We often take for granted that things will work. The car will get us where we want to go. The computer will connect us to the world and help us be productive. But how often do we think about how these things work? We may know that they are made of unique parts, each with a specific purpose and function, but do we stop to consider their complexity and how the parts are integrated to achieve the objective of the machine?
Understanding a board’s function can be framed using the analogy of understanding the parts of a broader, more complicated machine. The context of good governance is a principle recognized for its pivotal role in driving organizational success. This embodies the existential “why” of a board, with a particular emphasis on how good governance can serve as a strategic advantage, most notably for private company boards.
It’s also important to acknowledge the practical “what” of a board, which often lies in its fundamental structures and responsibilities, fortified by the unique competencies and skills that constitute a board, facilitate the necessary oversight to shape the agenda, contribute valuable insights and address challenges.
But to achieve optimal output and value from a board, it should also have the right dynamics. This is “how” a board operates. To understand this more fully, it may be valuable to review the ABCs of corporate governance, which were originally detailed in “The ABCs of Board Room Dynamics – Attitude, Behavior and Candor,” by Sharon Allen, Deloitte’s first woman chairman.
The ABCs of Board Governance
The ABCs have stood the test of time and continue to inform best practices for private company boards today.
When Allen’s article was first published, over a decade ago, organizations were consumed by a global financial crisis. Boards were grappling with market instability. In many cases, their companies faced risks to their survival.
Today’s boards also face uncertainties. Stakeholders expect transparency and decisive action on diverse topics, including sustainability and inclusion. Innovative technologies like generative AI are fueling organizational ambitions and, in some cases, upheaval. There are myriad risks to contend with, such as economic uncertainty, geopolitical tensions, industry convergence and the market entrance of nontraditional competitors. To help companies navigate these rapidly evolving priorities, it’s important for board members to possess not just the right skills and experience, but also the appropriate attitudes, behaviors and candor for effective collaboration within the boardroom.
Attitudes: Establishing a Baseline for Cooperation and Productivity
The attitudes, or various states of mind that board members bring into deliberations, can influence corporate board operations, potentially leading to widely disparate outcomes. They are a choice the individual makes. A curious attitude might influence constructive conversations among board members. A negative attitude can throw an agenda into disarray. Is the board member proactive or indifferent? Open-minded or resistant to change? Prepared or unorganized? Attitudes can set the foundation for how a board operates.
It’s important to distinguish between a positive attitude and an agreeable one in which there are few challenges raised and agendas seem to move forward rooted in groupthink. The behaviors and candor of board members are critical to eliminating this unproductive trait.
Behaviors: Harnessing the Potential of Different Working Styles
If attitude defines how someone thinks, behavior reflects how they act. To understand how attitudes influence boardroom behaviors — the consistent response to specific circumstances — several scenarios come to mind.
For instance, a thoughtful attitude can help bring attention to risk-related issues. An attitude rooted in integrity can ensure the organization adheres to high ethical standards. A commitment to independence can empower individuals to question traditional beliefs, fostering critical thinking, comprehensive discussions, and better-informed decisions. This type of independent thinking, shared by individuals with diverse perspectives, can also promote a culture of transparency, enhancing overall governance.
The chemistry of the board overall can play a large part in determining its effectiveness. Is there professional respect among members? Do they value each other’s experiences and perspectives? Do they work well as a team, capitalizing on the unique strengths of each member? The way board members connect, question, and trust each other is critical to the success of the board and the enterprise.
When there’s a mismatch among perspectives around the board table, it can be helpful to assess how everyone’s individual perspectives influence the whole. Deloitte developed Business Chemistry, an analytics-driven tool for understanding and leveraging the differences between people, that can help board members identify how their own chemistry type, as well as those of others, can contribute to more effective interactions among board members – as well as management. The tool comprises four distinctive business chemistry types. The majority of people have a primary and secondary type, and many people exhibit at least some aspect of all of the categories. Understanding people’s business chemistry types and their approaches to problem-solving can help boards collectively address today’s challenges and tomorrow’s opportunities.
Here’s how they might show up in the boardroom:
Pioneers. These individuals relish possibilities. They see the big picture. They are brainstormers who speak up and make quick decisions. Sometimes, they don’t think through the execution details, which can add significantly to management’s workload. Pioneers will likely be assets to the board when discussing long-term strategy and innovation.
Guardians. They appreciate stability and are risk-averse, preferring to bring order and rigor to the boardroom. These board members thrive on detail and data. Guardians tend to listen and collect facts before presenting an opinion, which can slow things down. Guardians’ attention to concrete detail and affinity for data are often useful in the boardroom.
Drivers. They welcome a challenge, are skilled at identifying patterns and are direct in their approach to people and problems. In the boardroom, drivers ask point-of-the-matter questions, and they aren’t afraid to create waves with other board members or leaders in management. For drivers, the end goal is the objective, even if they might sometimes come across as abrasive and impatient.
Integrators. They value connections and tend to be diplomatic and nonconfrontational, serving as the “glue” that holds the boardroom together in times of chaos or calm. Integrators thrive in human resources and personnel discussions because of their interpersonal skills, love of people and networks. Integrators can be helpful as committee members but may struggle to be decisive because of their bias for comradery.
Candor: Building Confidence and Trust
When favorable attitudes yield positive behaviors, it can help create an environment in which people may be more willing to communicate transparently, more receptive to feedback and more open to diverse viewpoints.
A critical component to effective governance is trust. In family businesses, for example, where stakeholders include family, owners and management and where generational perspectives may differ, the governance process can work when trust is evident and a cornerstone of all conversations. In addition to trust among board members, oversight of trust is an important element of the board’s role in overseeing strategy. Increased trust could yield increased value and more agile risk mitigation.
Building trust begins with the corporate culture. A culture rooted in purpose and integrity sets the stage for trusting attitudes. Alignment in attitude related to trust can be reflected in the behaviors of board members, demonstrating empathy, reliability and assumption of positive intent. These behaviors can be reflected in the candor of board members as they adhere to their duties of loyalty and care.
Building Stronger Connections
When the ABCs are practiced consistently, the result can be better performance, including at critical stress points. Consider pivotal junctures such as a leadership succession, the adoption of new technologies or the decision to enter a new market. A board that has invested in its own improvement and is sensitive to the ABCs can be more agile and more thoughtful about risk, allowing them to benefit from the combined expertise of everyone in the boardroom.
| Questions for Consideration What are some of the prevailing attitudes within your board? How do behaviors shape the outcome of your board meetings? How do you enforce accountability? As the chair, have you created an environment that encourages candor? How are you improving your governance practices? |
Today’s business environment is inundated with information. Having the skills to sift through vast amounts of inputs to guide with confidence through the filters of attitude, behavior and candor can help an organization get ready for the next wave of change that is about to make the board agenda at any moment.
More than 15 years ago, we began highlighting the ABCs of corporate governance. They are as applicable today as they were then, a testament to the simplicity and strength of the concept. As was stated in Sharon Allen’s original article, “Boards are a vital corporate asset. As such, boards can decide to invest in strengthening their own dynamics just as they might decide to invest in any other asset that would strengthen the balance sheet. Investing in the ABCs of corporate governance may be a good place to start. By enhancing their members’ ability to relate, think and act, today’s boards can become a competitive advantage — and an example for how their enterprises can embrace the future.”
An original, expanded version of this article appears on the Deloitte website.