Board Dysfunction: Who Is Ultimately Responsible?
We have all seen the data and research on how board diversity improves the bottom line. The message is clear: Take diversity seriously, make the necessary changes, and your company will thrive. Additionally, the PwC 2020 Corporate Governance Survey showed that 49% of directors believe that at least one director on their board needs to step down, and 21% say two directors need to go.
One would think that if board diversity is a proven way to increase profitability in one’s company, and many boards have at least one dud-director, why aren’t we making more progress? All of the data seems to point to complacency. I’ve been struggling to understand this lack of motivation to address the shortfalls in the boardroom. In the same PwC study, only 12% of boards chose not to renominate a director, and in only 14% was a director asked to retire from the board. Why are chairmen and nominating committees willing to wait out low performers? Why are they willing to forgo a high-performing, results-driven board?
One of the most compelling findings I uncovered as I struggled with this question is that there are thousands of articles on term limits and age limits, but few on how to ask a director to resign. I recently spoke with the private company chairman of a diversified portfolio of businesses. In our discussion, she mentioned that this unwillingness to have a difficult conversation or make a difficult decision is the source of board dysfunction. One might blame the director who is over-boarded, under-prepared for meetings or determined to talk ad nauseum about the most picayune of matters; however, there is only one person in the room who is ultimately responsible for the behavior in the boardroom: the Ccairman. She talked about her challenges with the board she inherited, from a lawyer who billed the company for his time inside and outside the boardroom to being disparaged by senior directors who didn’t think that she could do the job. She could have blamed the directors for this dysfunction, but the most dysfunctional thing she could do would be to put up with the errant behaviors. Her job was to have difficult conversations about whether the individual is a non-performer or a low contributor, or whether it's just time for a fresh perspective.
In any system dynamic, it takes two parties to create dysfunction. The responsibility lies with the chairman to do her part to intervene. Board excellence only comes with a low tolerance for unwelcome behaviors and a willingness to address the issues. Waiting for a director to age out or term out is the recipe for a low-functioning board that won’t bring strategic value to the business. Avoidance of these challenging conversations prevents all of the positive things that come with change. Bringing on new, diverse directors will energize your board. You will be challenged in your common precepts; you will find yourself having a more robust dialog about the company’s issues and challenges. Your board will deliver greater value to the company. Given the cost of time and money to have a board, it is the chairman’s responsibility to get the most out of its directors by being willing to do the most formidable job, have the difficult conversation.
Meghan Juday is chairman of the board of IDEAL Industries.