The Five Dysfunctions of a Board Team
Recognizing the pitfalls that plague boards of directors
“If your board’s not working as a team, it’s not really working.” Patrick Lencioni, executive coach and acclaimed author, is unequivocal about this statement. Having worked with senior leaders of many of the most outstanding (or respected) companies in North America, he has seen boards that work and boards that don’t. “When it comes right down to it, the ultimate potential of a board is only realized when everyone works together as one. One board. One voice. One team,” he exclaims.
Four years have already passed since Pat’s book, The Five Dysfunctions of a Team, first hit bookstores. It has been a continual best seller, logging 24 consecutive months in that status with BusinessWeek. This staying power defies any notion that the wisdom he purveys is faddish. The fact is, the book has become required reading for such diverse audiences as NFL coaches and players, military squads, academic institutions, and—of course—business leaders of every description.
With Pat’s support, we make application of his insights to the boardroom:
Dysfunction #1: Absence of Trust
While we may all agree that the fundamental responsibility of board members is to direct and protect the company in the interests of its owners, a myriad of motives bring people to a board table. When directors are uncertain of each others’ agendas... when they question other members’ character... when they doubt their colleagues’ competence... trust is compromised in the boardroom.
The corollary of this is that individual board members—whether outside directors or senior executives on the board—suspect that the others around the table may be viewing them with uncertainty, questioning, and doubting. As a result, everyone tends to be guarded, reluctant to show their weaknesses, fearful of admitting mistakes, and unwilling to be vulnerable with one another. There may be decorum, but there isn’t candour. (Wonderful!)
Dysfunction #2: Fear of Conflict
It’s only natural to avoid conflict. The typical board meeting is a calm, ordered affair. However, a characteristic of great boards is that they ask penetrating questions and engage in meaningful debate. When trust is not sufficient, directors withhold the hard questions they have – sometimes to avoid undermining the other person at the table, sometimes fearful that the question may be out of order. But better questions might have prevented:
- the board of AMR Corporation, parent company of American Airlines, from agreeing to lavish retention bonuses for top executives while unionized workers were asked to accept steep wage cuts. (Soon after news of this became public, CEO Donald Carty was forced to resign.)
- the audit committee of Hollinger International from passively allowing Conrad Black to funnel exorbitant management fees into his holding company, Ravelston, reportedly plundering $400 million – 90% of the Hollinger’s net income between 1997 and 2003.
- the Tyco board from allowing or ignoring excesses of CEO Dennis Kozlowski such as moving his compensation from $8.8 million to $170 million and paying himself and others bonuses with no regard to restrictions previously recorded by the board. Naturally, the hard questions that ought to be asked around the board table would more commonly be about the assumptions that have been made for the projections being considered, the rationale for a proposed acquisition, or the implications of a change in strategy. Board teams that avoid energetic debate on key issues such as these resort to academic questions, surface discussions and inferior decisions.
Dysfunction #3: Lack of Commitment
We human beings have a need to be involved in the discussion. So its important for every board member to weigh in, even if they disagree; then, once heard, they are more likely to buy-in. Without conflict and the deeper discussion and understanding that result, board members will be uncomfortable committing to decisions. Decisions may still be made, but don’t be fooled – people may not be fully onside. Incomplete commitment is classic around committees. Imagine a compensation committee comes to the board with a controversial new pay package for the CEO. The committee chair reports confidently, argues how important it is for the chief executive to be paid ‘above average’ in order to retain his talent, and the board rubber stamps the package. Real debate never happens. And if something erupts in the future, directors who weren’t on the committee can often backpedal, claiming they “never felt right about that package from the beginning.” They may have the discipline to keep their divergent views out of the public eye, but the board takes a major step deeper into dysfunction when these differences arise.
Dysfunction #4: Avoidance of Accountability
Every board has some expectations upon directors. It may be rudimentary commitments like showing up to meetings on time and being well prepared or completing committee tasks as scheduled. It may be more uncommon demands such as Home Depot’s requirement that each director visit a store outside of their home state between meetings. But when a board is lacking in commitment, the directors will be listless about calling the best out of each other. Maybe that explains the response of Bausch & Lomb’s board when CEO Ronald Zarrella was exposed for padding his resume with a claim that he had an MBA from New York University; the board allowed him to continue in the post without interruption. It appears their interest in integrity wasn’t strong enough to demand accountability to that commitment.
Dysfunction #5: Inattention to Results
A retired CEO and seasoned board member once confided to me, “Even though the wealth of most directors makes the fees they receive seem insignificant, most of them like that extra money and enjoy the status and social aspect of the board so much, they won’t rock the boat and risk getting removed.” That sentiment has decreased in the five years since the conversation, but there is a tendency of people to put their own interests (ego, career development, recognition, etc.) ahead of the collective goals of the team when individuals aren’t held accountable. If a team has lost sight of the need for achievement, the business won’t achieve its potential and the interests of owners won’t be fully served.
Ram Charan, author of the seminal volume, “Boards That Deliver”, describes the antithesis of a dysfunctional board. Evolving from the ‘ceremonial’ board (where staff decisions where the CEO essentially runs the show with board rubber stamping) to the ‘liberated’ board (a collection of individuals exercising more due diligence and direction-setting), to the ‘progressive’ board. Strong group dynamics differentiate the progressive board from the ‘liberated’ board. The board’s aim is to add value, not expense, to the organization and this happens with robust discussion in an environment founded on mutual trust, where there constructive conflict, commitment, accountability and attention to results.
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