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Boards are unique and complex groups to study

Posted by on 15 Mar 2015 in Doctoral Research | 0 comments

Boards are fascinating groups to study for a number of reasons. They do not resemble intact teams in the strict organisational sense. They differ in a number of significant ways. For example, boards comprise a group of equals – seasoned, credentialed and expert in one or more fields – generally of equal status and independent minded. Their roles are entirely “cognitive” and their effectiveness depends entirely on how they interact and work as a group, not on the execution of an organisational outcome. In this context real power may lie with the governed i.e. management. This is because board members will always be operating with less information than management about the company situation or about running the company. This information asymmetry means the director’s task is to keep well informed without doing management’s job and frustrating management in the process. Adding to this complexity of governing, is the reality that board members do not have the interaction frequency enjoyed by many other teams or the opportunity to develop the team norms that build up with regular and frequent interaction. They generally meet, as a group, episodically usually up to 12 times a year, not allowing for the ties to develop and strengthen as in the case of intact teams. Finally the role of the board is ambiguous in nature as much of board tradition today has arisen out of norms derived from regulatory codes and based around the principal agent paradigm that has been influential over many decades. Such theories either ignore or are less sensitive to identities, interests, motivations and interactions between directors, as governance actors, embedded in the company context. How the director construes their own role on the board and how they fit into the board group will have an influence on how they individually approach their board work. That is to say a director is confronted with a network of relationships into which they must fit themselves, when they join a board. This is complicated by power differentials that may exist in the boardroom, which may influence how a director’s knowledge and skill is valued and used and the willingness of a director to exercise influence and independent mindedness. Much of the theory of corporate governance has continued to be explicated using economic principles and infers what boards should do rather than what they actually do. Such theories while making an important contribution do not offer complete explanations of the board as a complex “social system”. A fuller more rounded understanding of boards will come by drawing on social psychology constructs, and undertaking board research with less reliance on the use of questionnaires and surveys, which has up to now only provided ‘distant perceptions of...

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Do shareholder activists have a point?

Posted by on 18 Oct 2014 in Doctoral Research | 0 comments

This week some shareholder activists made their feelings known about long serving directors as well as over-committed directors.  But are their concerns about independence and director workload justified? http://www.abc.net.au/news/2014-10-17/shareholder-activists-target-long-serving-directors/5821122 While agency theorists would suggest that as long as directors do not have business or social ties to the company or the CEO, they are “independent” directors who will diligently and objectively monitor management.  However this is a somewhat over-simplified view.  A director can have no business or social ties to the company or CEO and still not demonstrate ‘independent mindedness’ in the boardroom. Equally long serving directors may have the experience (and confidence that that experience brings) required to steadfastly resist the temptation of going with the group view and striking out alone with a clear eye on the issues or demonstrate a professional detachment in their questioning. At the end of the day it is about board dynamic and the attributes of the individual director that will determine how independent their thinking is. On the workload issue again a more nuanced perspective may be necessary. Research shows that directors who sit on more than one board are generally more flexible in adapting to complex situations and show a tolerance and exposure to different perspectives and view points and generally bring a broader ‘world view’ to the boardroom.  Importantly some research also shows that such directors, suffer less status anxiety and therefore exert their monitoring responsibilities more confidently through a better practiced, honed style of questioning. Multiple directorships may in fact be helpful to a point. There is a point at which multiple directorships can stretch a director to the extent where they have to make trade offs about where they spend their time which may have the detrimental impact on the time spent critically reviewing detailed proposals brought to the board. Perhaps a more nuanced approach to determining what contributes to making an effective director is called for and it may have more to do with the quality of boardroom dynamic and less to do with the number of boards one is on or the nature of ones ties. Written by Meena Thuraisingham, Founder and Principal of TalentInvest, Currently undertaking a PhD in Board Dynamic...

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A ‘tick box’ approach to Conduct Risk will not make organisations safer….

Posted by on 8 Dec 2013 in Doctoral Research | 0 comments

While the conduct of people entrusted with upholding the espoused values and principles of the organisation has always carried inherent risk, Conduct Risk has only recently been brought into sharp focus following the events of the Global Financial Crisis (GFC). Unlike market risk, credit risk or operating risk, this aspect of risk is the least understood and consequently an aspect of risk that is not being managed well.  The Financial Conduct Authority (FCA) UK (created in 2013 along with the Prudential Regulation Authority to replace the Financial Services Authority thought to have failed in safeguarding markets and consumers during the GFC) has provided guidance on Conduct Risk. Regulators all around the world are watching closely. The approaches to managing Conduct Risk have so far focused on driving more  regulation, rewriting risks manuals, introducing new risk frameworks and governance structures. While these are necessary for consistency, these alone will not guarantee success in driving down Conduct Risk or developing more ethical corporate cultures. The reason is obvious – because it is not possible to create rules to cover every eventuality. In fact worryingly, the more rules you create the more people are lulled into a false sense of security, relying on the existence of the rules and failing to think more deeply about what is right and the role our personal conduct plays. Added to this inherent complexity is that an action can be legally right but morally reprehensible. That is to say conduct risk can lurk in the case of decisions where the legality of the choice is not in question, but where the longer term consequences of the decision generate questions of morality. While this pre-occupation with rules and regulation has continued since 2008, compliance costs have risen dramatically, without any guarantee that our organisations are operating in more ethical ways. It has even paralysed some organisations into not pursuing genuinely good opportunities for fear of failing the conduct test in the eyes of a more critical public. Conduct Risk is about individual judgment and until our judgment skills are strengthened, pretending we can legislate or regulate for every instance of poor or sub optimal conduct is not only ill thought. It is also based on the flawed assumption that as leaders of large complex organisations, we have in our power the ability to manage the entire human chain of judgments  a long way from the Risk Function of a large dispersed organisation. The answer is found in building deeper understanding and skills in how we judge. Risk frameworks will not help you do that.  Skilfully facilitated conversations that generate deeper insights and slowing down our thinking in more heedful ways are required for real individual and collective...

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Boards should worry about culture, not gender

Posted by on 27 Sep 2013 in Doctoral Research | 0 comments

Culture failures were at the heart of the global financial crisis.  But this should not have come as a surprise as eye wateringly huge failures of care were evident everywhere in every sector and well before the Lehman Brothers’ trigger in 2008. When the people at the top of the organisation are very much like the people at the top, the only voices to be heard will be similar thinkers honed from largely similar backgrounds. Their interpretations of opportunity and risk will be largely the same. The collective mind and its dominant logic stops those very same people thinking or asking disagreeable questions of themselves. Experience also, especially of similar kinds can be a huge trap. While it may add depth, it adds nothing new and limited breadth to the interpretive or judgment skills at the top. Hence a dominant culture emerges that no one challenges. Until industry leaders recognise how quickly a homogenous culture at the top can kill a company and even an economy, not a lot will change. To change the culture at the top you need to bring in voices that will ask awkward and disagreeable questions.  That will only come from those from different backgrounds and different experiences. Those different voices will also need to be legitimised and actively sponsored so they can ‘rock the boat’ because that is what they are paid to do.  Instead a change resistant or unskilled board, fearful of divergent views can inadvertently gift this ‘rock the boat’ function to whistle-blowers.  It does not have to be this way. Boards should be preoccupied with questions such as: What flaws in our logic are we not seeing? What questions we are not asking? What voices we are not listening to? What lessons are we failing to learn? And so on However, these questions are unlikely to receive genuinely fresh or new answers if asked by a homogenous top team who are similar in every way and who have developed a dominant logic and a culture of operating that fossilises its thinking.  It’s more than gender Boards should worry about. And for those who say there is diversity coming through the pipeline, it will just take time, think again. This is not likely until the men at the top, usually in their 50s and white, strongly advocate for the use of a broader lens through which executive success, experience or readiness is measured, we will continue as we are. So start thinking about the new voices we need around the table……NOW! Written by Meena Thuraisingham, Author of The Secret Life of Decisions, 2013, Gower Publishing UK...

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