Board dynamics

Anne Robinson FAICD says the best way to build boardroom unity and chemistry is getting directors into the field early in their tenure. For her, that meant encouraging directors to visit African refugee camps and projects in Myanmar and Cambodia that address poverty.

Robinson is the former Chair of World Vision Australia and a prominent lawyer in the not-for-profit sector through her firm, Prolegis Lawyers. She says getting directors to see World Vision’s humanitarian work first-hand helped them understand its mission and purpose.

“Visiting a refugee camp can be life-changing,” says Robinson. “Directors who go to a war zone, on their own time and money, have a profoundly impactful, shared experience. Seeing the scale of the problem and their organisation’s work strengthens the board’s bond and chemistry.”

Robinson says an organisation’s mission is the main driver of boardroom-meeting chemistry. Directors mostly volunteer their time to charities and non-government organisations because they believe in the cause and are passionate about helping its stakeholders.

“The key is finding a unifying force that bonds directors,” says Robinson. “In a commercial organisation, this might involve directors walking the factory floor and talking to employees or customers. That shared experience helps create a dynamic that every good board has.”

Robinson has observed charities struggle with boardroom chemistry as their long-serving directors retire. “I’ve seen disability groups lose their way when founding directors – often parents who were passionate about the cause – leave the board. The organisation’s ‘natural community of interest’ changes and there is no longer a shared sense of purpose.”

Director chemistry – that hard-to-define, intangible quality that ensures the sum of a board is far greater than its parts – is a critical factor in boardroom performance. Yet little is known about boardroom chemistry or how directors interact with each other and management.

That is changing. The Australian Securities and Investments Commission wants to better understand board-meeting dynamics. ASIC this year inserted a psychologist into one-off boardroom meetings of some of the country’s largest companies.

Australia is following the international experience of regulators wanting information on how boards make decisions. The Dutch prudential regulator De Nederlandsche Bank has for several years had full-time psychologists evaluating boardroom dynamics; in the United Kingdom, behavioural psychologists have been used to evaluate diversity issues in the top 100 listed company boards.

Boardroom chemistry puzzle

Stakeholders have few ways to assess boardroom chemistry. They do not see boardroom discussions or how directors relate to each other and management in a group setting because meetings are behind closed doors. Nor do they have detailed information on individual director decision-making styles or demonstrated behaviours, or how they interact.

Stakeholders rely on the Chair to nominate directors who have skills the board needs and can add to the group dynamic. Experienced Chairs lead discussions and processes that create boardroom chemistry, and benefit from it.

Creating this chemistry is harder than it seems. Board members spend an average 245 hours on board matters each year, according to a 2018-19 survey by the National Association of Company Directors (NACD) in the United States. Just under a third of that time is spent on in-person boardroom and committee meetings, or telephone or email conversations.

In Australia, over half of respondents to the latest AICD Not-for-Profit (NFP) Governance and Performance Study said they spend more than two days a month on a single board role.

The upshot is directors on many boards spending more time reading reports and working on their role through digital channels, than spending time together in person. On some boards, directors might only work together at the board meeting six to eight times a year.

The challenge is compounded on boards that have directors in different states or countries, or who attend several meetings by video-conference. Moreover, as more board work is done digitally in coming years, there could be fewer in-person interactions between directors.

Deloitte LLP says limited interaction affects boardroom chemistry. In the Harvard Law School Forum on Corporate Governance and Regulation, Deloitte’s Dannetta English Bland, of the firm’s Centre for Board Effectiveness, wrote: “… how well do board members actually know one another? Do they appreciate why some like to listen to the facts before commenting or why some comment before facts have been shared? Do they know why some board members lean in more heavily on details, while others seem to be exclusively focused on big-picture matters? Do they understand why some members of management just do not click with the board, or why some directors don’t seem to get along?”

Deloitte believes boards can benefit from understanding four types of business chemistry that can be applied to directors:

  • Pioneers (creative thinkers) who value possibilities and spark energy on boards;
  • Guardians who value stability and bring rigour and order to the boardroom;
  • Drivers who value challenges and tend to be more technical, detailed and direct;
  • Integrators who value connections and are boardroom “glue”.

Each thinking style benefits boards. The challenge for Chairs is having the right combination; ensuring one style is not too dominant in the board meeting; and bringing different styles to the fore as issues emerge. For example, encouraging the view of a “Driver” on a more technical issue.

“Each director has a different personality and mode of contribution, from the garrulous to the reserved. But very often there is a lot of wisdom embedded in that reserved demeanour, and the board needs that wisdom too.”

Chair’s role as ‘chemistry conductor’

Keith De Lacy AM FAICD, a former AICD Queensland President, former Queensland Treasurer, and company director, says board chemistry is an issue that belongs to the Chair. “The Chairman must create an atmosphere of respectful diversity – an environment where everyone is expected to be themselves, to contribute wholesomely and honestly, which sometimes can border on the aggressive. But as we always used to say, you can disagree without being disagreeable.”

De Lacy says a Chair coaxes team participation. “Each director has a different personality and mode of contribution, from the garrulous to the reserved. But very often there is a lot of wisdom embedded in that reserved demeanour, and the board needs that wisdom too.”

As focus on Environmental, Social and Governance (ESG) issues grows, strengthening board chemistry will be harder, says De Lacy. “The business world is becoming more complex, and this complexity is mirrored in board dynamics. Many (things facing boards today) are vague and invisible – harassment, bullying, discrimination, diversity, inclusiveness, sustainability, climate change, social activists … boards need to be equipped to face up to these issues. That is easier said than done as vague social concepts can evoke strong emotional responses in some people.”

De Lacy believes focus on board emotional intelligence (EQ) will grow. “More and more into the future we will talk about relationship skills, and EQ. The old management skills we learned – based on intelligence (IQ), specific skills and organisational abilities will become superseded, replaced by EQ. There is some research in Australia that points to a lessening in respect for leaders as complexity increases. This is where trust, integrity and authenticity come into play, because without those you will never create the chemistry necessary to negotiate the board through the shifting seas of modern uncertainties.”

De Lacy adds: “In a more complex world, the need to use the capability of everyone, of the whole team, becomes more pressing. The chemistry that fosters this becomes the real determinant of prospering in the modern complex environment.”

Structured approach to boardroom chemistry

Steven Cole FAICD, chairman of Neometals, Perth Markets, Queen Elizabeth II Medical Centre Trust and a non-executive director of Matrix Composites & Engineering, has heard of “bad chemistry” on some boards over the years. “It can include directors trying to dominate discussions, refusing to listen to the opinions of others, backstabbing, boorish behaviour and directors forming factions.”

The Chair’s challenge, he says, is to create an atmosphere for open and candid discussions. One that encourages all directors to speak up, even if they have a confronting view. “It’s about getting the balance right: you don’t want a boardroom culture where directors are constantly challenging each other. Nor do you want one where all directors are ‘best buddies’.”

Cole has developed governance tools to assess boardroom dynamics and uses them on boards he chairs. The focus is on the organisation’s Board Skills Matrix having a natural overlap with boardroom dynamics – and having a framework that considers director skills and behaviours.

“The two topics are inter-related given they both speak to the desired end result of effective board performance”, he says. “In addition, the concept of board skills must also include inter-personal, communication and other socialisation skills in a team environment.”

Cole cites the work of Dr Solange Charas, a US expert on human capital, around professional, social and behaviour capital on boards. In this context:

  • Professional capital includes the director’s education and technical skills; and his or her business, industry and board experience.
  • Social capital focuses on a director’s relevant networks and relationships that the board and organisations can leverage.
  • Behavioural capital includes issues such as a director’s metacognitive, motivational and behavioural attributes – and how they benefit board teamwork dynamics.

Thinking about the different forms of capital each director brings to a board, and how that capital fits together, provides insight into boardroom chemistry.

“You consider not only the director’s skills, but how that director relates to other people and how he or she thinks and behaves,” says Cole. “It’s far more nuanced than focusing solely on skills and assuming directors can work together effectively in a group setting.”

Coles’ framework for board assessment includes issues such as measurement of director Engagement, Active Listening, Individuality, Relationality, Solidarity, Understanding, Planning, Power and Influence, and Openness – issues the typical Board Skills Matrix in an annual report does not cover.

“To use a sporting analogy, the Chair is the coach who assesses each team member (director) on hard and soft skills,” says Cole. “The Chair wants to know the team has the right skills, but equally that its players will ‘stand tall’ during adversity. That’s the benefit of a strong boardroom bond.”