Academic journal article ABA Banking Journal

The Ugly Truth about Board Relations: SOX Isn't the Biggest Problem, It's the Interpersonal Relationships. Here Is a Way to Move Your Board from Dysfunctional to Optimal

Academic journal article ABA Banking Journal

The Ugly Truth about Board Relations: SOX Isn't the Biggest Problem, It's the Interpersonal Relationships. Here Is a Way to Move Your Board from Dysfunctional to Optimal

Article excerpt

Although he was wearing a forced smile, the bank's CEO left the board meeting with a number of negative emotions running through his head: anger, disgust, and most of all, frustration. More than anything, he wondered how he could ever get through to the #*@x*! board on the really important issues....


Sound familiar?

Despite all that has transpired regarding boards of directors and executive management teams since Enron and WorldCom and Sarbanes-Oxley came to pass, the primary preoccupation by executive management and board members continues to be with the relationships between the two parties, rather than the structural or procedural issues typically associated with board governance. In fact, in our ongoing strategy work with boards and managements, we often hear of increasing concerns about the troublesome relationships between them, and the corresponding costs to the organization, placing these challenges on par with traditional hot-button concerns such as regulatory burdens and competitive pressures.

The reality is that most problems with boards and management are not about corporate governance "best practices." Rather, they are the challenges stemming from the personal interactions between them--micromanagement, ill-defined roles, dominant personalities, egos, group factions, weak communications, mismatch of skills and styles, and an absence of a sense of direction. Most alarming: Few executive managers or board members have any real clue how to effectively solve these relationship challenges. Sometimes they don't even recognize the depth of the problem or the importance and value in optimizing board-management relations. Or they lack the power or authority to address the situation.

Four dynamic levels

Relations between boards and management can be characterized by one of four different levels of interpersonal dynamics: minimizing, controlling, emerging, and optimizing. At some institutions, these levels evolve subtly over time; at others, the evolution is more purposeful and calculated.

Minimizing--The party who possesses actual control over decision-making (traditionally the CEO in community institutions, but in other instances, the board) does only what is required or essential in working with the other. Interactions outside of regular board meetings, such as planning retreats, are for show and the appeasement of the other party; no real substantive change is usually forthcoming. The primary aim of the dominant party is to avoid interactions with the other wherever possible.

We still hear CEOs say, "I don't get my board involved in strategy or planning." In one instance a president reported that his predecessor had intentionally kept his board of directors in the dark regarding the technical components in critical oversight areas such as risk management and financial controls. "They don't need to know this," was a common refrain.

Minimizing by the CEO may encompass the entire board, a group faction, or an individual. "If I could just get these two guys off the board, my life would be so much easier," is a sentiment frequently heard in private conversations.

Controlling--The aim here is to maintain control and direction setting, and not cede any real authority to the other party. This is often accomplished by not "making waves" or addressing any tough issues directly. In other interactions, the party in control may give lip service to the other, while eventually ignoring or overruling their inputs. The other party is there largely to ratify or implement the decisions-the proverbial "rubber stamp" relationship.

We have seen repeatedly in controlling relationships where the board is left out at the periphery of direction setting (which should be a key responsibility of any board today). In such cases, the strategic plan is completed by the CEO and his/her management team, and a filtered version, purged of details or controversy, is then submitted to the board for "approval. …

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