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What are the typical symptoms of dysfunctional boards?

All company boards are dysfunctional in some way or another, and all need to be awake to the risks they themselves present to the proper functioning of their businesses. Physician, thou canst not cure thyself 'til diagnosed.

This article is intended to help diagnosis.

A functional board of directors is critical to the long term survival of a company. Every company runs into trouble sooner or later and in every case the source of that trouble can be tracked to those at the top.

Sure, the problem may have begun with a shift in the market, perhaps falling demand or prices (sometimes even rising demand), or internal staffing issues, or supply chain disruption, but these things tend to be survivable.  It is how the people at the top of the business deal with problems that makes the difference.

Do they make a clear attempt to identify the issues, gather evidence, explore the possibilities and then act decisively; or do they dither, give in to infighting and leave the critical decision until it is too late? 

Here are some common symptoms (emphasis on 'symptoms', these are not the underlying problems):

1)  No Board

Typically such a business has a dominant owner and may often have a 'management board', which deals with operational and tactical issues, if it deals with anything at all.  Decision making rests with one person, who seeks no differing views and selects 'yes men' to fill senior positions.  Decisions may be dominated by short term thinking and staff worry about the effect the blinkered outlook may have on their jobs. Having a board is better than not having one.

2)  No strategy, no goals

Or an ignored strategy and ignored goals, which amounts to the same thing. A strategy and related goals show a business that has assessed its environment and capabilities and decided a clear direction.  Often, if it exists at all, it is in one person's head, poorly communicated, out of date and skewed by a limited grasp of the world. For those of you out there thinking "'limited grasp of the world", no, that's not me', there is bad news.  We all have a limited grasp of the world.  It is a big place. A lot happens in it.  Nobody can know everything. To paraphrase George Orwell, "Two heads good, one head bad."

3)  A focus on operations
This is likely to be an outcome of not having a strategy or goals.  The 'board' may meet frequently, but their focus is on day-to-day problems.  No one has their head up, checking the horizon, adjusting the tiller. The rocks are ever closer, the storm clouds move in swiftly and the cabin boy's warning earns him a tongue lashing.

4) Leaderless
No strategy, no goals, no direction. What items (1) to (3) above reflect is an underlying leadership problem. Other symptoms include : dithering and vacillating in the face of difficulty; avoiding the big issue; making small or ineffectual decisions as a way of not making the big decision, hoping it will go  away; delegating to someone in no position to effect any change; being elsewhere doing 'important stuff' when needed.  These are some of the symptoms of a leader who is not leading, while the opportunity to rescue the situation drifts away.

Perhaps just as bad is the next dysfunction;

5)  Disconnected leadership, lack of a shared vision
Characterised by a 'shouty' leader imposing their own view on situations and placing a low value on information from the people who really know what is going on. The leader has developed his or her own understanding of the world, a view which they find compelling and plausible. Others do not wholly share this view and, for them, decisions are "disconnected" in the sense that they do not appear to bear any connection to the problem they are intended to resolve.  It's leadership, but is it good leadership?

6) The disruptive board member
This might range from : a  shareholder, minority or otherwise; a big ego; a key position filled by someone perceived as indispensable and feared; someone overconfident that their conception of how the world turns is the right one and who brooks no opposition; to the worst, the chief executive or managing director who either manifests these things himself or fails to address them in others.

7)  Hearsay management
What happens here is that the board, or the dominant person on it, listens to hearsay rather gathering hard evidence, manufactures a plausible explanation of a problem, and then places too much confidence in their diagnosis. The result, all too often, is unwise action.  There is a time to act on instinct and that time is when you have been there and done that - you are well practised. If you have not gathered the evidence how are you to know that you have been here before? How are you going to give decisions a good foundation?

8) The control freak
This a cause, rather than a symptom, but it is used here as shorthand for several symptoms. A key symptom is that even minor actions are paralysed by the inability of subordinates to make a decision in the absence of the control freak, as they are afraid that whatever they do it will turn out to be the wrong thing. Also control freakery is often accompanied by a bit of shoutiness. The good thing to say about control freaks is that they usually have a strong vision and a clear idea of how they intend to effect it. However, they cannot effect that vision alone -  the world is too complex, changing and fuzzy to spell it out that vision in minute detail and to micromanage it. At some point you have to let go of your vision and allow others room to implement it, while giving them your support. The freedom to make mistakes is a crucial part of that support (counterintuitively, they make less mistakes as a result).

9) The festering issue
Everyone knows it. It may be no one mentions it, for fear of the volcanic effect that raising it will bring.  It may be that it is discussed at length, perhaps in warm words, and a 'decision' that is no decision is taken.  The same issue reappears at the next meeting.  And the next.  Non-decisions keep being taken. There may be a focus on the things that can't be changed, which is a way of avoiding issues and putting off decisions.

10) The "bet the farm" project
A significant drain on resources at a time when resources are strictly limited and at risk of becoming scarcer.  Spending cash that is already spoken for on investments that must pay off or the company's survival becomes the critical factor.  Being overconfident about the payoffs from the investments, having based decisions on hearsay and gut feel. These projects tend to originate from opposite ends of the spectrum : the 'last chance', 'get out of jail' gamble; or the 'we're invincible now' attitude that follows great success.

11) Living hand-to-mouth
This is a painfully common situation.  A company with good sales and a long track history that never makes more than a small profit. Cash, stocks or another key resource are poorly managed and throughput is likely to be woeful.  There may be a high level of debtor, stock or similar write offs.  The solution to too many problems is to employ another member of staff, frittering away the profits, instead of getting under the skin of the problem and making the system work properly. Such companies have a hole in their strategy.

12) Groupthink
This is where a board convinces themselves that they are right and ignores or discounts contrary evidence.  Ironically it is a risk for boards which have been functioning well and which become too self-congratulatory. It is also a feature of poorly performing boards who find cognitive dissonance too upsetting and persuade each other that they are doing the right thing. Dissenting voices are blocked, crowded out or shouted down. Groupthink tends not to be acknowledged at a conscious level - the team remain unaware of their problem.

13) Overspending for the future
On the face of it, spending for the future is eminently sensible.  It is less sensible when it represents investment in staff, or other capacity, for demand that hasn't happened and or when little or nothing is in place to bring about that increase in demand. Detailed budgets are produced showing sales leading to cash, all apparently sensible. The right things are done and there is clear evidence for the need, but somehow the sales lag heavily behind prediction and the spending continues. Fresh evidence is not sought, gut feel rules. Heads are inserted firmly in the sand.  Profitability is frittered away (see 11 above), or the company may incur increasing losses.  Spending continues, taking the business along the path to the cliff edge.

14)  'Yes men'
Filling the team with intelligent, experienced people who either share the leader's point of view or are afraid to dissent from it.  Their skills and experience are not capitalised on.  Decisions are taken from a narrower perspective than was possible had people freely spoken out and proper exploratory discussions taken place. Incidents of 'brownnosing' may be unusually blatant. Slightly worse than this situation is that of 'despised men', where a board is filled with people who the leader has a low opinion of and whom he regularly rubbishes (in private or in public).

If there is a common theme here, it is leadership.  Good leaders surround themselves with a mix of people, selected for the variety of their expertise, and actively seek out alternative opinions and debate. Getting a grip on reality and making good decisions requires a variety of perspectives to be considered, for dissenting views to be considered carefully and their value extracted. To re-emphasize, two or more heads are better than one - having a board is better than not having one.

See also : Functional Boards

My thanks to Laurence Ainsworth, of Exigent Consulting, who provided a valuable critique of this article before going to press.

www.exigent-uk.com

Last modified on Wednesday, 22 July 2015 17:41

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