Corporate governance provides foundational integrity that supports an effectively managed organization. Excellent governance requires skill, insight, and informed, objective decision-making. Governance is like a plant’s root system. The visible health and strength of the plant (company) depends in large part on the health of the root (governance) beneath the surface. Like the root, governance is the (mostly) unseen vital anchor and stabilizer. Think of a healthy oak tree as a metaphor for strong governance. The tree is the company and the taproot is its governance vis-à-vis the board of directors. Board culture, processes, structure, policies that support strong governance and accountability are the fibrous roots growing from the main root. The board grows a strong governance root structure by being strategic and focusing on long-term performance.
The impact of conflicts and bias
Damage to a root may be difficult to discern at first, but eventually the plant displays signs of weakness and dieback. Careful pruning and soil amendments can save the plant. Similarly, appropriately addressing potential conflicts and common biases that impact decisions is crucial to diligently and responsibly sustaining effective governance. Back to our taproot metaphor. Soil amendments (or culture improvements) must be thoroughly mixed into the soil, and for a board, addressing biases must be intentional and deliberate so that benefits of being a forward-looking body can be maximized.Enlightened governance is able to recognize the barrier to objective decision-making rooted in bias. Some biases stem from basic social constructs: friendships, business relationships, peer pressure, loyalty, and self-interest. But if biases like racism, sexism and conflicts of interest pervade a board, the results can be devastating to company culture and bottom line profitability.
How bias inhibits great governance:
- A board is reluctant to ask the right questions
- The group is unable to fully and effectively involve new board members
- Excessive deference is afforded to a few board members with a long company history
- Peer pressure and conformance minimize constructive dissent
- Inflexible adherence to tradition limits consideration of new initiatives
At a time when the importance of corporate governance has been firmly settled, we need to better understand how bias impacts governance and be more intentional about addressing it. Perhaps more than at any other time, we are wrestling with subtle “unconscious” biases that are hidden in the soil of corporate culture. Consider, for example, inattentional blindness that causes the board to miss obvious evidence of systemic issues and biases favoring cultural norms of politeness that discourage candor and constructive debate. Or boards that prioritize certain skills, experience, knowledge, and personal attributes in selecting new members, hoping to find a “good fit,” i.e., someone who looks, sounds and thinks like the board does. Here, implicit bias prevents a board from finding the right person with the potential to contribute meaningfully.
Mitigating bias in governance
Boards tend to rely on individual directors to recognize and control their own biases, but few of us are sufficiently self-aware and candid about our own inherent biases to be able to do this. Every board member must acknowledge that implicit biases impact his/her objectivity.
In our work, we’ve observed a tendency or bias within governance circles to assume that the CEO, management, and board are effective and acting in the best interest of the company and its shareholders. However, the public has lost trust in company leaders due to what the public sees as pernicious effects of conflicts of interest and bias. We believe that these conflicts and biases are often the outcome of humans’ susceptibility to fear and greed, which breed bias. Developing self-awareness is an ongoing and exciting element of growing as a leader. As John Wooden said, “Success is peace of mind that is the direct result of self-satisfaction in knowing you did your best to become the best that you are capable of becoming.” Resolving conflicts and identifying bias is an essential element of being one’s best as a skillful leader and highly effective board member.