Accountability is another key value. Board members must be prepared to explain and justify decisions that have been taken, and to be answerable to the company's stakeholders. Being a board director also requires moral authority – the adherence to a set of principles founded on a correct course of action.
Finally, while diverse opinions and constructive dissent need to be heard in the boardroom, it is essential that directors embrace the ‘one-voice principle’ once a decision has been taken. In other words, they must fully respect the decision and support it within and outside the boardroom. This voice is usually expressed by the chair (although it may not necessarily represent his or her private views).
A board's values set expectations regarding directors' behaviour, and also define what is unacceptable in this regard. Directors should demonstrate independence and integrity, and be committed to enhancing their own knowledge through external support and continuous education. Discussions should be characterised by equal participation and mutual respect, as well as openness and constructive dissent. Zero tolerance for imprudent, unlawful, or unethical behavior must also be embedded in board culture (see Figure 3.1).
Specific expectations regarding a board member's contributions and responsibilities may vary, partly depending on whether he or she is an executive director, independent director, or a shareholder or employee representative. An independent director of a publicly traded company has different responsibilities than an owner representative and full-time employee on the board of an oil and gas joint venture, for example.
Figure 3.1 Reinforcing Board Culture
Nonetheless, all directors need to successfully fulfil their two mandates: the duty of care, whereby they undertake their role and responsibility with care, diligence, judgement, and skill; and the duty of loyalty, or putting the interests of the company and its shareholders ahead of their own. Board members therefore need a combination of core attributes, including relevant skills and competence, a detailed knowledge of their legal responsibilities, and dedication and focus.
Duty of Care
Good judgement is essential for directors to fulfil their duty of care. When this is lacking, the quality of decision-making suffers. Judgement comes from knowledge and intuition, both of which can be improved.
First, individuals must have the necessary knowledge – acquired through education and experience – to make good, considered decisions. Education gives us the technical knowledge to understand complex problems. Curiosity helps individuals to complement their formal education and continue learning, thereby enabling access to a memory bank of information and details that may be relevant to the present.
People also use their individual experiences to draw lessons from the past and apply them to the future, in an integrative process. In some situations, either weak signals or true shocks may prompt us to realise that our knowledge is insufficient, and that we require additional input to evaluate situations effectively.
Specifically, a board member develops an integrative view – in terms of the executive world, he or she may generally put a premium on analysis, when in fact it is synthesis that is badly needed in many contexts. Because a board needs to address many stakeholders toward the long term and the next generation, a certain skill in deriving the essential from many pieces of information is key to board quality.
Intuition is the second key driver of good judgement and depends on individual personality and values. According to the Swiss psychologist Carl Jung, personality consists of both the ego – how we identify ourselves – and the unconscious or shadow side that we are not aware of and have suppressed early in life.
Emotions play an important role in intuition. They affect how we respond to crises, for example – whether we remain calm and hopeful, or suffer anxiety and panic. The other component of intuition is values. These are drawn from our sense of ethics – the moral principles that govern our behaviour – as well as individual integrity. Good judgement is a function of the interplay between internal variables and external factors, summarised in Figure 3.2.
For experienced and well-prepared board members, good judgement often materialises as a well-informed ‘gut feeling’, or right intuition. This in turn comes from lengthy preparation, going through the right materials, having the right balance, not putting too much ego into the discussions and decisions, being aware of one's weaknesses, and having both the right ethical values and the integrity to withstand pressure. All this feeds into discussions among peers in a confidential and protected setting that result in a collective board decision.
Figure 3.2 The Roots of Good Judgement: Mapping One's Strengths and Weaknesses
Good judgement is especially important today, as boards face increasing external pressures and may have to deal with crises that challenge their decision-making skills. We will discuss crisis management in more detail in Chapter 12.
Duty of Loyalty
Conflicts of interest are rampant in today's world. They arise when directors lose impartiality because of either material interest or a conflict of roles. When directors are in a position that may benefit them, or someone close to them, in any way, then they can no longer make impartial decisions; this is a material conflict of interest. A conflict may also result from one director having different roles, so that their obligations to one company are compromised by those to another. Directors who sit on multiple boards may therefore have a potential conflict if two of these organisations form any kind of relationship.
Another source of conflict is self-interest. When directors focus primarily on maintaining their position, comfort, and income rather than on what is best for the company, they are likely to be highly biased. They may also become compliant and not wish to be unpopular. Again, they lose their impartiality.
Sometimes directors fail to acknowledge conflicts of interest – even to themselves. It is critical that directors think about this honestly, because it has a direct impact on board service. All of us are conflicted, and figuring out these conflicts is part of our duty. We explore the four tiers of conflicts of interest facing boards in Chapter 13. A good rule of thumb is for board members to have a list of their own conflicts of interest: time, money, effort, friends, relationships, financial interests, reputation, social network, and more.
Integrity: A Key Characteristic of Board Directors
Directors need to know what is right and have the courage to stand up for it. They also need clarity about their role. In times of crisis, confusion may obscure the right course of action, making individuals vulnerable to mental biases. But board members with integrity devote themselves to doing the job for which they were hired, and conscientiously equip themselves with the necessary knowledge and skills. As such, integrity is a keystone of successful directorship.