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Corporate governance scandals in recent years have lowered public trust and heightened public scrutiny of all governing boards. Government leaders are calling for better oversight and regulation and legislation to enhance accountability. These days, the press sends its investigative journalists to cover not only the Enrons of the world but nonprofit organizations as well, which are being held accountable to stricter, more transparent governance, financial, and management practices.
These measures may contribute to better governance, but all the accountability checks and procedures in the world ultimately won't necessarily prevent your board from making lousy decisions with potentially disastrous consequences. If board members, management, and artistic leaders become ensnared in the thicket of requirements without also looking at how culture shapes the way the board behaves as a group, they will miss the forest for the trees.
The steady turnover of board members and officers creates a "rolling culture" that keeps boards in flux. Building a healthy governance culture is an ongoing process, not an intermittent task.
Board culture reflects the human side of governance: the written and unwritten rules that influence how the board operates, the chemistry between board members and professional staff, and the basic assumptions that individuals bring to their work. The tone at the top—or the values that the chief executive and board chair bring to their responsibilities as chief board development officers—has a major effect on board culture. But the steady turnover of board members and officers creates a "rolling culture" that keeps boards in flux. Building a healthy governance culture is an ongoing process, not an intermittent task.
The best board members and chief executives grasp the paradox of assembling a number of highly competent individuals only to find that the result is an incompetent group. They recognize that they can and should contribute to how the board operates as a social system.
Assessing Board Competencies
The research team of Richard Chait, Thomas Holland, and Barbara Taylor found that without an intentional effort to develop the capacity of individuals on a board to work as a group, their natural inclinations pull them toward the very things we wring our hands about—away from long-term challenges to immediate concerns, away from strategy to operations, and away from collective actions to individual actions.
The leaders of effective boards, these scholars conclude, take deliberate steps to transform an assembly of talented individuals into a well-integrated group. These boards demonstrate interpersonal, analytical, and strategic competencies. They recognize that an inclusive and cohesive board makes better decisions than do individuals, but they continuously draw upon members' multiple perspectives to avoid the trap of "groupthink." They foster inclusive relationships from the time a new board member is recruited, and they build in regular opportunities for board development, gathering feedback on their performance and learning from their mistakes. And they are exceptional in their capacity to draw upon multiple perspectives to dissect problems and address ambiguous or complex issues.
Workplace team expert Patrick Lencioni observes that genuine teamwork in most organizations remains as elusive as it is touted. He asserts that groups stumble on five natural pitfalls that easily can occur in boards: absence of trust, fear of conflict, lack of commitment, avoidance of accountability, and inattention to results.
Groups stumble on five natural pitfalls that easily can occur in boards: absence of trust, fear of conflict, lack of commitment, avoidance of accountability, and inattention to results.
Teamwork often demands substantial behavioral changes from strong individual board members who may be set in their ways, used to calling the shots, and more skilled at muffling conflict rather than voicing differences. The tendency of some chief executives and board members to suppress criticism and conflict can undermine decisionmaking. "Dysfunctional harmony" can create a petri dish in which problems can fester, leading board members to air their differences outside of the organization in a manner that sends confusing signals.
Such discord also can lead to faulty assumptions in formulating strategy. The investigation that followed the Columbia space shuttle crash in 2003 uncovered a number of technical and economic problems at NASA that led managers and engineers to conclude erroneously that a piece of foam debris that struck the craft after liftoff was not a significant risk. But internal and external analysts have since pinpointed a decisionmaking culture at NASA (at that time and preceding the Challenger shuttle accident in 1986) in which striving for unanimity along with unspoken fear of reprisals for criticism trumped the realistic appraisal of alternative courses of action.
Governance is like rocket science in at least one way: Decisions must be made in real time. But decisionmakers place their organizations at risk when they have a low tolerance for differing viewpoints.
High-Functioning Groups
Thanks to the colossal governance breakdowns at companies such as Enron, WorldCom, and Tyco, the correlation between a board's ability to work as a robust group and its performance is now emerging in the for-profit sector. When corporate governance expert Jeffrey Sonnenfeld examined these meltdowns, he found no broad patterns of corruption or incompetence among the boards of these failed companies. Actually, these boards demonstrated some of the best governance practices regarding meeting attendance, board size, committee structure, the financial literacy of individual board members, accountability mechanisms (such as codes of ethics and conflict-of-interest policies), and even the ratio of inside to outside directors.
When Sonnenfeld compared boards of high-profile companies that failed with corporate boards considered the best in the field, he isolated the degree to which the board was performing as a "high-functioning work group" as the most salient difference. What makes "great boards great" in the corporate sector, he concludes, has little to do with the requirements of the Sarbanes-Oxley Act.
The exceptional boards demonstrated some critical group traits:
- A climate of trust and candor among board members and between the board and management
- A willingness to share information with board members openly and on time
- A culture in which board members feel free to challenge one another's assumptions and conclusions and in which management encourages lively discussions of strategic issues by the board
- A commitment to assessing the performance of the board as a collective group as well as of the individual members
The shared beliefs and assumptions that people bring to their work often are so ingrained in an organization that they do not emerge until a dramatic change such as a crisis or a leadership transition outs them for scrutiny. The rub is that board members and chief executives often are reluctant to articulate problems before they become crises.
The fears of being put in a position of assigning blame, producing remedies, or bringing negative publicity to the organization—let alone losing one's standing—are very real.
Conflict is Messy
Few sights are grander to board anthropologists like me than a chief executive and board chair who are in touch with the board's culture. When they understand that much of their success derives from the effectiveness of the board as a team and the norms of behavior that guide its work, they are more willing to invest time in shaping the group's "tribal" rites. If these two leaders are reluctant to identify problems or invite different viewpoints, this creates an organizational learning disability.
The natural human tendency to avoid conflict becomes insidious, says leadership expert Warren Bennis, when it begins to "institutionalize the suppression of honesty." He cites the culture of the New York Times (before reporter Jayson Blair was dismissed for his plagiarism and dishonest reporting) as an example of this syndrome. Nell Minow, head of the Corporate Library, when asked to comment on the CEOs of major companies who now are most familiar to us as "defendants," observed: "The hardest thing in the world is to find people to say you're wrong. It's something you see over and over, whether it's Enron or General Motors. Success is a much greater problem than failure."
Culture is hard to measure in ways that satisfy social science standards. Unwritten rules and patterns of behavior evolve slowly and often imperceptibly at most organizations.
It is much easier to diagnose a cracked culture than to fix it. Conflict is messy. It requires a strong gut and a different approach to processing information and making decisions than the way some of us prefer to work. If you can't relate to this, ask yourself how you as a chief executive would react if a Sherron Watkins (an Enron accountant), a Colleen Rowley (the FBI staff member who identified gaps in security measures before the September 11 terrorist attacks), or a Ross Dembling (former board member of United Way of the National Capital Area whose early questions on improprieties got him expelled from the board) warned you that something did not smell right—well before your own nose started twitching? No fair using hindsight to respond!
Expressing Intelligent Doubt
A healthy culture is not present when the chief executive and board officers do not make it safe for board and staff members to question inconsistencies or dubious practices. It is not present when board members do not question peers who put their own interests above the interests of the organization or become public critics before they have shared their concerns through proper, internal channels. It is not present when board members who express intelligent doubt in a responsible manner are ignored, labeled as disruptive, or even urged to end their board service.
"Tired ears," a Middle Eastern phrase used to describe people who have stopped listening, can be found on the heads of board members who chronically and selectively filter information in a manner that jeopardizes decisionmaking. The lack of interest in hearing opposing views and the tendency for some of us to "pronounce" our positions rather than engage intellectually on controversial issues are chronic patterns of communication within some boards.
In scores of board meetings I have watched too many board members and chief executives tell their positions and react to their colleagues' views. Less evident are the communication skills of listening for differences, probing for information among colleagues with other opinions, and engaging in productive ideological conflict rather than destructive fighting and interpersonal politics.
It is not surprising that real dialogue is missing in action from many board rooms—we don't practice it. Just think about any exchanges you have had (or avoided having) with loved ones or professional colleagues with contrary political views. How many of these conversations were characterized by "equality and the absence of coercive influence, listening with empathy, and bringing assumptions into the open"—the three features that pollster Daniel Yankelovich uses to distinguish dialogue from discussion?
Boards that cannot engage in candid discussions of complex issues that defy quick solutions unwittingly encourage their members to channel dissent in destructive ways. Chief executives and board members who understand that dissent does not equal disloyalty and that consensus does not equal unanimity have a greater appetite for these kinds of conversations at the board level.
Modeling the Culture
Thinking about the lessons of Enron and determining the practices that we should voluntarily adopt from the Sarbanes-Oxley Act are helpful as long as they do not deflect attention from the root causes of malfeasance, mismanagement, or plain old "nongovernance." Boards will continue to play a crucial role in organizational compliance with ethical standards. But accountability practices and safeguards designed to prevent abuse will be toothless in nonprofit arts organizations where leaders do not consciously examine how well they walk their talk.
Accountability practices and safeguards designed to prevent abuse will be toothless in nonprofit arts organizations where leaders do not consciously examine how well they walk their talk.
New regulations and codes of ethics are of questionable value when they are imposed by chief executives and board members who do not model the core values displayed on websites and in strategic plans. Chief executives who lament that their boards micromanage should make sure that they are not "undermanaging" their role in helping their boards govern effectively.
What constitutes a successful board culture can be determined only after the criteria of board effectiveness have been defined. This is likely to change as an arts organization navigates leadership transitions. For some, desirable board cultures are those that will simply reward the board for staying out of operations or minimizing dissent among members. For others, an effective culture will limit the board's work to carry out its fiduciary obligations and react to management's recommendations. Others will find superior performance only when the culture supports the board in genuinely shaping organizational character, direction, and strategy.
Neither the intense news coverage of governance transgressions nor the heightened expectations for governing boards is likely to wane. If nonprofit boards do not provide the responsible self-regulation and proactive governance their stakeholders expect of them, external agencies are likely to step in and do it for them. Exemplary governance practices such as mutual respect and candor among board members cannot be legislated by new policies or by exhortation. They do not suddenly show up in the board room after the board, management, and artistic leaders craft elegant values that may be detached from how things really work. The heroic part is living those values every day.
This article is adapted from The Voice, Spring 2006.
