Today, due to better enterprise risk management processes and governance responsibilities dictated by regulations Boards are challenged to be more effective and engaged than in the past. However, culture is a critical determinant of board effectiveness, because every activity and the thought process cannot be documented and executed in an effective manner. For example, a director may come to a meeting without reading the respective board papers, open the envelope only when the meeting starts and could participate in the discussion in an unhelpful manner. The cultural ground rules which dictate director attention, constructive challenge, behavior, risk appetite, and decision-making processes are critical to a board to be more effective.
Without a proper culture the board may be like a ship without a rudder. The chairman should be held responsible to understand the strength of his board and to instill a constructive culture to have an effective board. Culture is the body of accumulated beliefs, attitudes, values, and experiences of a board’s directors that collectively manifest in decorum, protocol, norms and prevailing decision making process. Culture functions as an ever present rudder that sorts issues, priorities, and can exert influence over individual behavior.
“He who loves practice without theory is like the sailor who boards ship without a rudder and compass and never knows where he may cast.”- Leonardo da Vinci
It is obvious that you would at-least require a rudder and compass to sail. Similarly, to be engaged in board activities as a director, you require the basic skills. If you’re not open to change, or if the board composition is made up of yes-men, or if the board has no authority but is supposed to be ceremonial then that company may be driven by a secret force!
Boards cannot easily change their cultures. But as members start to act as a team, board cultures will change. The closer the directors get to an engaged culture, the closer they are to being the best boards possible. The board composition may require some change to get the ball rolling.
Social and regulatory pressures on boards for fundamental change are substantial and well justified. Boards are transitioning from the ‘old-boys clubs’ to a responsible body that is accountable to its stakeholders. They are moving towards independent professionals headed by a non-executive Chairman. The better boards now believe the CEO works for them and execute their strategies effectively and transform teams to work within a high performance culture.