Trust is one of those social interactions that is crucial for getting things done with others. Boards are by no means exempt. When directors a faced with making strategically-important decisions, they must rely on their board colleagues, the chief executive and any other advisors who may have been invited to contribute. Then, having made a decision, the board needs to follow through, by ensuring the decision is implemented well. However, the sad reality is that levels of trust both between directors and with external stakeholder groups is often lower than is needed for effective decision-making. The following comments, originally published in 2016 by EpsenFuller (subsequently acquired by ZRG Partners), make the point deftly:
Board directors today face a variety of challenges. Whether it is a case of corruption or the increasing threat of cybercriminals, their performance in dealing with these issues is the subject of considerable attention, explained The Huffington Post (Jan. 25, Loeb). Investors, consumers and NGOs alike are looking to boards for accountability in terms of company performance. Yet, a recent study found that public trust in boards of directors is lower than that of CEOs. A mere 44 per cent of survey participants claimed to have trust in a company's board—five per cent less than trust in CEOs. Influential constituencies are demanding that boards perform at exceptional levels while maintaining distinct independence from company executives. In order to remedy the current performance-expectation gap, boards should take a few key steps. For starters, boards should adopt some form of both internal and external assessments. Measurement criteria should span from trust to overall effectiveness at achieving board objectives. In order to ensure optimal independence, term limits should be instated and enforced to help safeguard against excessively friendly relationships between board members and executive leaders. Implementing improvements in a similar vein to the ones mentioned above can help boards work toward a future of increased transparency, which will hopefully translate to a rise in trust among powerful constituencies.
That some directors do themselves no favours (through poor behaviour, malfeasance and demonstrations of hubris) is self-evident. But all is not lost. The commentary includes several recommendations to enhance trust levels including scheduling meaningful evaluations, imposing term limits and ensuring independence of thought. Although not explicitly stated, high performing boards also reach agreement on the company's core purpose, the strategy to be pursued to achieve said purpose, and the values that will underpin behaviour standards, decision, and everything the company does and stands for.
Perhaps if more boards embraced these recommendations and worked with the company's best interests to the fore, the trust problem that generates so much tension (not to mention column inches) would gradually become a thing of the past. Is this expectation worth striving for, or do you think it is too ambitious?
Thoughts on corporate governance, strategy and effective board practice; our place in the world; and, other things that catch my attention.