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Corporate governance, groupthink and bullies in the boardroom

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EXECUTIVE SUMMARYThis research study discusses corporate governance issues from a behavioural viewpoint. It makes a distinction between strict adherence to formal rules and regulations: CEO/Chair separation, independence of board members and board size and informal characteristics of board members: knowledge, values and groupthink.There are three main conclusions: This research clearly proves that formal rules and regulations are inadequate; they have little effect upon decision making by board members. Informal characteristics must be considered in unison with the formal system when nominating board members in order to restore shareholder confidence and to rebuild trust in board governance.Similar values and groupthink can contribute positively to board members’ decision making. There is, however, a high possibility for groupthink and values to become redundant, masking board members’ knowledge.Skills matrices that include questions related to values, knowledge and groupthink and three behavioural characteristics should be considered by boards to ensure the nomination of well-rounded members.Changes to board process, and board decision making, are seminal in preventing future Enron and WorldCom fiascos. It is only by changing the behaviours of the board of directors, through adopting skills matrices, that sweeping changes can occur. In the past, boards have asked: who are our board members? The most important question a board can ask today, however, is: how can the skills and knowledge of our board members be used in service of the strategic direction of the corporation? This can be achieved by recruiting new board members who fill the needs of an organisation, in contrast to nominating ‘friends’ and continuing the tradition of the old boys club. It should be noted that out of the 100 of the largest economies in the world, 57 of these are corporations and 49 are countries. Corporations are powerful entities in our society, operating in a manner similar to representative governments. Like heads of government, at the top echelon of each corporation is the board of directors; their decisions have enormous ramifications for everyone. Although most citizens have a limited or a passive interest in corporate governance, we each depend on these corporations for jobs, salaries and as investors. Governance of these gargantuan corporations, which wield considerable economic power in the world, concerns each and every citizen. This study draws novel conclusions about the state of governance today, and presents practical solutions for corporations to consider when selecting board members. The detailed discussion about what happens in the boardroom demystifies board process and provides the bases for three critical objectives when selecting new board members or evaluating current board members performance: ascertain and embellish the knowledge base of directors;motivate directors to share and gather information to ensure personal values are congruent with organisational values; andensure clear and fluent transmission channels exist to reduce the potential of having groupthink on board.International Journal of Disclosure and Governance (2008) 5, 68–92. doi:10.1057/palgrave.jdg.2050074; published online 3 January 2008
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Document Type: Research Article

Publication date: 2008-02-03

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