Thursday, January 23, 2014

An Objective Board

Independent directors practice independent thinking.


The modern corporate board plays critical role to exemplify digital leadership and influence corporate culture as well, how do boards ensure they remain objective even when members are/or become friends?

Check the friendship at the door: The smart thing to do is to understand and agree to the following when someone joins your Board: Friendships are great, but they should be checked outside the door to the Board Room. Inside the Board Room, everyone has a fiduciary responsibility to use their personal knowledge and experience in the best interest of the company. Good people can sometimes be blindsided when doing business with good friends. It is natural to want to protect them from harm and to feel connected in ways that could affect one's objectivity. And the fact that duality can lead to a blurring of roles leading to potentially compromised decisions. Thus, theoretically one should be able to check the friendship role at the Board door

Be "friendly," but not the friends: Always considered board member colleagues and reserved the term 'friend' to something of a more personal nature. At the senior leadership level, being friends with your colleagues can make the job a bit tougher. As in high-stakes business keeping today's friends too close may rise for concern for future competitive endeavors. The other thing is to maintain a healthy separation for the appropriate discharge of your corporate director responsibilities, if you are pressured by the relationship than objectivity goes out the window.

Independent directors practice independent thinking: The other issue with friendship is that the ability to be seen as an independent director has diminished, especially when it comes to motions that require the independent thinking. Even if you believe yourself to be objective and independent, your fellow directors may not see you that way. People can become close, however, it may simply cloud objectivity and the organization suffers the most from this. It is an act of business maturity and placing fiduciary duty ahead of everything is what matters.

Focus on asking the right questions than just socializing: The main dilemma here is, traditionally, many board members suggest friends or friends of board members to join them for ‘quality’ concerns. However, human nature prevails and one may tend to not realize about one’s own biases. Friendships, partisanships, and passiveness can settle in and develop myopia. So, while you want to ensure that self-awareness has been developed, what can you do from a board perspective to ensure that objectivity prevails? Respect of oneself to voice an opinion; respect of your colleague or friend and listen to a differing opinion.

Build the Board's assessment tool to address objectivity: Of course, the results of the assessment need to be addressed in a constructive manner. At that point relationships go out the window and things get real clear to the ownership, board members, and management team. It comes down to the level of value you are adding to the organization and not based on relationship, but what is proven. The board is either an asset or a liability; without an objective evaluation process, it is impossible to make this determination.

Hence, an objective Board is important to practice effective corporate governance; build a cognitive strategy; set culture tones and make right decisions.  

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