Culture in the Boardroom Flashcards
GOVERNANCE AND CULTURE
There is a growing recognition that rules-based compliance on its own cannot deliver healthy behaviour within organisations.
Why?
Therefore, behaviour is determined to a significant degree by what?
What does Principle B of the 2018 UK CG Code state?
What does this imply? (2)
The usefulness of rules and processes is negated if there is a mindset of bypassing them
by the culture of the entity concerned
Principle B = The board should establish the company’s purpose, values and strategy, and satisfy itself that these and its culture are aligned. All directors must act with integrity, lead by example and promote the desired culture
Suggests:
(1) the board has a responsibility to discuss and conceptualise culture in a rational and formal way
(2) an individual responsibility for each director to role-model the culture (walk the walk)
DEFINING BOARD CULTURE - WHAT IS CULTURE?
How is board culture defined? (2)
Explain this second definition.
(1) the way we do things around here
(2) the repeating patterns of the board dynamic
board dynamic = the interactions between board members individually and collectively and how these influence, and are influenced by, their wider stakeholder system
Therefore:
board culture = board members’ individual internal web of different cultural values (Hofstede) + the values and ethics of their stakeholder system (Schein)
DEFINING BOARD CULTURE - WHAT IS CULTURE?
Hofstede argues that an individual’s culture has what 6 levels?
- national, according to one’s country
- regional and/or ethnic and/or religious and/or linguistic
- gender, having different assumptions and expectations of females and males
- generational, being the differences between age groupings
- social class, linked to educational opportunities and occupations
- organisational, with different organisations having their individual cultures and subcultures
DEFINING BOARD CULTURE - WHAT IS CULTURE?
What are Schein’s 10 categories of culture?
(1) Group norms = implicit standards and values (e.g. how board meetings get done)
(2) Espoused values = articulated, publicly announced principles and values (e.g. the governance section of ARA)
(3) Formal philosophy = broad policies and ideological principles (e.g. org-specific CG codes of conduct)
(4) Rules of the game = implicit, unwritten rules for getting along in the organisation (e.g. don’t directly challenge aggressive CEO)
(5) Climate = physical layout and the way in which members interact with each other/outsiders (e.g. boardroom on top floor)
(6) Embedded skills = special competencies displayed by members passed to future generations (e.g. ability to challenge respectfully)
(7) Habits of thinking and mental models = shared cognitive frames that guide our perception & DM and are taught to new members (e.g. 80% good enough decision > 95% decision delayed)
(8) Shared meanings = emergent understandings created by members as they interact with each other (e.g. shared agreement on board discussion priorities)
(9) Root metaphors or integrating symbols = the ways groups evolve to characterise themselves, which become embodied in the physical layout (e.g. the board as company royalty in company jet)
(10) Formal rituals and celebrations = the ways in which the group celebrates key events (e.g. how board members are inducted)
DEFINING BOARD CULTURE - WHAT IS CULTURE?
Schein has proposed that his 10 categories exist within corporate culture on what 3 levels? (Known as the Iceberg Model)
(1) Artefacts and etiquette = visible concrete elements such as language, the form of greeting, clothing, physical layout, etc
(2) Espoused values = not immediately visible but drive a consistent
pattern of behaviours and actions
= how decisions are made, how information is communicated, and how teams are supposed to interact and work together
(3) Basic underlying assumptions = unconscious, taken-for-granted values and beliefs
= core ethics and morals which will guide judgements that the group holds about what is right or wrong, fair or unfair
BOARD CULTURAL MARKERS - BOARD CONVERSATIONS AS A REPRESENTATION OF CULTURE
There is a school of thought that organisational change happens, and culture is built, one conversation at a time.
Conversations and interactions are not just words though. What else is included?
Name 5 examples.
Include tone & body language and a multitude of other, consciously or unconsciously, transmitted methods of communication:
(1) facial expression and eye contact
(2) tone, pace and frequency of speech
(3) early or late arrival/departure
(4) choice of clothing
(5) gestures
How these verbal and non-verbal interactions cluster to form dynamic patterns will create the board culture
BOARD CULTURAL MARKERS - BOARD CONVERSATIONS AS A REPRESENTATION OF CULTURE
The FRC’s Guidance on Board Effectiveness defines a healthy culture as one that has what 9 attributes?
- honesty
- openness
- respect
- adaptability
- reliability
- recognition
- acceptance of challenge
- accountability
- a sense of shared purpose
BOARD CULTURAL MARKERS - WHAT CAN GO WRONG WITH BOARD CONVERSATIONS?
There are many things that can go wrong with conversations on boards that may denote a negative dynamic and result in a toxic culture.
Many of the issues that arise are because of particular characteristics that boards exhibit. Name 6 of the broad categories that Merchant and Pick (2010) identify.
(1) the board may be vulnerable to particular directors abusing their power
(2) the group may become prone to groupthink
(3) conflict conversations may turn personal, emotional and be destructive
(4) individual concerns may not be raised
(5) the board’s conversational processes may reflect previously useful but now outdated routines
(6) the board may become susceptible to conformity rather than challenge
BOARD CULTURAL DYNAMICS - BEDROCK OF BOARD CULTURE MODEL
Chait created the bedrock of board culture model.
He asserts that what 2 key assumptions dictate a board’s culture?
(1) Are directors’ roles group members or free agents?
Boards as an orchestra will play by shared team rules and collaboratively create team norms
Boards as a jazz-ensemble will play together but have far more self-direction and improvisation
(2) Is the board’s role a public watchdog or an institutional guardian?
Boards as a public watchdog is equivalent to a board that solely focuses on their wider stakeholder interests
Boards who are institutional guardians will be much more internally focused, solely fulfilling the institution’s ambitions
BOARD CULTURAL DYNAMICS - BEDROCK OF BOARD CULTURE MODEL
What are the 4 cultural archetypes under Chait’s bedrock of board culture model?
Type I = ‘Orchestra’ (group member and institutional guardian)
These boards are highly collegial and cohesive but are at risk of groupthink and excessive deference to peers
Type II = ‘Consultants’ (free-agent and institutional guardian)
These boards serve the organisation’s best interest, but they only do so with board members adding value as individuals rather than as a whole
This type of board engenders strong central leadership, which can risk micromanagement and reduced DM ability through information asymmetry (directors understand parts of the organisation but not the whole)
Type III = ‘Regulatory agency’ (group member and public watchdog)
This culture is more of a compliance-and-oversight focused board.
This board may lack an ability to be strategic in issues and be able to generate innovation and insight
Type IV – ‘Lone rangers’ (free-agent and public watchdog)
This board culture will be weaker, as individual directors will see their role as more about representing their particular shareholder interests rather than functioning as part of a cohesive collective
BOARD CULTURAL DYNAMICS - POWER CULTURE
Pearce and Zahra (1991) created the typology of the relative powers of the chief executive officer and the board of directors.
What are the 2 assumptions?
What are the 4 types of culture under their power model?
(i) low or high chief executive officer power
(ii) low or high board power
(1) Caretaker board (aka review and approve board) = low CEO power and low board power = weak/ineffective board exists simply out of legal necessity and have a leadership vacuum (due to power being shared by the CEO and other key executives)
(2) Statutory board = high CEO power and low board power = weak/ineffective board exists simply out of legal necessity that rubberstamp exec decisions (possibly because board does not have enough expertise or interest, or little attention in defining roles and responsibilities)
(were the cultural norm before 1992 Cadbury Report and may exist where same CEO and chair)
(3) Proactive board = low CEO power and high board power = these boards will usually be comprised primarily of outside directors and represent all key stakeholder constituencies
(4) Participative board = high CEO power and high board power = characterised by discussion, debate and disagreement, and distinguished from the proactive board due to the emphasis placed on building and reaching consensus in decision-making
BOARD CULTURAL DYNAMICS - POWER CULTURE
Across their 4 board types, when Pearce and Zahra investigated the differences in composition, characteristics, process and style, they found what?
However, they did identify that participatory boards included what? (2)
One conclusion from the study was that boards would be well advised to what?
that there was no difference in composition measures (e.g., size, number of outside Board members, inclusion of ethnic minorities)
included
(1) significantly more women
(2) more efficient and deliberate processes
Create a culture of sharing power across all directors in an attempt to achieve more favourable results
BOARD CULTURAL DYNAMICS - POWER CULTURE
Nadler proposes a continuum around the question: ‘How engaged should a board be?’
He suggests what 5 possible board models, which fall along a continuum of engagement?
(1) Passive board = functions at the discretion of the CEO and has limited participation and accountability, only existing to ratify management’s preferences
(2) Certifying board = confirms to shareholders that the CEO is doing what the board expects
This board type emphasises the need for independent directors.
The main role of these directors is in recruiting and replacing management
(3) Engaged board = establishes a partnership between EDs and NEDs
This board defines roles/responsibilities, engages in dialogue and DM and is comprised of directors who have sufficient competence to add value
(4) Intervening board = becomes intensely involved in DM during crisis, whereby it convenes frequent and intense meetings, often at short notice
(5) Operating board = makes all the key decisions that executives then implement, and which fills in the gaps in management experience
BOARD CULTURAL DYNAMICS - ETHICAL CULTURE
If an ethical culture is dictated by how a board governs, what will most inform a board’s attitude?
Covey’s research identifies 13 behaviours that can be measured and benchmarked to high-performing teams. What are the 13?
The behaviours break down into character-based traits (1–5), competence-based traits (6–10), and combined character and competence behaviours (11–13).
Trust = an ethical culture in the boardroom is one that is based on trust
Character based traits:
(1) Talk straight = communicate clearly
(2) Demonstrate respect = express genuine care for others
(3) Create transparency = tell the truth in a way that people can verify
(4) Right wrongs =apologise quickly
(5) Show loyalty = give credit to others
Competence-based traits:
(6) Deliver results = establish a track record (be on time & on budget)
(7) Get better = be a constant learner and receiving feedback
(8) Confront reality = take issues head-on
(9) Clarify expectations = create shared vision and agreement upfront
(10) Practice accountability = hold yourself and others accountable
Combined character and competence behaviours:
(11) Listen first
(12) Keep commitments
(13) Extend trust
BOARD CULTURAL DYNAMICS - PERFORMANCE CULTURE
LEARNING CULTURE
Garrett (1995) suggests the functions of a board include a learning board.
What is meant by a learning board?
Practically, how might this look? (4)
Garratt suggests 4 different quadrants will move iteratively within Board discussion what are these?
One of the shared mindsets of a learning board will be that of a what?
A learning board will build reflection, evaluation and feedback into its meeting process
(1) giving brief reviews at the end of each meeting
(2) the use of dashboards and scorecards
(3) providing peer feedback
(4) ongoing team coaching
(1) Accountability = external and shorter-term considerations
(2) Supervision = internal and shorter-term
considerations
(3) Policy = external and longer-term
considerations
(4) Strategy = internal and longer-term
considerations
A ‘growth mindset’ as opposed to a ‘fixed mindset’
