisation.

Boards should also seek to make their purpose, responsibilities, and operating framework clear. Catherine describes this focus as “clarity of goals, clarity of roles and clarity of procedures.” Additionally, they should continuously test assumptions, making changes where appropriate or reaffirming, and constantly communicating expectations of themselves and others in the organisation.

Our panel were clear that boards need to be comfortable asking ‘stupid’ questions, speaking-up with anything doesn’t feel right, and operating in an environment where there is continual constructive conflict on organisational matters. Creating such an environment where different views and perspectives can be aired freely does not happen by chance. Catherine says that “board members' relationships need to be nurtured for the board to perform at its best”. Time together inside the boardroom is likely to be insufficient to develop the right relationships so connecting outside of board meetings is also required. This could be through site visits, participating in board development, social occasions, or other collaboration opportunities.

Great boards regularly reflect on their performance as a unit. Catherine provides questions that great boards ask:

• How well do board members perform as a group?
• Are we aware of each other’s’ behavioural preferences?
• Do we encourage and manage disagreement well?
• When things have not gone well, do we review and learn from our mistakes? 

Given the governance responsibilities and the perceived prestige of some boards, the number one hurdle to effective board culture is ego. Such self-importance directs the board towards the wrong priorities and limits curiosity, an essential ingredient of effective boards. In an uncertain world, a deficit of curiosity when combined with a tendency towards managing risk, produces undue conservatism. What has worked previously tends to be favoured for the future.

David says “that if boards are not careful they end up bringing yesterday’s thinking to solve tomorrow’s problems.”

Board members with excessive ego may also retain their seat for longer than they should with skillsets which may not meet the changing needs of the organisation.

We can’t rely on corporates to lead governance practice

Despite notable differences across governance contexts, ’best practice’ often flows in one direction from for-profit entities to the other entity types. This is a missed opportunity.

The learnings for corporates may not be particularly relevant to other organisations. For example, corporates tend to have greater access to resources and expertise to support their boards. They also have clearer for-profit objectives, which makes it easier to for boards to measure success. These are certainly not features of smaller firms, or charities.

Corporates are not always the best role models. Again, a sense of self-importance may play a role here. There are numerous examples of corporates where governance has failed to live up to its potential, or even overseen ethical failings such as those as documented in the Royal Commission on Misconduct in the Banking, Superannuation and Financial Services Industry.

Get external support to improve board performance

Board improvement is not easy, but it is harder if your board does not have appropriate support.

Other professions recognise the need for external feedback to understand and improve performance. Our panel see a valuable role for external input into boards as well. Annual performance reviews of the board are part of the Institute of Director Code of Practice for Directors. External facilitation was recommended for reviews to ensure that a true view is obtained.

Rex highlights that “a generation ago many sports teams of all genres were chosen by a sole selector and the captain, usually a senior player. They were expected to mould the personalities, preconceptions and ambitions of the players young and old to achieve optimum performance. Today a coach supported by a phalanx of experts to create a high performing team. It is about time that governance teams at least nodded to best practice to get the best output from individuals and the team as a whole.” It should be acknowledged by governance appointers that rogue idealists no matter their individual brilliance can harm the greater good.

Our panel were also highly supportive of the role of board mentors or board coaches. Catherine shared that in Europe these roles are already common and is important for “someone else to hold up a mirror to what the board dynamics actually are”. A coach’s scope of practice includes supporting the board to understand what they are good at and where they can improve - both at a group and individual level. They will dedicate time to building trust and psychological safety to get the most out of their role.

In New Zealand, the boards of larger organisations could be assisted by paid coaches, whereas other boards might be supported by volunteer board mentors. There is already a strong tradition of experienced IoD members mentoring individual board members, so an extension of this practice would see the the board becoming the mentee.

Boards also benefit from external perspectives on their organisation’s operating environment. Our panellists encouraged boards to welcome guest speakers from their sector and beyond to challenge conventional thinking. Whilst this can be uncomfortable for some boards, especially those with big egos, it can help reduce groupthink and open-up new options/ opportunities in the presence of uncertainly.

The right relationship with management

The panel agreed that a focus on the performance between the board and management is critical. In an ideal relationship, management does not regard the board as a ’rubber stamp’ or a ‘roadblock’ but instead as the ideal forum to test their thinking, including when it is a work-in-progress. The board should also be able to have active input and challenge management without undermining management’s authority.

Like the relationships within a board, the relationships between the board and management need consideration and investment. This begins with regular exposure to managers beyond the chief executive inside and outside of the boardroom. This not only allows the board to hear different views but also gives them a direct opportunity to understand the depth of talent within the organisation. Board committee chairs have a great opportunity and responsibility to develop a trusted relationship with the relevant manager.

The board’s behaviour and approach will determine whether management will engage with them proactively and openly. Sinéad notes that “critiquing grammatical errors in reporting is the absolute opposite of what we need to foster this kind of enagement. Our role [as a board] is to refocus them when they are fighting fires all day long and to take that outside thinking, the future thinking, and bring it in."

Having an effective board culture is especially valuable when things go wrong. It will enable it to work quickly together to figure out what to do. A great board can then maintain the ability to operate at systems and processes level, make robust decisions and communicate these clearly.

Context matters

Our panellists shared some additional reflection based on their experiences on boards in different sectors:

Private business

• The shareholders are at the table and CEO is often a managing director and therefore an appointer of the other board members
• Different individual agendas can be present
• This can be the trickiest and is challenging for an independent director to support an enabling culture.

Crown organisations/Local authority trading companies

• Can talk about sustainability, environment, living wage – all pillars are equally important – not solely profit first, which can make these the most rounded board discussions...
• But political interests can often intrude
• Rigid term limits can reduce the effectiveness of some directors.

Mutual societies/Co-operatives

• Independent directors can bring subject matter expertise allowing them to support executives to communicate with the elected board members who may not have technical expertise for that industry but do have necessary passion and a long term view.

Charities/Schools

• Often the most difficult governance roles despite often being an entry point for governance
• Unless very well resourced the roles can end up with an very operational focus – therefore needing to move in/out of that role
• You really need quite strong skill set before you go into these roles
• Are often personally rewarding but you need support (mentoring, sharing of experience) to get them right
• For school boards Sinéad shared that “You worry about your child but their future is impacted by those who came before you – your decisions impact those who follow.” The chair’s role is critical to get the best from the board and staff
• Ultimately not a great place to learn true governance.

Community boards/councils

• The presence of a god complex and big egos are a typical point of weakness and can really impact their effectiveness
• Procedural requirement and precedents can kill initiatives and be disempowering and as David states, it prevents “designing real solutions for real problems”
• Becoming open and transparent - really listening can improve culture and even resolve issues such as malicious leaks to media
• Boards need to focus on setting the tone and the expectations of the board. Is what is being modelled match with the direction of travel of the organisation?

Summary - a recipe for great board culture across organisations

How can you transform your board’s culture and character? We have drawn together the following recipe for success from our panellists’ insights. 

Composition

• Different but complementary skills
• Different backgrounds, experiences, and viewpoints

Attitudes

• Common values
• Respect for each other
• Board closely connected to the organisation, sees themselves as part of the organisational team
• Board considers their ethical leadership role including the ethical risks of a change in strategy and how reporting can best support ethics.

Behaviours

• Regular contact outside of board meetings to build trust
• Board behaviour matches common purpose and direction of travel
• Constant constructive conflict on organisation, not interpersonal, matters
• High psychological safety - creating the environment to have different views and perspectives
• Set performance measures for the board (not just management).

Relationship with management 

• Board is regularly exposed to management and others in the organisation to monitor depth of talent and hear different views
• Focus on performance between management and the board
• Management should perceive the board is a forum for testing their thinking, not a rubber stamp
• Board should be able to challenge without undermining management responsibility.

Development

• Committed to continual improvement
• Consider both individual and group level performance
• Focus on how they operate – from terms of reference to agenda structure and board papers
• Succession planning for members and especially the chair 

About the authors

Rex Williams DFInstD entered fulltime governance after a 30 year career in the building materials sector. He has made a substantial contribution to governance in a range of sectors including tertiary education, health, transport, family business, conservation and local government. In 2021 Rex was made a Distinguished Fellow of the Institute of Directors. He is a member of the Institute’s Canterbury Branch Committee and an active mentor for those in the earlier stages of their governance journey.

Lloyd Mander CMInstD is the Principal Consultant for DOT Scorecard – working with boards and senior teams to reveal their potential for diverse thinking and develop the decision-making culture required to realise this potential. He is the chair of the Institute’s Canterbury Branch Committee and is a representative on the Institute’s National Council.

The views expressed in this article do not reflect the position of the IoD unless explicitly stated.

Contribute your perspectives and expertise on an area of governance to the IoD membership and governance community. Contact us mail@iod.org.nz