Can You Easily Identify Corporate Governance?

More than two-thirds of webinar attendees could not define it in one simple sentence. Make sure your board is aligned on what good governance is — and maybe more importantly, what it isn’t. 

Most Board Governance Practices Aren't Vital

Does the table in your boardroom really need to be rectangular? It’s OK to think outside the box when organizing your board’s meetings and find a setup that works best for everyone involved. 

Create Conditions That Improve Decision-Making

Watch out for confirmation bias, binary thinking, and other common fallacies that impair good decision-making. Ensure board members ask good questions, take your time, and don’t overlook the “I” part of DEI. 

Atlas Webinar Series: Abandoning the Governance Status Quo

Webinar Recap: Matt Fullbrook, board effectiveness researcher, educator, and consultant, explores why many boardrooms are impervious to change – and how disrupting the status quo can lead to better governance and decision-making.

Design Lines

Robert’s Rules of Order was originally published nearly a century and-a-half ago. Yet today, many boards continue to operate using its playbook – simply because that’s the way things have always been done.

Organizational agility and adaptation are key to surviving and thriving in the modern business world. However, many boards remain impervious to change. This resistance can stunt a board’s ability to make good decisions – and be as effective as it could be.

As board effectiveness researcher and board consultant Matt Fullbrook put it, “[The board governance space] is such a staid, compliance-oriented, detail-oriented thing that we do, all the time. It’s possible to disrupt it and possible to let go of the status quo.”

But why should boards question the status quo? And how can they start challenging the way things are done in order to improve effectiveness?

Earlier this month, Fullbrook joined us for a lively discussion about breaking through the board governance status quo to create dynamic, engaging environments that allow for effective, strategic decision-making. He explored such topics including:

  • How the status quo can hamper board governance and effectiveness
  • What board chairs can do to ensure every director is active and engaged
  • How any board can start challenging the unwritten rules of board governance

In this blog, we’ll share the highlights from this session.

Aligning on What Governance is – and Isn’t

Though the word “governance” is used a lot in the business world, many people struggle to define it. In fact, 69% of webinar attendees answered “no” when asked “Can you articulate what corporate governance is in one simple sentence?”

As Matt put it, “We’re using this word without having a confident idea of what we mean by it.” But if we don’t have alignment on what governance (or more importantly, good governance) is, how do we know whether we’re achieving it?

Matt then defined corporate governance as “the way that decisions get made in an incorporated entity.” He noted his definition doesn’t include any of the common board terms used, such as executives, policies, processes, and bylaws – among others. In fact, Matt argued that “governance can even happen by accident.” For example, Matt is the only person at his corporation. “Decisions are made by me waking up and making them.”

Matt took things a step further by sharing his definition of good corporate governance, which is “actively creating conditions that are likely to result in an effective decision.” He went on to say that “good governance is not compliance, strategic oversight, financial performance, shareholder value, hiring/firing the CEO, ESG, or even board effectiveness.” Instead, these things can be thought of as the outcome of good governance.

As Matt put it, “Boards are a human system. You can have a B+ group, and if one person is added or taken away, it can go to an A+ or an F. No amount of compliance is going to address this issue.”

Most of the Conditions of Corporate Governance are Optional

Of course, there are certain laws and regulations that boards must follow. This varies widely based on the type of board and industry – among other factors. However, there are plenty of other conventions of corporate governance that aren’t required. In fact, many conventions are upheld for no good reason. Some can even be detrimental.

As Matt said, “Most of the conventions of corporate governance are optional, and many of them do nothing to help us make good decisions.”

One example Matt shared is the layout of the boardroom. When the audience was polled on the configuration of their board room, most answers fell within a few buckets:

  • Rectangle: 42%
  • Horseshoe: 26%
  • Oval: 12%
  • Circle: 5%
  • Auditorium: 2%
  • Other: 13%

Many of these configurations are “roughly optimized for consuming information, making eye contact, being able to hear, and voting.” However, none of these are descriptions of effective decision-making.

There have been so many innovations in the way people work together – especially since the start of the pandemic. Organizations often deploy new strategies and solutions to facilitate good teamwork throughout the organization – with the exception of the boardroom.

“It’s completely baffling to me,” Matt said. “The decisions that get made by the board are theoretically more important than the decisions made anywhere else.” Yet, boards rarely try out new solutions for collaboration.

Matt shared the story of one board that was organizing its board retreat after things started reopening in Canada. Though they wanted to meet in-person, they were also concerned with social distancing. The solution was to provide each board member with a chair/desk combination (similar to what you’d see in school) with wheels – placed 6 feet apart.

“They would instinctively change the layout of the room to optimize for the discussion they were having or the decisions that needed to be made,” explained Matt. “Not all conversations require the same conditions. The more we make the conditions the same, the more we should be concerned that we’re not trying new things. It doesn’t have to be this way.”  

Certain Conditions Allow for Effective Decision Making

Good governance involves actively creating conditions that are likely to result in an effective decision. But what exactly are those conditions? Matt shared his top 5.

  1. Managing confirmation bias: All people – including board members – have a tendency to favor and recall information that supports their own beliefs or theories. Matt said boards must manage that confirmation bias in order to drive effective decisions.
  2. Generating multiple options: Binary choices – in other words, choice A or choice B, should be avoided whenever possible.
  3. Make sure experts in the room ask questions instead of making statements/predictions: Matt warned that the more expertise there is in the room, the less likely their predictions are going to be correct. “When you have experts in the room, try to encourage them to ask questions instead of make predictions.”
  4. Slowing the process down so we’re not too influenced by our short-term emotions: Emotions – including embarrassment – can have a big impact on decisions. For example, a board member might have a question – but not know if it’s the right time to ask it, so they don’t. Instead, they go along with something they don’t fully understand.
  5. Emphasizing inclusion: Of course, diversity is important. But inclusion is the “superpower that activates diversity.” Boards must strive to create conditions that allow everyone to be active participants – while understanding that “there’s no such thing as conditions that will optimize the inclusion comfort level of everyone in the boardroom simultaneously.”

Engaged Board Members Increase Board Effectiveness

The goal of any board of directors is to be as effective as possible. One factor that largely contributes to effectiveness is board member engagement. In fact, per OnBoard’s 2022 Board Effectiveness Survey, nearly half of respondents said a more engaged board is a primary driver for board effectiveness.

But oftentimes, the onus is placed on individuals to engage themselves in the boardroom. “The best exception to that rule is when the board chair makes sure to give everyone a chance to participate by pointing their finger at each person and putting them on the spot,” said Matt.

This approach doesn’t increase engagement. “How many people have you met who are able to spontaneously spurt brilliant insights when being pointed at?” challenged Matt. “I would argue zero.”

Matt advises that the key to engaging everyone is to be really curious about the ideal conditions for each person to engage. Boards must ask themselves questions including:

  • Who are the people around the room?
  • What are their styles?
  • What are their nuances?
  • How do I try as many different approaches as possible so as many people as possible are included in the conversation?

Matt also encouraged boards to try different approaches to optimize engagement and hear as many perspectives as possible. For example, board members can be asked to prepare a response to a question in advance. During the meeting, the board breaks into small groups, and everyone shares their perspectives. “You’re not putting anyone on the spot to generate a brilliant idea,” said Matt. “The thing I like about this exercise is that everyone has an opportunity to participate in a way that makes them feel comfortable.”

Finally, Matt believes improving governance and effectiveness is “More like weightlifting than riding a bike. If we’re going to get good at it, we need to set aside little pockets of time to practice.”

Interested in more fresh insights on improving board effectiveness? Save your spot for our next Atlas Leadership Webinar, Better Technology – Better Governance, featuring Gaetan Cotton, Senior Service Designer at the Institute for Apprenticeships & Technical Education.

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