Boards should ensure they foster an environment of trust and empowerment to enable management to lead staff through crisis.
Though it may seem counterintuitive, social distancing brought on by COVID-19 has actually deepened some relationships — including those among board members and senior executives. It can be argued that the “distancing” was more physical than social. Interaction, communication and conversation did not stop because of the lockdown, but took different forms. And in many cases, the level of interaction between boards and management intensified because leaders had to cope, make decisions and take action.
This intense and stressful period has meant that some directors found themselves talking with senior executives several times a week — instead of several times a year. In some cases, the acknowledgement of vulnerability and ambiguity in their interactions deepened the level of trust between board members and senior executives, and helped support management to perform in difficult circumstances. This is an example of a robust social system in action.
Governance expert Jeffrey Sonnenfeld has expressed the view that exemplary boards are exactly that — robust, effective social systems. Networks of relationships underpin all social systems. Interpersonal relationships between disparate groups of people hold different sections of society and organisations together.
Sociologist Mark Granovetter, in his seminal work on social systems, argues the strength of any tie is a function of the frequency and duration of interactions, the level of emotional intensity and the reciprocity found within the tie.
If we think about the strength of a tie as a measure of the strength of a relationship, then it could be argued that some weak ties among directors and senior managers have become strong ties. A question then arises about what, if any, impact a strong tie has on director independence.
A strong tie is someone who you know well, and vice versa. Their number is likely to be in your phone. Even if you don’t know everything about the other person, you know them reasonably well and information flows freely between the two of you.
A weak tie is a more tenuous relationship. You have different roles and don’t interact much. You might meet several times a year and, if you call them, they could be surprised to hear from you. Weak ties tend to be less useful when it comes to emotional support, but can be crucial in binding groups of strong ties together. They bring circles of networks into contact with each other, strengthening relationships and forming new bonds — and information flows between existing relationship circles.
As humans, we have both strong and weak tie relationships among those we interact with. Strong ties such as friendships are important. Friendship helps us meet our needs for belonging and our need to feel known and appreciated for who we are. Friendship builds empathy and allows us to know and understand others more deeply than we can know strangers.
Strong ties are very important under conditions of severe change and uncertainty. They form a base of trust that can reduce resistance and provide comfort in the face of uncertainty. Carnegie Mellon Professor David Krackhardt, an expert in decision-making, argues change is not facilitated by weak ties, but rather by a particular type of strong relationship tie, one that meets the following three conditions:
- Interaction A and B must interact with each other.
- Affection A must feel affection for B.
- Time A and B must have a history of interactions with each other that have lasted over an extended period of time.
The combination of these qualities predicts trust, and that strong ties will be critical in generating trust and, importantly, discouraging malfeasance. When it comes to major change, such as facing a pandemic, change that may threaten the status quo in terms of power and the standard routines of how decisions are made, then trust is required. And relationship ties are not an either/or, meaning completely strong versus completely weak. The strength of a relationship exists on a continuum.
The interesting thing — and an important issue for directors — is to know where relationships with senior managers are on the continuum, because it can be argued that strong ties have the potential to affect the capacity to express independent views in order to preserve friendship. The flipside is running the risk that too much emphasis on maintaining independence could have a cost in terms of loss of trust.
Strong social ties that increase trust and information-sharing between management and directors can improve directors’ ability and effectiveness in governing. In reflecting on the benefits of strong ties versus potential for loss of independence, mindsets matter. The beliefs that directors and executives carry in their heads about their roles matter; along with their assumptions about the motivation of executives, their level of identification with the company, and beliefs about power and control.
One of the dominant perspectives in research on boards is the agency theory. Pivotal to this theory is the argument that shareholders have lost effective control of large corporations as firms have grown in size. The separation of ownership from control has increased the power of executives and left them free to pursue their own objectives. Therefore, directors should be independent of management in order to protect shareholder interests by monitoring and controlling management and preventing the possibility of opportunistic behaviour. Essentially, this widely held perspective is about whether management can be trusted to act in the best interests of shareholder.
An alternative view is that managers are good stewards. They are capable of being trustworthy and are motivated by the need for growth, affiliation, achievement and the intrinsic satisfaction of performing well. They take pride in organisational success and experience failure if the organisation fails. When organisational norms and values are clear — enabled by the tone set by the board — then norms and values lend additional support for behaving in the interests of the organisation.
Working in an environment of trust and empowerment leads to increased psychological wellbeing, whereas when senior managers are over-controlled, they may become alienated and antagonistic — and experience psychological stress. Therefore, the most effective relationship between management and directors is through a board focused on building trust and empowerment. If directors can ask good questions, define the boundaries within which decisions are made, and the premises that are used to make choices among alternatives, then the choices themselves can be made by management.
In other words, the board sets performance parameters and supports, motivates and acts in a coaching and mentoring role to enable management to achieve superior performance.
It is a director’s duty to act with care and diligence in making decisions in the best interests of the organisation without self-interest, which includes avoiding any conflict of interest due to strong friendship and expectations of reciprocity. Directors can face difficult choices in focusing on the duty of care, while still showing care by demonstrating empathy. There is a balance to be struck in demonstrating care about a senior executive as a person, while also holding them to account for their part in securing the performance of the organisation.
Regardless of your view on whether executives need to be controlled versus being good stewards who can be trusted, when you think about your level of independence and the strength of your relationship as a director with senior managers, there are some things to think about.
Points to consider
When directors take too light a touch — too much caring — the result can be diffusion of responsibility (neither director or executive committed to taking on responsibility).
When directors take too heavy a hand, the result can be a deflection of responsibility (executives limit the potential contribution they could make to help meet responsibility).
Directors should aim to create an experience of the board that generates an experience among senior managers that enables them to deliver. Which means reflecting on independence and being able to answer questions such as:
- What do I need — what will give me comfort as a director?
- What does the situation call for?
- What is in the best interests of the organisation?
- What does the CEO and the management team need from the board so they can meet the demands of the situation?
Dr Melinda Muth FAICD is an AICD facilitator, faculty adviser and co-author with Bob Selden of Setting the Tone from the Top: How director conversations shape culture.
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