Governance groupthink

How independent and objective is the thinking of your board? Who steers the discussion and debate, and who has real control: the CEO or the chair? The term groupthink was coined in the 1970s to describe situation when group makes faulty decisions because group pressures lead to deterioration of mental efficiency, reality testing and moral judgement within board.
It has been blamed for many avoidable disasters including suggestions that it was behind the decisions leading up to the financial collapse in 2001 of Terralink, the first New Zealand state-owned enterprise to fail.
The fatal Challenger shuttle launch, the US’ pre-war intelligence on Iraq and corporate meltdowns such as the WorldCom accounting fraud have also been attributed to groupthink.
Board capture is form of governance groupthink, where directors are more concerned with maintaining board management harmony than with the effective decision-making process or outcomes.
Ideally, board achieves an appropriate balance between the owners, the managers represented by the CEO, and the organisation’s best interests as represented by the board of directors.
The board is charged with acting in the organisation’s best interests and should account for the efficient use of the organisation’s resources. However, when board is ‘captured’ by the CEO the fundamental power balance between the board and management is undermined.
This is detrimental to the owners, and contrary to the governance principles that are meant to protect the organisation from the risk of managers putting personal interests ahead of the best interests of the organisation.
CEO-captured board is aimless and powerless. It is essentially figurehead with little or no influence on the organisation. It depends completely on information and guidance from the CEO, and becomes subservient at both an intellectual and ethical level.
It doesn’t participate in meaningful manner in determining plans or budgets, paying lip service through flaccid challenges before giving approval. The captive board is frustrated board. In real terms it has sold its soul.
The board may openly admit that its directions to the CEO are repeatedly ignored. The CEO may promise to change or do better, yet still receives bonuses – more to keep the peace than to reward performance.
Complaining staff may be quietly restructured out and organisational climate surveys, showing lack of support for the CEO, are discussed then discounted as the voice of the disgruntled minority. Planning will be haphazard with little communication to stakeholders or personnel.
At board meetings such CEOs will deflect any discussion that may force them to reveal information or situations they want to keep off the radar. “That’s management, not governance” may be the mantra as the board is admonished for daring to cross the line.
The chair will often be someone who is well liked and respected but, in this situation, provides no strong leadership, avoiding conflict, believing their main function is to keep the peace.
Directors will consistently defer to the CEO and, most critically, the CEO’s interests, despite the fact that the board purports to be acting in the best interests of the organisation.
Directors and trustees are usually smart, successful group of people, at the peak of their careers. This is the explicit reason they have been put in charge of the organisation, yet they yield to the CEO’s demands and defend the CEO’s performance, even in the face of negative facts.
Board leadership responsibilities have two main functions: accomplishing the tasks, and facilitating the board’s decision-making processes. Formal decision-making procedures improve task accomplishment. Meeting and decision rules, social and facilitation skills promote healthy group dynamics.
However, many chairs are driven by intuition and have no training in formal decision-making procedures, effective meeting practices or facilitation skills.
Is it then surprising that so many do so poorly in such roles?
Fortunately, the situation can usually be rectified without firing the whole board or, for that matter, the CEO.
Leadership is needed and the first step will be for the board to appoint strong, competent chair or specialist governance advisor to work side-by-side with the board and CEO to teach them formal decision-making methodologies and bolster the directors’ confidence to do what they should be doing – direct.
strong, capable chair or advisor, often with further advice, can guide the board to put in place strong infrastructure, building lasting legacy that supports good governance and prevents governance groupthink, now and in the future.
So, how prevalent is groupthink? It is certainly worth taking the time to really consider the behaviour of the board or boards you may be involved in.
It’s worth considering too, where many organisations would be today if their boards and management were balanced, and their decision-making characterised by open, informed, purposeful deliberation of all possible alternatives rather than the groupthink of captive board.