The belief that there is a direct connection between the board of directors and organizational success has been gaining ground lately, evidenced by the pressure shareholder activists have been exerting on boards for transparency as well as the “zombie director” movement to remove underperforming directors from boards.
But research into what actually makes for a better board — and ultimately, a more profitable organization — remains surprisingly scant. As a result, most companies rely on the “same old” approaches to screening for board directors, recruiting friends and others who they believe have appropriate experience and expertise.
There may, however, be a better way of not only screening for appropriate board directors, but managing the board’s interactions to generate economic value. My recent research provides evidence of what directors (and academics) have intuitively known for years but have been unable to verify — namely that the quality of board members’ interactions are crucial to board success. In an earlier study described on hbr.org, I found that board members who didn’t know each other before joining the board were more likely to engage in productive cognitive conflict. This finding helped craft my subsequent research inquiry: What impact does board dynamics have on financial outcomes? My research provides strong evidence supporting three findings:
- “Cultural intelligence” of individual directors, or their predisposition to working well in teams, is critical in generating high-quality team dynamics (more below);
- The quality of board-level team dynamics is highly correlated with firm profitability; and
- Boards that are able to function effectively as a team have an 800% greater impact on firm profitability than any one well-qualified board director — in other words, and consistent with Aristotle’s observation, the whole is greater than the sum of its parts.
I measured board dynamics with a new 30-item Team Dynamic assessment tool developed by Tony Lingham, an associate professor at Case Western Reserve University’s Weatherhead School of Management, where I’m working on my doctorate. I surveyed 182 randomly chosen directors who, between them, served on the boards of 572 U.S. firms and had an average of 12 years of board experience. I asked them to rate their board’s interactions along ten behavioral attributes — engagement, active listening, individuality, relationality, solidarity, understanding, action, planning, power and influence, and openness. Then I asked them what their boards’ interactions in those areas would have to be like for them to be maximally effective. The diagnostic tool measured the gap between those two scores, and I found that boards with smaller gaps between the current dynamic and the maximally effective dynamic were more effective and their companies more profitable than those boards where the gap between current and desired dynamic is high. At this point, I have personally worked with over 25 board teams, and the results are consistent — improve dynamics and overall board performance, creativity, innovation and satisfaction are enhanced.
The Team Dynamic assessment is a proprietary tool offered by Lingham’s firm, Interaction Science. I’m currently testing whether a similar diagnostic offered by Team Coaching International delivers equivalent results. Specialized team coaching can improve the dynamics of teams of all kinds — as yet unpublished research by Lingham shows that a single, two-hour team coaching session designed to address the gaps identified by the team diagnostic assessment can improve team dynamics scores from 48% to 191% within one month. These improvements proved to be sustainable over time.
To measure a director’s predisposition to working well in teams, I turned to the cultural intelligence assessment originally developed by Purdue University’s P. Christopher Earley (see “Cultural Intelligence” by Earley and Elaine Mosakowski in the October 2004 HBR). The questions I asked were drawn from the 20-Item Four Factor Cultural Intelligence Scale published by the Cultural Intelligence Center. CQ grew out of the concept of emotional intelligence, and appears to more applicable to team interactions than the more didactic manager-employee relationships targeted by EQ. CQ assesses a person’s ability to make sense of unfamiliar contexts and “fit in.” What I found was that board members’ CQ scores were a much stronger predictor of boards’ team dynamics, as measured by the team assessment tool, than their professional qualifications or their social/business networks alone.
The lessons here are pretty clear. Boards can improve their performance by focusing on team dynamics. The key steps to take are:
- Determine your board’s dynamic. If it’s healthy, great! If it’s weak, there’s work to be done to best position the board to meet its fiduciary responsibilities — that is, to have a positive bottom-line impact.
- Rethink your recruiting criteria. My prior research showed that recruiting “strangers” to boards tends to generate higher levels of governance quality. This research implies that boards should screen directors for CQ to ensure that the director has the skill and motivation to work well with the existing board.
- Get team coaching. If there are gaps in your team dynamics, team coaching really can help. Transforming a weak board to a strong board is not investment-intensive, and the benefits are significant.
Original Post link: http://blogs.hbr.org/2014/01/the-key-to-a-better-board-team-dynamics/