Improving Board Behaviour
Karl George MBE, Founder of the governance forum and The Effective Board Member programmes - Birmingham
Given Sir Adrian’s close association with the City of Birmingham, notably through his world famous family chocolate business and Aston University, it gives me particular pleasure to mark the anniversary of the Cadbury Report with the FRC from here in Birmingham.
Just as with the other pursuits in his life, from rowing to university fundraising, Sir Adrian literally set the standard when it came to corporate governance.
As with all aspects of life, 25 years is an awfully long time and it is right to reflect on how to encourage good board behaviour in a world which seems very different to 1992.
The Code has, of course developed, and a series of other important reviews and reports including Greenbury, Turnbull and Higgs have shaped corporate governance in the UK and beyond.
The recent Industrial Strategy White Paper, as well as Brexit, provides another timely incentive to take a fundamental review of the Code.
Trust in business is at a low point, but there are serious issues of behaviour and culture in just about every corner of society, including many public institutions. Now is the time to examine how we can improve the culture of organisations – private, public and charitable – and that starts in the boardroom.
Changes to legislation and to the governing code are important, but so too is addressing dysfunctional board behaviour.
Tackling any type of governance challenge requires robust and rigorous compliance regimes, but the process of improvement, transformation and better practice can only come from a change in the range and mix of characters around the boardroom table.
If we want organisations to make different decisions then we have to be able to influence the ways boards think and how they behave. It requires a fundamental shift in attitude and approach.
It is up to the Board to set an appropriate tone from the top.
In my work, I have been exploring these themes and have identified a set of generic character traits that can be discovered in many boardrooms.
In what I describe as the corporate governance zoo, we find typical boardroom characters such as:
who represents the board behaviour trait of conflict
representing negative operational
board behaviour, characterised by obsessive compulsive behaviour; and
board behaviour trait.
I am sure everyone who has served as an executive or non-executive director will recognise these characters from the boardrooms they have inhabited. You can probably put names to them.
Through development of current board members and smarter director recruitment, we can build a more diverse and positive mix of board behaviours with character traits that set the right tone and embed a more constructive culture.
We need to strive for a situation where boards collectively have the potential to be more effective than the sum of their individual members. It is the inappropriate personality traits and behaviours of individuals that lead to conflict, fear, reluctance to challenge or take difficult decisions, or a perceived arrogance that they are always right.
The seven Nolan Principles first set out in 1995 by Lord Nolan identify a code of behaviour that I believe is essential to being an effective board member. These principles, originally developed for standards in public life, are:
or, as I like to remember them, OOHLISA
I might add to these the need to be decisive and determined.
Traditional governance models are very good for compliance – for providing the checklist. Boards need to have procedures in place and to comply with a governance code.
are the compliance drivers that, I suggest, can be used to determine how well an organisation is currently being governed. They support the principle of ‘comply or explain’ which remains a relevant concept in governance today.
This governance framework was endorsed by the late Sir Adrian Cadbury.
Members of a board need to have the right skills and experience. They need to follow the organisation’s strategy and put risk plans in place.
However, even with all the structures, discipline and frameworks required or available, boards need to move to the next level of governance understanding. That means smarter board composition and a real focus on diversity in all its forms.
It also follows there needs to be more emphasis on long term value and less on short term results.
But boardroom behaviour is critical. Only when we pay closer attention to the characters - and characteristics - of who sits around the board table and how they behave, individually and collectively, will we really shift organisational culture and performance.
‘The Governor’ - Karl George – recently published his latest book, The Effective Board Member – What Every Board Member Should Know, in which you can meet peacock, bee, penguin and rabbit. It is available on Amazon