Group Think and Boards of Directors

Group Think and Boards of Directors

The original intent of Boards of Directors was to bring outside, independent expertise, experience, and insight to the management of an enterprise.

The late 19th and early 20th century robber barons saw Boards differently.  They seized the opportunity to create inter-locking directorates, coordinate and enhance monopolistic practices and predatory pricing, and develop other creative ways to tame the unruliness of the unfettered marketplace.

Then came the Muckrakers and the Age of Reform.  Inter-locking directorates were banned; and public accountability and fiduciary responsibility were imposed on Boards.  Boards of public companies were now mandated to protect the stockholders and shareholder value, as well as lend their expertise to management.  And failure to protect shareholder value, or collusion to protect management from the consequences of its failures, could lead to suits for breach of fiduciary responsibility.

So much for theory.

People like dealing with their peers.  They are most comfortable with people of like minds, backgrounds, and assumptions.

So it is not surprising that most late 20th and early 21st century Boards represent a club.  Certainly, this club has been expanded in recent decades to include women, blacks, Hispanics, and other previously excluded groups.  But it is still a club.

Leaving aside for the moment the question of fiduciary responsibility, who cares?  Crony capitalism has been with us for as long as there has been capitalism and cronies.  As long as the Boards carefully avoid inter-locking directorates and obvious malfeasance, what’s the harm?

The harm is group-think.

With management carefully hiring and nurturing employees who fit the corporate culture below and Boards appointing like-minded colleagues above, it is the rare original thought or unorthodox approach to the marketplace that survives.

For all the talk about the need for innovation, for all the discussions about increasing market share and revenues, for all the management articles stressing flexibility, most companies are imprisoned by the herd mentality.  The concept is to do what everyone else is doing – only do it better.

Most academics and pundits put the responsibility – and the blame – on the shoulders of the CEO.  And that is fair and just – up to a point.

But CEOs are answerable (at least in theory) to Boards.  And the Boards are composed of people who see the world, think, and act the way the most CEOs do.  There is pressure to follow what seem to be the latest management innovations on marketplace trends.  (Thus the unthinking rush to embrace all social media platforms as if they were the answer to all revenue prayers.)

There is pressure to use similar approaches to creating “cultures of innovation.”  (As if following the herd will lead to an untrodden path.)  There is pressure to insure that the current buzz word or hot-button is implemented.  (Now, for example, every company is striving to be “customer-centric.”)  And on and on.

People are people.  No matter how you try, you can’t make the average person – no matter how successful – into an original thinker.  (And it is original thinkers who create the new paradigms, who develop the break-through product or system.)  But you can challenge the conventional wisdom.  You can invite dissent.  You can step out of your comfort zone.

For Boards of Directors to be truly useful and effective in the 21st century, they need to open up the club once again, to invite people who don’t think the way they do, who don’t share the same assumptions, the same or similar corporate backgrounds and experience.

If the purpose of Boards is to bring additional insight and expertise to corporate management, then their meetings need to be an intellectual battleground, not a comfortable place for colleagues to meet and chat.  For the modern Board of Directors to fulfill their fiduciary responsibilities, they need to challenge traditional management and traditional or trendy management assumptions.  But they can’t do that if everyone on the Board and management agree on assumptions, trends, methods, and the “right” way to do things.

If the purpose of Boards is to bring value, then isn’t it time to for them to embrace the contrarians among us, those who would challenge what “we all know” and demand to know how we know it?

 

 

 

 

 

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