Wednesday, February 18, 2015

How to Build a High-Performing Board

The ignorance about the importance of cognitive difference and the behavioral dynamics that operate within their board is contributing to the generally poor performance of boards.

Corporate Board plays a significant role in overseeing organizational strategy, practicing governance and exemplifying leadership disciplines. However, most of the boards still operate on a traditional approach to recruiting for the expertise and executing its function; what’s the paradigm shift in building a high-performing Board, and how to create the synergy, trust, and confidence of BoDs?

To add complexity, the board makeup is a critical success factor: The transactional nature of Board decisions is not the default outcome of the lack of expertise - on the contrary, Boards target reputable experts within specified fields and it is often that very expertise skews decisions towards to technical aspects of a challenge and not toward the strategic or broad picture aspects of the same challenge. It is that around decision-making both at the individual and at the group level. While relevant expertise is one factor that leads to good decisions, it can equally be derailment if it is not balanced out by other variables known to impact the quality of a decision. However, the majority of directors and boards do not understand or are reluctant to face the probability that it is their board's culture which is the reason to cause their organization and their board performing poorly.

BoDs with a cognitive difference can make better decisions: It is the difference in thinking and perspectives that diversified BoDs bring to group decisions; as well as how members of a somewhat homogeneous group modify their decision-making processes in the presence of an "outsider," that causes organizations with boards of more diversified BoDs to outperform organizations with homogeneous boards. The boards don't work, not because their directors are "stupid" - Majority of directors are intelligent people who made it thus far for a valid reason or another. You would be better served if you educate yourselves on the variables that affect the quality of decisions in general and work together to facilitate better decision-making at those levels. The directors need to be diverse by industry background, mindsets, skill, experience level, and perspective. This diversity along with deep knowledge of the business will allow them to be real "thought partners" with senior management as they consider the long term goals beyond quarterly earnings. They can further be aligned when they have long-term equity incentives that make them less concerned about how quarter to quarter decisions affect their own incentives as well.

The board chair plays a significant role in the board effectiveness: The chair has to be able to understand and manage the collective and individual intellectual capital that makes up the board while also being aware of the individual and collective behavioral characteristics on the board. Understanding these elements is critical in determining the chair's leadership, action, and reaction during discussions, meetings, etc. The key to ensuring appropriate board behavior, compliance with sound governance practices and ensuring strategic decision-making is inclusive comes back to leadership from the Chairman of the board. The Chairman's role is underestimated when you talk about board harmony and the success of the business. 

Sadly, the ignorance about the importance of cognitive difference and the behavioral dynamics that operate within their board (team) is contributing to the generally poor performance of boards. It is the recipe of characteristics derived from the constructs above that creates high levels of synergy within and between the board and executive. It is the trust and confidence that allow the board to positively influence organizational performance through the executives. Ignorance of that recipe is the for-bearer of the poor board and ultimately organizational performance.


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