Good governance despite differences

There is increasing commentary on the “inadequate role by independent directors” on the boards. Long ago, Sage Kashyapa had noted, “When honest people fail in their duty to speak up, they wound dharma and they ought to be punished.”

I have served on boards for 34 years. Initially, I assumed that a great board is an assembly of topclass professionals. Indeed regulations are also based on this belief: Surely, distinguished professionals from bureaucracy and management must make effective board members. I have found that this is so only if their mind is “prepared”.

Top-class people need melding to be effective, they need to be a team, just as in sports. Dysfunction appears when you have “personally accomplished, but team underprepared professionals”. Sports teams have coaches and mentors, boards do not.

Boards can be noisy parliaments and might even appear dysfunctional due to conflicting views. Depending on personality, some do not speak up at all, some do so politely, while some others argue forcefully. Boards do not necessarily have a harmonious atmosphere, never mind the mythology that promotes such an image. As I reflect on my years on boards, the influence of human behaviour on board processes flash through my mind. Three anecdotes are relevant.

In one company with marquee directors, a management proposal to invest in an overseas fertiliser company was desultorily debated for many months despite unexpressed reservations among individual directors about the stability of the investee country. Directors interpreted that the chairman was keen on the investment. When finally, the chairman expressed reservations about the country, everybody chimed in, thus ceasing further consideration of the proposal. In another board, the chairman himself piloted a proposal to invest in an unrelated diversification, hence big-name directors hesitated to oppose the proposal. A feisty and argumentative director, known to be a chairman-confidante, opposed the proposal vehemently to the great relief of the other directors. In a third company, an ambitious CEO created the perception among his board that his edgy proposals had prior assent of a powerful promoter non-director. One day, they discovered that the edgy schemes were a massive fraud. It was a pity that the edgy schemes went unchallenged for long.

Governance is perceived as an abstruse and technical subject, connecting the three dots of accounting, legal, and regulatory. Hence, governance thought leadership has been dominated by accountants, lawyers, and company secretaries. A fourth dot, the element of human behaviour, is sorely missing in governance preparedness.

As every director has experienced, human foibles dominate board functioning — ego, rivalry, crucial silence, treating directorship as a prestigious privilege and so on. Beneficial results can be accomplished if directors would either train themselves, or allow to be formally trained, to embrace behavioural principles and group dynamics. There is a place for board coaching by a wise and experienced person, acting as a fly on the wall. Such a person can help ease the inevitable dysfunctions in board dynamics. While boards engage with rational, left brain matters, there exists a place for affection, esteem, and warmth!

Consider certain soft skills —(i) how to balance operational and strategic issues, (ii) how to disagree without becoming disagreeable, (iii) how to speak up when it really matters, (iv) how to genuinely listen to alternate views without being judgmental, (v) when to be transactional and when to be reflective and above all, (vi) how to avoid relapsing into delusional memories of “during my days as the big chief, I used to….”

Every aspiring director should receive external or self-training on wisdom. Wisdom is like a muscle. It must be identified and worked on to improve it. Corporations need “wise” directors, but wisdom is not necessarily present in a person with many years of experience. What does “wise” mean? Our brain possesses low ground thinking, which is fast, transactional thinking and high ground thinking, which is slow, strategic thinking. In Indian Vedanta, these are referred to as mind and intellect. Behavioural training assists in high ground thinking.

To illustrate with two examples about the use of intellect in preference to mind, consider: When Pakistan was created as a nation, the Indian Constitution was framed around the traditional concept of “vasudeiva kutumbam”. Our leaders did not desire, and still do not, that India should be a Hindu state. High ground thinking.

Jamsetji Tata said as early as in the 1890s “In a free enterprise, the community is not just another stakeholder in business, but, is, in fact, the very purpose of its existence.” High ground thinking.

A recent PWC research report and an article in Strategy + Business (June 21, 2021) about behavioural influences on board decisions argues that four patterns of bias are noteworthy—authority bias, groupthink, status quo bias, confirmation bias. More on this next month.