The Leadership Institute at London Business School (LBS) is delighted to contribute to work with leadership services firm Harvey Nash / Alumni to conduct and promote research on boards.
Boards play a crucial role in the private and public sectors, from start-ups to multinationals. They also have critical decision-making authority. As research repeatedly shows, groups on average make better decisions and fewer mistakes than individual leaders.
To increase odds of success, make a group rather than an individual accountable. But boards are not your typical group – given the extraordinary demands they labour under as well as the power dynamics between the players.
So how well do modern boards actually perform against this ideal? And do they deliver the expected results? Answers to such questions are critical to people’s health, wellbeing and prosperity. Rigorous research on boards creates value by separating truth from conventional wisdom and current best-practice from dogma or blind faith.
Doing good to get ahead
Ioannis Ioannou, Associate Professor of Strategy and Entrepreneurship at LBS, examined whether companies with sustainability at their core have a competitive advantage. He demonstrated that, indeed, they do.
However, compare that with the key findings revealed in this report showing that prioritising ‘good business’ is only consistent in 28% of the boards. It suggests that an organisation’s impact on broader society is still seen as a ‘nice to have’ objective. Ironically, boards and their businesses are missing key opportunities for improved profitability by focusing primarily on financial returns.
Companies can do better financially by focusing on doing good, rather than focusing exclusively on financial returns.
Spotting opportunities to increase board effectiveness and impact
Research under way by Isabel Fernandez-Mateo, Associate Professor of Strategy and Entrepreneurship, and by Raina Brands and Aneeta Rattan, both Assistant Professors of Organisational Behaviour, highlights the opportunities relating to diversity.
When diversity (in all of its visible and deep-level manifestations) is framed as a business opportunity rather than a moral imperative or a problem to be managed, the outcomes for both individuals and organisations improve. For example, research by Aneeta Rattan demonstrates that if everyone in a workplace – leaders especially – adopts growth mindsets, it will help everyone, but women or any group that is under-represented will especially benefit.
Put these findings alongside some of the key findings of this report and you see that over half (51%) of respondents did not think that ‘diversity’ on their boards was a concern. The findings and our research suggest that boards are missing vital opportunities today.
Is the future brighter? Worryingly, it’s not guaranteed, since actively ensuring diversity in the talent pipeline appears to be mostly ignored by boards. Only a third of respondents were concerned with diversity as part of their succession plans.
Effective monitoring of the business
Finally, consider my own research, which shows that group processes such as information sharing, broad participation, cohesiveness, clear decision-making processes and goal clarity, predict group performance.
When board directors collaborate effectively as a group, there are better financial outcomes. Alarmingly, more than a quarter of board members report never having experienced an external effectiveness review – including 41% of private and 50% of family businesses.
The results suggest that many boards do not prioritise how they operate as a group, or are not conscious that this is something they need to attend to. When boards do not operate well as a group, they cannot monitor their business effectively.
At worst, low-performing boards can make mistakes that negatively impact results, as well as miss critical opportunities, erode organisational reputation, and/or trigger phenomena that can have negative impact on society and the world at large.
There are some pockets of good practice in the boardroom but, largely, boards have some way to go to will inspire board chairs and directors to continue to improve, by engaging in more of the practices that research clearly demonstrates are effective.
For example, when boards view their own team effectiveness and creating an inclusive culture as business imperatives, as opposed to ‘nice to have’, they can accelerate their role in creating real value, for organisations and society at large.
Randall S Peterson
Academic Director of the Leadership Institute
Professor of Organisational Behaviour at LBS