Dr Rita Goyal, Centre for Financial and Corporate Integrity
Much is written about self-serving business leaders and their boundless ambitions, which lead to conflict, poor management of employees’ pension funds, and the impact of their operations on the environment and value destruction. However, when governed ably, for-profit big businesses contribute significantly to wealth creation, employment generation, and countries’ financial health.
So, what distinguishes well-governed companies from those that destroy stakeholders’ wealth and well-being? The latest research, conducted by Dr Rita Goyal and her co-authors, provides an insider perspective into boards of the most successful listed companies and suggests that the secret to corporate sustainability and effective board governance may be an enlightened Chair. Published in a world-leading academic journal, the Journal of Management Inquiry, the study interviews 57 Chairs, Non-Executive Directors (NEDs), CEOs/CFOs and Company Secretaries (CSs) and identifies seven Mantras of enlightened board governance.
First, Enlightened Chairs make a conscious move from a CEO position to chairing a board with the knowledge that it would involve significant responsibilities but less glamour. Therefore, they willingly extend their sound, experience-based advice and support to the CEO, with the objective of the latter’s success.
Second, the enlightened Chairs hold certain values dear and imbibe them in their conduct. Speaking to the authors in the study, several board Chairs revealed that they carefully examined the values to which companies adhere and if those values align with their own before accepting to Chair them.
Third, contrary to the perception that business leaders like to wield ‘power’, enlightened Chairs prefer to exercise ‘influence’. In one-on-one face-to-face interviews, board members discuss the leadership approaches of those Chairs they considered effective, such as versatile board roles, experience navigating organisations through challenges and coordinating with stakeholders with conflicting interests. Such a reputation helps them obtain key stakeholders’ consensus and active participation during critical situations.
Fourth, the authors find that enlightened Chairs have an open and inclusive communication style. The study reveals that in boardrooms, not all board members participate equally in decision-making. Instead, new members and the only female director on boards are often quiet in boardrooms. However, the decision-making may be flawed without incorporating unique inputs from each member. Therefore, enlightened Chairs encourage secure participation of the quiet ones, valuing their contribution and value-add.
The article finds the composition of a diverse board to be the fifth Mantra of effective board leadership for improved corporate governance. However, enlightened Chairs define diversity broadly and harness it differently. The study finds that for an Enlightened Chair, a diverse board member is someone who can think differently than them. Instead of surrounding themselves with those who will always agree with them, enlightened Chairs have a significant appetite for diverse opinions, which they actively seek.
Sixth, enlightened Chairs possess the ability to anticipate and resolve potential conflict in boards. Enlightened Chairs intuitively sense when the conflict can be destructive to board dynamics and decision-making and do not hesitate to pause further discussions on them until they have a chance to reflect on the best strategy to proceed with it. The strategies include having one-on-one discussions with the NED, who may have felt overlooked in the discussion, facilitating their access to relevant information (through the CEO), or at times, helping the CEO with mock board meetings to ensure that the CEO is best prepared to get the proposal through.
Finally, the seventh Mantra is the ability to reflect and course-correct. The ineffective Chairs believe everything is fine on their boards and avoid board evaluations, particularly if conducted by an external and professional agency. Enlightened Chairs facilitate the evaluation of dynamics on boards and members’ contributions to decision-making through professional and competent evaluators. They enable the assessment of their boards more frequently than the regulation recommends.
The study finds that for effective governance of companies, particularly during uncertainty and chaos, an enlightened approach through seven Mantras is an empirically proven and effective governance approach for Chairs. The approach doesn’t require renouncing worldly possessions or having visionary experiences, as the ancient wisdom propounded, but to be more self-aware, learning-centred, adaptable, interpersonally competent and team-oriented leaders.
The paper will be first released online in the Journal of Management Inquiry on 10th January 2024. The authors can be reached via Dr Rita Goyal at rita.goyal@coventry.ac.uk
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