Collaboration or Confrontation

Caroline: Hello everyone and welcome to today’s Dilligent webinar. Today’s topic is the board versus executive view of the board effectiveness and it’s influence on the organizational performance. We are pleased to welcome our presenter for today, Dr. Dennis Mowbray. This webinar is live and interactive. You’re encouraged to participate by posing questions to the presenter which can be typed in the chat box located at the bottom left hand corner of your screen. If you’re experiencing [inaudible 00:00:24] sound during the webinar, please dial the 1-800 support number listed in the chat box. I would now like to transfer you over to Kate to begin.


Kate: Thank you Caroline and everyone, thank you for taking time out of your day to be with us. I’m sure it will be time well spent. Some of you’ve already been with us for our webinars. Dilligent runs monthly and quarterly webinars for company secretaries and C-Suite executives. Caroline covered this but I’ll just confirm we are doing a session for around for 50 minutes including 10 minutes of Q&A. We will run the Q&A through the online console on the bottom left of the screen. If you have any questions throughout the session, please do pop it in there. We will either tie the questions during the session if appropriate or we will wait till the end of the presentation. As you would have heard, this session is being recorded and you will be able to get a hold of the recording after the session which we send through the [inaudible 00:01:22].


Now I would like to introduce to you our guest today, Mr. Dennis Mowbray. He’s been working in the corporate and no-t-for-profit space for over 15 years, specializing in governance and strategic development. He’s an international practitioner working locally from New Zealand and internationally. Dennis is innovative, inspired and a determined individual. We hope you enjoy his delivery and material presented today. Over to you Dennis.


Dennis : Thank you very much Kate and welcome to everyone and thank you very much for giving up your time this afternoon or the time zone you happen to be in. It’s very much appreciated. Today what we are going to be covering is collaboration and confrontation and it’s part of what Kate and Caroline have already talked about and there is that today we are going to be looking is 2 parts. One is a new way of viewing the collaboration that happened between the board and the executive, assigned as the third team of what I call the engine of organizational performance. The second part of what we will talk about today is the board versus executive view of board effectiveness. That is around the question of boards and how they view their effectiveness versus the executives and how they view the board’s effectiveness. That’s across a range of different matrix leadership, strategy, succession planning, crisis management, etc. The importance of understanding the characteristics and attributes within board effectiveness and within the third team. Rest will be critical to the performance of the organization overall. The board is able to influence organizational performance, the executive actually impact the organization.


I will go straight to the third team. This construct or this concept about how the board and executive work together have come out of a range of research that I did for my doctoral research in 2009 through to 2011. The executive view of organizations is that for a poor performing organization they have a poor performing board and conversely a high performing organization has a high performing board and that to a degree is correct but the difference I think is that high performing organizations have board and executives that work collaboratively with synergy, trust and confidence. [inaudible 00:04:24]  we will talk about today. The first one is the length between boards and organizational performance. There has a been a lot of discussion and research around this. People have found all sorts of matrix that allow them to say that this is the particular thing that makes the [inaudible 00:04:44] perform for the organization better. I’ve seen research that suggests having a professor on your board will lead to improve financial performance. While I’m sure there are lot of professors out there that would add value to the board, I’m equally sure that there are a significant number of professors who would add absolutely no value.


How does the board really influence the organization? About 54 is through the executive. The board holds the ultimate power over the executive however does not have the power and possibly the ability to operationalize decisions. That relies with the executive. While the board may approve and work through strategic option, etc, it is the executives that operationalize that. The mechanisms that are utilized by the board and the executive, in order to ensure that the knowledge implicit and explicit, the skills of the board are utilized to influence the performance of the organization. I’ve listed the first check and the matter is that there is a lack of consistent evidence supporting board’s influence. We have a range of them so independent director is a core [inaudible 00:06:12] of what has been determined as how boards influence organizational performance. Diversity is another one but I’ve become widely frustrated with the cottage industry that has grown up around governance. In some ways it has a parallel to economics. The original thinking on economics was that everybody makes [inaudible 00:06:39] you and I know rational decisions in money, no always the best of friend. Rather than economics seeing everybody as what they do it econ, your logic will be, they’re now recognizing there are large amounts of behavioral components that influence economics and economic decision that are made by people.


[inaudible 00:07:08] so the behavioral aspects of board and executive are equally important if not more important to the performance of a board executive as it is the constructions or the policies of those two team. There is, in a lot of organizations an imaginary line that are drawn between the board and executive. Often you’ll hear in board rooms, they might say governance we should be doing this or that’s an operational matter therefore you don’t need to worry about it. That might be from an executive standpoint. Just for clarity, when I’m talking about the executive I mean the CEO obviously but also those functional managers, those chief financial officer, operations manager, marketing manager, sales director who attend board meetings on a regular basis may be once or twice a year and may participate in the strategic discussion and they may socially work with the board and they’re keen towards functions [inaudible 00:08:34] board’s functioning in a general meeting, for example.


Board influences the executive. All of those people get their time so you hear me use the term executive throughout and that is what I’m meaning. If we have a look at, first you can see the traditional view of the board and executive is the 2 secret team with a line down the middle. Caroline now what I would like to do is just pop-up that quick survey that we had at this point, if you can. You’ve got 2 questions here. The first one, the poll question is, other than the CEO, do other executives attend or contribute to board meetings, strategic decisions, etc? The second question is [inaudible 00:09:34] part of the people have said yes they do. 1 question just no. You can see the influence that the board has on the executive is absolutely critical for the performance of the executive. That’s why I feel as though the board are being unfair or they are being unfairly treated or they have delivered the report and the board has climbed into them because of inaccuracy in the future. They are all components that influence the performance of the executive when they leave the board room.


The second question was around how many times do they attend or contribute and we have a reasonably even split in the teams. Some of the teams less than 2 times, an even split between 2 to 4 and 4 plus. It’s interesting that while [inaudible 00:10:47] only once or twice in an year. The opportunities for the board to influence both positively and constructively the executive are often very limited and so a poor experience for an executive will have a very detrimental effect on the way they view the board. The way that I constructed the third team is that the board and the executive mixed together at various times. Strategy and board meetings, annual planning meetings, etc and it’s true that the board gets to influence the executive. The relationship appears distant but the way that those 2 things are just managed, they’re neither too close nor too far away that is really important. That’s the whole synergy trust, confidence element and they are not elements that are spoken on their own, they’re made up of various characteristics and attributes.


Trust is a really important one between the board and the executive. Trust is multi-faceted because you can trust someone to drive your car but not trust them to invest your money. You can trust them to drive your car and invest your money but you may not trust them in other ways. Trust is something that is built up over a long period of time but I’m sure we’ve all experienced that trust can be destroyed quite quickly. The other [inaudible 00:12:42] of team is that, I’ll use a sporting analogy here and that is from the last rugby world cup where the national team in New Zealand, the All Blacks, were playing England. Half time we went into the dressing rooms of the 2 teams. The English team had a traditional leadership model inside their structure. That is that there was the coaching staff and then there were the players. There was a captain of the team and certainly there was vice-captain but there was no real senior leadership or executive team within the players themselves.


At half time what you saw in the English dressing room was the English coach talking to the players what they should be doing, what they’ve done wrong, the strategy they had to change. Some players were listening, others were not listening. Some were getting their injuries attended to. We then panned across to the All Blacks, the New Zealand team’s dressing room and what we saw there was the third team in action. We had the coaching staff sitting down with the leadership team from the players, strategizing and working their way through what has to change in the second half of the world cup final and all of them are going to achieve their goal of winning. Remainder of the players were cooling down drinking replacing liquids, having injuries seen to, they know as an organization, as a team the coaching and the leadership team were actually working their way through the issues and that they would then be able to lead them on field. That I think is the key difference between those 2 teams in the final. 1 had a leadership team, the third team that had complete synergy, trust and confidence not only from the coaching perspective but from the players’ perspective as well.


Everyone understood exactly what they had to do where as conversely in the English team, the level of synergy, trust, confidence between the players and the coaches and the strategy that they were using was significantly less. There is support for the concept of the third team and you guys can extract from people that have actually supported this face of conflict. That is from Drucker who indicated that he thought the board and executive were a team of equals. We started discussing the concept of the third team, the general view or expression before that the board and executive are different team. How can they possibly form another team? I think people [inaudible 00:15:53] limited in condition by being both this functions of governance and management and the separation that people continually try and place into their faith. That’s governance, that’s operational. May be the 2 should meet. If you don’t have a cohesive team in your organization that has the qualities of synergy, trust and confidence. The organization’s performance, the majority of organizations will be substandard and effectiveness of the board is a major determinant in how much synergy, trust and confidence the executives have in the board and their capability to lead the organization.


In the book Langton & Robbins, Groups brought together for collaboration and then finally Drucker and Golensky. These papers are all available and they talk about cooperation between 2 top teams. That indicating along with Drucker that there are in fact 2 top teams in any organization or in the executive [inaudible 00:17:15] from various people that I’ve interviewed for my research and those I’ve been working with corporate and not for profit. The first one I can name and this is from [inaudible 00:17:26] Australia. We were discussing the third team concept and this was his quote, just to the point, they are the third team. He then broke into a story about one of the boards that he was on. My point in all of this is agreeing with you. The second one is from another director who said that he thinks his CEO is really more about facilitating the correct exchanges between the board and management. That orchestrating with the CEO, that level of collaboration and synergy and confidence between the 2 teams so I agree entirely with all of those people who say that the CEO chair relationship and the closeness that they are able to operate together is absolutely critical to an organization.


The third one talked about partnership and how they each have their respective roles within their partnership but they get on sort of as a collective group. Again it’s all coming towards the conflict of the third team within an organization. It’s almost like a virtual team that comes together for period [inaudible 00:18:52] and the last one with a quote from a director who was involved with an organization that was poor performing. This director said the CEO doesn’t like the board talking to the executive. He made sure the executives don’t talk to the board. Now the performance of that organization reflects that and so on. That was because the CEO in this particular case didn’t have confidence not only in himself but on the board and he was more concerned about protecting his position, in reality, the performance of the organization. Again it’s about the board coming to the table and providing the influence around organizational performance. Again I’ll trace the point there, the board influences executive and executives impact organizational performance.


I did do that. There was 4 elements potentially within that I reviewed in my research and that I use constantly in my work around board review. One of them is intellectual capital and it’s components human, social, structural and cultural capital. The human capital of an organisation is the nice and learned abilities of the board and executive general knowledge, organizational knowledge, company specific knowledge and in the case of some directors that might be general business knowledge and experience. The social capital is again housed by individual directors and it said implicit and tangible bit of resources that directors bring to the table. It’s like a network of contacts both internally and externally. Internally it will be his social capital with the executive. Externally, as is the case specifically for not the profit organisation is around the social capital that a director has externally with major stakeholders, funders, whatever it might have to be. Then there is the structural capital and that’s about the policies, structures, processes that the board has in place during your plan outside starts with them.


Lastly there is the cultural capital and cultural capital is really important you will see that cultural capital is actually an individual director construct as well and cultural capital has actually now becom the top of the conversation amongst commentators because of the importance that the board plays in determining the culture of the organisation and this to a degree has been driven by the various crisis for example of the banks, and Volkswagen etc., has been undergoing. Thoughts are that this culture of the organisation is driven from the board which I agree with through the executive and that the culture of the board within some ways [inaudible 00:22:34]. Then the culture of the organisation will be equally broad.  This is a quote from a director who made this comment at the board of a social entity that the longer individuals are there, the more allies they have. Like the more allies they have, they have more dislikes and they become rational in terms of personal conflict and this happens particularly with boards there is a long standing director who for whatever reason is or does not want to leave which is a major problem for organisations is the rotation of directors.


Within a survey that was recently completed they found that 16% of directors thought that some of the directors on their board needed replacing. The reason that I needed replacing was because of age, a diminished ability to perform. The age of one of their directors is obviously having a direct impact on the performance of the organisation and this again is a survey result from Grand Thompson in 2015 and it talks about the percentage of business lacking cultures and important as part of the robust governance environment. There are 90% of boards who responded to this particular survey by Grant Thompson are indicated that culture was critical as a part of a robust governance environment. I don’t think it can be stressed enough that the most boards, they have does not had a conversation about culture especially when new directors or executives join, it is critical that the board and the executive the third team have a discussion that encompasses the cultural norms and values not only of the organisation but also the board and the way that the culture of the board and executive exemplifies the culture of the organisation and is important that they test the way the culture permeates down into the organisation very well for board and executive to say yes, we had a fantastic culture and yes everything is wonderful.


But unless you test it and make sure that is being experienced by those people that are working with in your industry or organisation and it is very hard as a board to be sure that the culture you think you have is one that you really have.  Just to be sure about what I mean when I used the term culture, I am talking about the norms, values, beliefs, the rituals, the ceremonies, the stories that make up both the organisation and in the case of a board [inaudible 00:26:00] those same elements that make up the persona of the third team. How does the board use that influential capital and culture, human, social, structural is actually influence the executive. There is two components. One is what leader member exchange or interaction which is really about how the board interacts. The type of social interaction, the type of business interaction they have. How that interaction is paced?  How it is managed?  Do people feel believed?  Do they feel open to make comment?  All of those things are elements around leader-member exchange. I’ve seen a good number of boards where they have literally padlocked the executive out close because of the approach they have  taken during the presentation about showing that they are not really interested board [inaudible 00:27:06] better rather than questioning that look to believe a little bit to a personal context.


But all of those things both from a executive back to the board and from a board to the executive point of view will influence how well the board’s intellectual capital is able to be utilized. The other one is knowledge sourcing. Knowledge sourcing is what essentially we are doing at the moment. I am explaining a position on talking to you about boards and [inaudible 00:27:46] some of the aspects of the way they worked. You are taking that knowledge in and you will either discard it, you may innovative with it. You may replicate some of it or you may adapt some of it. Within a board-executive environment that’s what happens and that’s what is knowledge sourcing. You often hear in board meeting so far we’ve tried this. We’ve done this previously and in another organization then it didn’t work that’s well or ran into these problems we thought about that or from the executive point of view that may be going back to a director is asking a question and they replied whether it’s coming around. Yes we tried that and found x, y and z.  Knowledge sourcing is actually a two way interchange of knowledge between both the board and executive. Now it’s more in executive favor and we the think of that they are utilizing the knowledge of the board but is also to the advantage of the board.


I’ve known directors who’ve actually told me that they get and learn new techniques or new sources of information from their board meeting. Now some of you may say if they take it away and use it somewhere else that may be a conflict of interest. Strictly speaking it may be. I think the thing that has to be remember is that they we made a change your board meeting. You’re making use of all of the captive and explicit knowledge if you ask, if you’re an executive and ask your or your executive, they are utilizing that knowledge himself. It does go around to an extent and I think we just have to rely on directors and their ethical and moral stances around confidentiality. The last one is that bridge or the roadblock which is the executive view of the board, their team effectiveness. It can be both a bridge and a roadblock and it seems that if the executive do not view the board as effective, that will be a roadblock because the executive will be less inclined to take much notice of what the board says and as far as instructed. As they say if the board is effective then they will more likely take ideas and conflicts that are more likely listen to the tacit and exclusive knowledge are more likely engage there will be higher levels of synergy, trust and confidence between those two teams operating in their environment that they find a solution.


Just a quick recap where the third team is the engine that drives organisational performance. A boards intellects human, social, structural, cultural element provides the means. Knowledge sourcing, leader-member exchange are the mechanisms that the board uses in executive view where in order to work collaboratively together. Finally the bridge or the roadblock, the level of disparity between the views of the board and executive on the board’s effectiveness. It’s critical and we will see that in just a few moments but there is another quick survey that I like to do it. Kate if we can bring those questions up now please? Caroline?  When did your organisation conduct its last board performance review? Three choices 6 months, less than 6 months, more than 12, more than 24 months and we can see already there is a fairly even split between 24 months and 6 months which is interesting. It’s been more than two years in some organisations board has been reviewed. The last [inaudible 00:32:10] talk about maximizing the third team’s value. We just know that the government says does working that everyone’s responsibility to fix it.


Interactions between the executives and directors and their behavioral governance are absolutely critical. You should review the behavioral governance profile of your directors at their intellectual capital, the effectiveness, the knowledge sourcing, the leader-member exchange. All of those things should be reviewed because they will impact your organisational performance. Proving the third team’s performance required honest, direct and sometimes awkward conversations both within the board on the phone and also as a collaborative team. The third teams operated in an environment that has synergy, trust and confidence rather [inaudible 00:33:09] three key things in that and interestingly PWC did a survey. 20% of the directors indicated that the review process was ineffective so on the survey one of the questions was on board review. 20% indicated that review process was ineffective. 43% said they didn’t make any changes after self-evaluation which to me really indicates that 43% thought was ineffective because it is very rare to almost non-existence for no changes to be needed with in a board. Like all teams there’s always ways to improve, there’s always things that you can enhance your performance with. This is quite those challenge. 20% think it’s ineffective and 43% didn’t make changes.


Right, always the executives fear effectiveness. Just to reiterate, the executive because is the CEO and those functional managers. The perception of a board’s effectiveness is often linked directly to the financial performance. I think it is more important that may be one of the down stream effects of effectiveness but it’s an inappropriate measure of a board’s effectiveness because as I’ve said all the way through this webinar while the board can influence organisational performance they cannot impact it directly unless of course they start taking on the role of the executive. You can have a good board and a good executive and get good result or you can have a bad board and bad executive and a bad result or a combination of both. The characteristics required for effectiveness. It shows some knowledge. The board need to acknowledge within the board needs to be aligned to the organisations need. That’s really where that component about the survey I mentioned at the beginning with 16% of the respondents from a worldwide government survey thought that the current members of the board should be replaced because ageing has diminished the performance.


The second one is information. The information needs to be current, comprehensive, easily attainable, easily managed and easily work through. They need to have the time and interest to complete the required task particularly in the not for profit sector. You have this view we are being told that you’re board meeting shouldn’t go any longer than 4 hours and so [inaudible 00:36:02] the chair is going to make sure that it’s a 4 hour meeting and if something needs to be discussed and they don’t have time then let’s make a decision rather than having a discussion. The fourth one is opportunity. The board and executive need to have the opportunity to work together or work individually and understand what is happening inside the organisation. For example a common practice for new directors is to spend time inside the organization in various aspects of it though.  They’ll spend time flying the planes up and down has [inaudible 00:36:46] obviously but the co-staff that work on the baggage handling though bend around the chicken and see how that works all of those elements. An opportunity to understand an opportunity with an making to discuss what exactly. An opportunity with the papers that they receive to the board meeting.


Again one of the largest criticism that I have of boards is that often the board papers arrive with insufficient time for board members to reflect on what’s inside them, develop the equation have part of additional information rather than having to do that at the board meeting. Then being able to go the board meeting fully prepared. Lastly is power. The board have to have the power to make decision. A hand shrunk board is not a board that has power and for me a board that has a chair who is also the CEO or managing director or whatever title might happen to be also does not have the power because the power in those situations is really linked with on one person. One person controls the board. One person controls the organization. I happened to be with same people and important that with all of those elements that the board is given the opportunity and the executive works honestly to ensure they have the opportunity. Speaking of the board’s effectiveness it really does depend on which way you look at and when you think about a whose perspective is right well they both are. The board is right to review it’s own effectiveness but the executive is also right.


One is an internal view and is likely to influenced by that cultural, social and structural elements of the board particularly the cultural and social elements where board members have been together for a long long time or directors on a significant number of shared boards. That influences on how each individual member use the effectiveness of the board. The other was external and is likely to be influenced by internal pressures but is likely to be influenced by an element of self interest and that’s whether the external component is just the executive or whether as in some cases with not for profit we actually go a little bit wider than that. Effectiveness as a mediator. Effectiveness mediates the relationship between the board and executive particularly the performance relationship. We have both parties are genuinely in agreement about the effectiveness of the board. The performance that the board executive performance relationship will be strong with their more diversity like in the likelihood is that the performance relationship will be poor. Supporting board effectiveness is a range of social psychological approaches. Things like group participation and interaction, exchange of information, critical discussion and those four elements that are contained within the board’s intellectual capital and elements that come out of also the leader member exchange which wore talked about in the knowledge source.


We can see that board effectiveness is tied in directly to those elements that we talked about earlier the research that I conducted to study the corporate boards. This was a one particular board who thought that they simply brilliant and they were 11 questions in the survey on effectiveness. It has like eight looked at a range of different metrics including leadership, efficient planning, strategy, monitory of strategy in particular. On this case the board rated themselves as very effective. The executive however had a slightly different view. 34% of those executives rated them as very effective and 66% rated their boards as effective. Now, in my research all of these boards I used the [inaudible 00:41:47] top 50 as my base sample and out of that, there were only 9 boards, 9 organisations that were defined as effective.  In these organisations it is the disparity between that the view of the executive and the board on the board’s effectiveness was limited. The board and executive were to a degree agreeing that the board was effective and has just slightly better than I think those of 75% to 80% of it where the board thought of themselves to be 100% of it which is unusual.


Within the poor performing sample we [inaudible 00:42:37] sets the other 91 organisations or probably there are 80 because some were taken out. 80 organisations. 71% of the boards rated themselves as either effective or very effective whereas the executives in this case had a different view entirely and they said that only 28% of the executive rated them as either effective or very effective. You can see the disparity between the views of the two and the disparity was so obvious across the range of other metrics as well and that is why the organisations in this sample, I call the poor performing sample, did not perform as well as those in the high performance sample because there was that level of disparity. The impact on organizational performance, when you go to two organisations, one is that I defined as high performing and the other was 90. As you can see across the 3 metrics which generally doing sharing and dividend is huge, over a 10-year period upto including 2009, the results are really effective that I need to find must be in.


Three keys facts for  board effectiveness and that is that board effectiveness for the lack of it influences the executive which in turn impacts the organisation or affects the organisation performance  It doesn’t matter how effective the board thinks they are if everyone else believes that they are ineffective, the board will remain ineffective in their eyes until that view is changed by performance. You are not going to change your performance. This makes the executives view of board effectiveness a critical element in an organisations eventual performance. I find it astounding that while the executive and the CEO particular are subject to 360 reviews on an annual basis and everybody gets to call on how well have done and everything, signing rigorous application of process is not applied to a board and given the power and implements the board has on organisational performance, I find it quite astounding.


Okay, what to do? Review the effectiveness of the board, not difficult and has easily undertaken as part of a wider review. Include the executives is after find them. [inaudible 00:45:37] support the executives will be impacting your organisational performance and we don’t want to be one of the 43% of the boards who answered to the PWC survey which is that they are doing nothing after a review of the board. I’ll hand back to Kate now. Yeah, could well be some questions and I will round that up and hopefully I’ll be able to answer them for you.


Kate: Thanks Dennis and it’s now time to … How many questions you have in the Q&A box on the bottom left of your screen. Do you have any thing for Dennis? We’ll just wait for a minute or two while we compile those questions. Thank you.


Dennis : (Pause)


I’ll pick up the first question. That is from roman. How do you suggest to deal with problematic board members specifically those that have to do two things with every issue even when it is inappropriate? Roman, it’s not uncommon. There is a number of different ways that they can be managed. The board members there are continually doing that actually reflect badly on the chair, because the chair should be facilitating the board meeting in such a way that people both have an opportunity to ask questions that are relevant and conversely are those that want to have 2 things whether you mitigated by the chair managing their input. It’s all work that is where the review of their board is really quite critical and that is those a review how the board sees it’s effectiveness in the way they operates. Their collaborativeness, their ability to chairs time to ask relevant questions and the ability for someone to ask them.


I would suggest that in that situation at the next review there should be an element of directors reflecting on the performance of individual directors and there should be an element of the executive reflecting on the performance of individual directors as well because the board is there for the executive and for the organisation and it’s important that the executives feel as though they are getting value from the board members in the teams in the cost of those board members set to the organisation. I have answered your question.


Kate: Thank you Roman. We haven’t got any other questions or there might be just one more coming through. No more questions at this time. If you do have any questions, you can send it through directly to the mail which is on the next slide and I can pass on to Dennis who can answer those directly for you. What I’ll do is for closing comments, I’ll just pass it back to Dennis.


Dennis : Thank you.  Told of those that there is a change in we need today I really appreciate the time. If you do have any further questions, or you would like to have a conversation for receiving material on what I’ve discussed then please send you’re details to Kate and I will answer as soon as possibly I can. I wish you all well for Christmas obviously and I hope you have a safe and happy Christmas break really happen to be was outstanding premises. Thank you again to Kate and Dilligent. Thank you also to the webinar facilitators. Thank you again to all of us that changed up really appreciated and I hope you gained a value add. Bye.


Kate: Thanks Dennis and as said we are recording this webinar. You will all receive the link to download the recording and share with any of your colleagues. Thanks again for attending and we hope to see you again in the new year.


Dennis : Thank you.



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