Continuing Confusion as to Responsibility and Authority

To my eyes, the most significant threat to success lies in the difficulty of establishing a reasonably clear agreement among directors themselves as well as between directors and management and directors and investors as to what their job is and how to do it.

I am puzzled by articles that posit a new model of fealty to the corporation rather than to shareholders, when in fact the model that exists now IS the model that requires directors to serve as fiduciaries for the corporation, and as its agents, not directly those of shareholders. If there is confusion on this, boards will be vulnerable to being weakened by outspoken shareholders asserting bogus ownership rights. Perhaps we should urge the Securities and Exchange Commission (SEC) to adopt the notion the European Union (EU) has publicized, making clear and explicit that shareholders do not own the company and thus do not enjoy the rights and privileges of ownership.

We have examined these issues at some length herein, and I hope that readers who influence board rooms will as a result have better developed views on this subject. There is not much more I can add other than to repeat that the board is a fiduciary for and agent of the corporation, and through helping it to thrive it serves shareholders, the primary beneficiaries of its efforts. When the board has a clear view of its role, it can step more fully into its powers.

Group Think

The powers of the board are vested in the board, and not in the individual directors. This one sentence encapsulates the dilemma of fostering board effectiveness. While individual directors may have deep knowledge, excellent experience, and strong views as to the best route for the corporation to follow to achieve its goals, if the individual can not influence the thinking and ultimately the decisions of the group, that individual can not be an effective director. There are many ways that that director’s efforts can be derailed by the group, both intentionally and inadvertently. Group behavior is powerful, and in blunting contributions of individuals, it can end up defaulting to taking the path of least resistance.

Board leaders often follow certain rituals of communication, such as deflecting individual comments by saying that the topic is off point or belongs in a committee discussion, or should be taken up outside the boardroom. While sometimes these comments are correct, they can easily be used by influential parties to reduce the individual director’s ability to be heard at all, and of course to preserve their position of dominance. One silly constraint that occurs way more often than I like to believe: “we only have limited time as so and so needs to leave to catch a plane.” It always surprises me when those words are taken seriously by the entire group, when a great deal of effort has been invested to prepare for the meeting itself, which has been planned long in advance. I must always stop myself from suggesting that so and so catch a later plane, when the business of the board has been concluded.

Faulty Filters

Executive recruiters checking references during board candidate searches will often ask, “Is this person a team player?” which can be code for “Is this person compliant, or a boat rocker?” In some circumstances, if a board member challenges major decisions, a company may actively work to discredit the person. Consider the case of Hewlett-Packard and Walter Hewlett, an academic and the cofounder’s son, who controlled 18% of Hewlett-Packard stock. With his deep understanding of the computer business, he questioned the desirability of HP’s proposed merger with Compaq in the fall of 2001. Even though technology mergers rarely work, his point of view was summarily dismissed. When he felt he had no choice but to go public with his objections, he was ridiculed publicly in a smear campaign.

Corporate Myths

Close relatives of sacred cows, corporate myths are generally based on what once was true, and have had a long history of instilling pride in executives and employees alike. They can be powerful long after they are no longer true, and it’s the job of the board and its members to look beyond their constant repetition to determine if they are valid, and if so, are they relevant. Though handy as a sound bite, in what context is it useful to be, for example, “the low-cost producer”? The real question is whether the delivered cost is attractive to the customer. While this is a different, and much more relevant, question, the belief that the company is the low-cost producer creates complacency and inhibits the assessment of reality.

Conformity Pressure

Directors are generally intelligent, accomplished, and comfortable with power. But put into a group that discourages dissent, they nearly always start to conform. Humans have a strong desire to conform to the expectations of the group, as exemplified by Solomon Asch’s famous 1958 study. Eight people in a room are asked to identify which lines on a card equal the length of other lines on the card. Seven of the participants, prepared in advance, identify out loud the wrong lines as being of equal length. What does the actual subject, the last to respond, do? In multiple trials, roughly 80% of subjects went along with the group’s obviously incorrect answer. In discussion as to why subjects had responded this way, most subjects reported that though they knew the answer they gave was incorrect, they went along with the group for fear of being ridiculed or labeled peculiar.

Asch concluded that pressure to conform to the group was so strong that reasonably intelligent people were willing to call white black to fit in. Further conclusions suggested two driving elements: the desire to be liked and accepted, and the belief that the group is better informed than the subject. It appears to be difficult to maintain that you see something one way when everyone else sees it another. According to his further research, it is less difficult if the single dissenter has an ally. A minority of two reduces the tendency of each to conform to giving the wrong answer. So, if you fear conformity pressure may inhibit you on an important subject, develop an ally to fortify the position.

The State Dinner

Imagine that you have been invited to dine with the Queen, and the table is set with more implements than you are accustomed to using. You will discreetly watch what the other diners do, and mimic them, hoping that your lack of sophistication is not noticeable. Imagine as well, then, how difficult it is for any board member, especially a new one, effectively to espouse a view that goes against the expressed opinion of the majority, the old hands. Now add to that the board hierarchy, explicit and implicit.

Bullying

Do you really mean bullying? Yes, and it takes multiple forms. For example, a longtime leader may simply assume that no one else has anything worthwhile to say, and thus manage to foreclose the opportunity for others to speak.

One easy way to do this is by the artful use of Roberts Rules of Order. Though few rely extensively on them anymore, apparent knowledge of them in managing resolutions and discussion may be enough to intimidate others into silence. Another route is to patronize board members, suggesting they are too new or too tall or short to have had time to formulate useful thoughts. And, of course, another is simply to preclude questioning. Watch for it, and calmly refuse to fall for it.