London Business School Conclusions

Harvey Nash / Alumni Board Report 2017/18

The Role of Research in Supporting Board Effectiveness

The Leadership Institute at London Business School (LBS) is delighted to partner 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.

Appointing Diversity is Not Enough

One of the key pillars of the LBS Leadership Institute is Diversity: Return on Inclusion. Research being conducted by Professors Raina Brands, Isabel Fernandez- Mateo, Herminia Ibarra, Randall Peterson and Aneeta Rattan all focus on how to get real return from inclusion in groups of all types. The lessons from their research for boards is instructive.

First and foremost, the research confirms why recruiting diverse is hard. Recruiting a diverse board is a challenge for many reasons, not least of which is that when we think about leadership roles, most of us, men and women alike, envision men rather than women. Additionally, most leaders’ networks favour those who are most like us. This means that the network of most board members tends to be from the ethnic majority and male because most board members are from those two categories.

But appointment is just the start of the journey for effective and inclusive boards. Once those groups are appointed, they need to be made to feel they belong. Once they feel comfortable contributing, there is a high likelihood of miscommunication and coordination failure, as what they say does not always fit with the prevailing wisdom of the board. That is their potential value as they see things that others do not see, but it is also where communication breakdowns get in the way of effective board decision-making.

All in, being an inclusive board is a multi-stage process from appointment to active inclusion, careful listening, and working through the very real challenges and disruption that diversity creates in the boardroom. Where is your board in this journey? What can you do to move your board further along that pathway?

How Much Does Leadership Matter?

This is an age-old question. One of the key findings in this report is that effective chairs need to listen more, have emotional intelligence and be a good leader. Research findings from Organisational Psychology (Fiedler, 1964, 1967)[i][ii] shed some light on this question, but find that the answer depends on the situation. When things are going well, the environment is relatively benign and the organisation is stable, the quality of leadership is not that important to understanding how well the organisation does. But volatility and threat make the quality of leadership central to predicting how well any organisation will do in the future.

The environment is more unstable now than it has been in decades, which points to the importance of boards, and especially the quality of leadership coming from their chairs. We highlight board chairs in this report because they are more important than ever before. And we wholeheartedly agree that listening is at the heart of what it means to be a good chair.

We also highlight board ineffectiveness here in this report because we have been experiencing an epidemic of corporate and political scandals over the last decade. One might ask why this is happening. That same leadership research gives us important clues as to where to look. One possibility is that the quality of leadership has diminished over time. But this research would suggest that the better explanation would be that the level of volatility since 2007 has simply exposed the relatively poor quality of leadership that has existed in many organisations for some time.

This interpretation would suggest that we need better leaders than we have had in the past, or we need to reduce volatility, which would seem extremely difficult to do in the absence of strong leadership. In short, both pathways lead back to the importance of strong and effective leadership on boards. Chairs matter more today than they have in a very long time.

At the broadest level, boards are at the centre of almost all political and economic systems. They need better leadership now than at any time in generations. In short, we make a plea here that all of us need to invest in board effectiveness now more than ever.

Board Effectiveness

It would be hard to argue with the overriding sentiment expressed in this report. But what does an effective board really look and feel like? First and foremost, it is critical to remember that a board’s effectiveness cannot be examined or discussed in a vacuum. In light of this, we believe our findings have shed light on several steps boards can take to bolster their effectiveness ’in context’ – both at the strategic and operational levels.

Additionally, there are two further areas worth paying attention to where there is often misalignment, and which can lead to operating at a sub-optimum level. The first is in understanding the role of the board, and understanding when the board is ’crossing the line’ and starting to usurp the role of the CEO and/or the top management team.

Boards have three broad purposes: 1) to monitor the decisions of the executive, 2) to provide advice and guidance in areas of deep expertise, and 3) to provide stability in times of punctuated change (e.g. selecting a new chief executive, external shock, etc.) (Boivie, Bednar, Aguilera & Andrus, 2016)[iii].

The second is a conscious appreciation that the board may need to operate in different ways, at different points of time – depending on the organisation’s strategic aspirations, integrated risk profile, people capabilities, shareholder profiles, and other internal or external realities.

In the words of Irvine O. Hockaday Jr, former CEO and President of Hallmark Cards and an individual who currently holds board appointments with a number of global organisations:

“Boards should sit down annually, and say OK, what are we really doing here, what really is our role given the situation of this company at this time, what are we doing to incarnate that role, how are we going to function with the lead director, and what are our priorities?“ (Charan, Carey & Useem, 2014)[iv].

I would go as far as to say that at the beginning of each financial year, it is worth boards creating the time and space to discuss these questions, and align around the answers.

To address both of the issues presented above requires effective information sharing, which sounds simple, but is actually quite difficult to achieve. And whilst it is recognised there are additional factors that can lead to ineffective information sharing (Boivie et al., 2016), addressing the two areas above can help in providing insight on a board’s ’profile’ in the other areas relating to effective information sharing, board monitoring and ultimately overall board effectiveness.

Randall S Peterson
Academic Director of the Leadership Institute
Professor of Organisational Behaviour at LBS

with

Vyla Rollins
Executive Director of the Leadership Institute
Professor of Organisational Behaviour at LBS