Board Dynamics: what's in a name?
The last two years we have observed several societal changes as a result notably of the constraints linked to Covid19. Teleworking changed the way of conducting some aspects of the business. Some organisations came under a lot of pressure, sanitary and/or financial. The board of directors was no exception. As our GUBERNA eXperience Sessions and GUBERNA Home of Governance talks showed, some businesses had to rethink their business model completely, others built further on foundations which were already there. The board of directors sometimes had to make quick decisions, very often on HR-related challenges.
Undeniable, from many perspectives, board dynamics and directors’ behaviour are more and more relevant. In situations of crisis, decisions are less based upon “rational” criteria, because despite the urgency of the situation, not all facts and figures are available. Board dynamics become even more central to decision-making. In our Liber Amicorum (2019) Levrau, D’Hondt and Timmerman reflected upon the importance of board dynamics and presented a pilot study on director’s behaviour. In their introduction, they mentioned the recent growing attention to board dynamics:
In a few years’ time, revisions of the corporate governance codes have included the notion of “culture” in their recommendations; (European) Supervisory Authorities in the financial sector have put directors’ behaviour on top of their agenda; directors’ training programmes increasingly focus on soft issues and dilemma teaching and, last but not least, board members themselves realise the importance of constructive challenge, contribution and ethics within an atmosphere of trust.
For sure, board dynamics has come out of darkness, but are we really aligned in our definition or interpretation? From a non-exhaustive analysis of a new literature stream in board research, it becomes clear that the concept of board dynamics is not uniformly used, nor does it encompass a single attribute. In contrast, board dynamics can be defined as an overarching concept including a heterogeneous set of variables ranging from processes to emerging states.
Board dynamics, defined this way, are another piece of the puzzle of boardroom reality and are often mixed up with board norms or culture. The latter refer to a set of unwritten rules derived from shared beliefs which regulate board members’ behaviour (Nadler, 2004; Shaw, 1976). They reflect the expectations concerning the right, acceptable behaviour and act as a tool to avoid misconduct (Gregory, 2016). Board dynamics and board norms/culture are separate concepts but intertwined. Together, they determine what really happens inside the boardroom and fuel, most of the time, inefficiencies in board’s work.
Board Dynamics: a blessing or a curse?
The board is the guardian of corporate success and effective board decision making is crucial to good governance. The worldwide assumption is that corporate decision making at the helm of the company should be based on collective reflection and group decisions. Decisions are made by people, and in the case of a board, by a group of peers, acting together as a college. It is crystal clear that this is not an easy exercise.
Awareness is raised that the dynamics may lead to suboptimal or lower quality decisions and therefore should not be ignored. Indeed, board decision making is not a completely rational activity but bounded by numerous complexities, insecurities and biases. The “arena” where all of this happens is the board room…
Group members influence each other, especially in relatively small groups and each step in the decision-making process is vulnerable to specific dynamics. While corporate governance codes point to constructive dissent, effective challenge, and candid dialogue as recipes for effective decision making, practice has shown the other side of the coin. Numerous corporate failures were caused by directors who became complacent, exposing a herd mentality and being afraid of undermining chairman’s or management authority. The border line between functional and dysfunctional dynamics is by times a very thin line and need to be well managed.
GUBERNA is continuing its work on board dynamics, by contributing to the new research stream focusing on behavioural and psychological processes within the board. We follow the interest in corporate governance research turning more specifically to exploring the human nature of boards.
Winter (2019) refers to this evolution as “governance 3.0” whereby human practice building takes centre stage. “Boards are composed of individual human beings and every board constitutes a unique combination of characters, skills, competences, virtues, values, drives, fears and joys that generates board specific dynamics”.
After all, board dynamics is the complex and intertwined outcome of individual-level attributes and group level activities and paying attention to both is key in creating effective boards.
Do join us in discussing this topic in the GUBERNA Summer School.
You can read more about Board Dynamics in this article:
Levrau, Abigail, Fanny D’Hondt and Marc Timmerman (2019). Board Dynamics and director’s personality: lifting the veil. In Levrau, Abigail and Sandra Gobert. Governance: the art of aligning interests. Intersentia.
- Gregory H.J. (2016). Th e Challenge of Director Misconduct in Leblanc R (editor). Th e Handbook of Board Governance. John Wiley & Sons, New Jersey.
- Nadler D.A. (2004). Building Better Boards. Harvard Business Review. 82(5): 102–111.
- Shaw M.E. (1976). Group Dynamics: Th e Psychology of Small Group Behaviour. McGraw-Hill New York.
- Winter J. (2019). Th e Human Experience of Being-in-the-Board – A Phenomenological Approach. Governance: the art of aligning interests. Intersentia.