Navigating the Human Side of Boardroom Interactions: Improving Relationships at the Top

Introduction

The well-run group is not a battlefield of egos.

—Lao Tzu

You don’t develop courage by being happy in your relationships every day. You develop it by surviving difficult times and challenging adversity.

—Epicurus

He/his refers to the Chair, while she/her refers to the CEO. I have chosen this convention because the CEO is the most important position within a company. The Chair is the head of the board of directors, while the CEO is the head of the executive board.

BM: Stands for board member’s quote from my interviews: I don’t distinguish between Chairs, board members, or CEOs. If I believe the specifics are relevant, then I point it out.

Relationships Are Hard Work. According to Stephen Covey (1989/2020), "many of the problems in organizations stem from relationship difficulties at the very top." This is consistent with my own experience as a board and executive board member. In researching this book, I conducted 60 interviews with Chairs, board members, and CEOs around the globe. Overall, they painted a picture of thoughtful, reflective personalities, somewhat reluctant to use their insights and reflections to work on their professional relationships.

Why? Because the business world, especially at the top, is not (yet) an environment where it comes naturally to work on those relationships, on interpersonal issues; it simply seems too personal.

BM: Showing vulnerability sounds like an oasis of well-being, which I do not consider necessary.

Several Chairs stated that walking the talk is more important than the talk.

BM: The daily evidence demonstrates the trust that you act and behave as you claim to do and not by talking about it.

Fewer Assumptions, More Questions? While I couldn’t agree more that walking the talk is fundamental and paper is patient, the crucial relationship between Chair and CEO often does not work as it should. I argue that the business world, especially at the highest levels, would be a different place and deliver better results, by assuming less, asking more (personal) questions, and sharing (ourselves) honestly.

BM: I just assumed something, and then I found out much later that the CEO was heavily disappointed.

Even when we reflect and doubt our assumptions, we seldom address personal issues: it feels uncomfortable. Shying away from potential conflict is easier in the short term but generally stores up a future problem. The uneasy feeling festers, setting the ground for growing irritation, like a weed that is not pulled out early and chokes the plants around it.

In the interviews, I often was confronted with statements from Chairs like:

BM: I am a reflective, responsible, and considerate person; that’s how I act toward the CEO; I hope she appreciates that and acts accordingly. Sometimes, it works; if it doesn’t work, then the CEO needs to go.

This drastic, fatalistic attitude is in sharp contrast to how financial or strategic questions are handled: these topics, being more factual and less emotional, tend to be handled more thoroughly and objectively. What potential for our company and personal growth is being sacrificed when we only superficially touch the human side of our interactions?

A Successful Chair–CEO Relationship Depends on Qualities in Short Supply at the Top. We know that walking the talk is fundamental to build trust. Still, we should be willing to display self-disclosure (Kets de Vries 2011), show vulnerability (Brown 2018) to talk about our needs, and ask about the need of others (Stanier 2016). Such an attitude needs courage, self-esteem, reflection, and a deep-rooted interest in human beings. It also requires readiness to give up control during a conversation and willingness to take risks, not just play it safe.

Giving up control and showing vulnerability seems especially hard for Chairs and CEOs. Typically, a proven track record is necessary to be elected to such powerful positions; there are often alpha animals in those roles. It can be argued that if you have reached the top, there should be less need to impress and pretend; however, we are all human, and our search for affirmation does not decrease because we have received it in the past. Once at the top, you are often surrounded by people who tell you what they think you want to hear, muffling true sentiment. This does not increase either your self-awareness or your awareness of others’ needs. In this situation, neither the outer environment, including media coverage, capital market pressure, challenging market environment, nor the inner personal environment supports the blossoming of the Chair and CEO’s crucial relationship.

The higher you climb the professional ladder, the more experience you have, the more you are confident in your wisdom, and the more you take for granted. You are less inclined to behaviors that foster awareness and growth, challenge certain assumptions, listen, understand a different perspective, and even learn. We become used to having all the answers. It is especially expected that we have the answers as we progress to the top. Argyris (1991), in his article Teaching Smart People How to Learn, stated that past success does not increase your readiness to learn.

Keltner (2016) used the term power paradox to describe how leaders gain influence through empathy and similar practices but lose those skills as they gain power.

It is not surprising that many interviewees were cautious about entering the personal field of working on meaningful relationships. Questioned about what hinders them from acting differently, a typical answer was:

BM: People usually have more trouble setting boundaries if they’re getting too friendly.

BM: I’m playing to my instinct. While I have no problem setting boundaries, it is not easy to let people in. I just did something in our interview which was in line with my natural inclination and rationalized it.

The Need for Objectivity and Distance Can Be a Smokescreen. There are sound reasons for some degree of distance between the Chair and the CEO. Suppose the Chair and CEO were to get too close: all the issues could be agreed upon in advance of the board meeting, so there would be no serious challenge or debate between the two. The checks and balances that are fundamental to the objective and independent role of the board would be endangered. Board members would quickly feel excluded, not to mention afraid that the Chair and the CEO had not found the appropriate distance.

Those fears can be a reasonable barrier to relationship building; however, they are often just a pretext. Finding a balance between opening up and conserving appropriate boundaries can be challenging. The default mechanism at the top leans clearly toward boundaries: peers readily reciprocally confirm why we should stick to that attitude.

What Exactly Is the Role of the Board of Directors? The Chair– CEO relationship is the most prominent, but the same is true for any other (business) relationship. Almost no relationship is one-to-one, and certainly not in the business world. At the top of the company, we have relationships within a team, and between members of different teams, and we have to balance the needs of all. The Chair, for example, has to manage his relationship with the CEO, the executive board team, and with his team—the board of directors.

Boards have a problematic starting point. In most cases, boards have little true room to maneuver; they are confronted with high and sometimes conflicting expectations. Investors expect an above-average return; the public and the media expect a sustainable, successful business model, good corporate citizenship, no mistakes, and, in particular, greedy managers tamed. Public opinion and employees tend to overestimate the board’s influence, as a mysterious and unknown body, called the black box in the literature.

The reality is that board members are caught between two forces: the Chair and the executive board. The latter has to run the company and benefits from having a straightforward task. A strong Chair is crucial for a company, not just in the formal definition of the role but also in his personality and history.

The question then emerges: What tasks are left for the board? What can a board member contribute?

BM: I am a proud board member and proud to belong to this group. Please believe me if I tell you that everyone, especially those with operational experience, asks themselves critically in such a body: What is our contribution? The added value in management is much higher than on the board. You have undoubtedly heard the saying of Hermann Josef Abs, Head of Deutsche Bank, in the 1950s and 1960s. What is the difference between a doghouse and a board of directors? The doghouse is for the dog; the board of directors is for the cat. I have never seen the board come up with an ingenious idea: develop the idea of taking the company a quantum leap forward. And that’s what I ask myself: How can I, and how can we as a board team, add value to the company?

What role is the Chair willing to give to his board?

BM: I sense that the Chair prefers not to have too many debates, and I act accordingly.

And what is the board members’ perception of the Chair?

BM: It does not feel right if I speak up against the Chair; it feels disloyal, and I don’t want to risk my relationship with the Chair.

How open is the executive board to include the board of directors in shaping the company’s future, not just in nodding agenda points?

BM: I often observed a kind of cynicism in the management. Oh, those board members don’t understand the business and want to know things that are irrelevant and cause us more work that isn’t adding any value.

Maybe the Chair wants to have an active board but has doubts about how to contribute.

BM: I would like to make a difference and have an impact, but I am not sure how I can add value; so, I chose to be silent.

As a former CEO, you are used to telling others how things should be done and carry on with that behavior as a board member.

BM: I know the business, I want to have an impact, and I will make a difference here.

This small selection of statements is just a few examples of board members’ thinking. All the behaviors have a reason but also potential dysfunctional effects.

What exacerbates the situation is that we are often unaware of our actions or inactions. They are below conscious awareness, especially if we have not reflected on our roles or discussed the anxieties that can come with a board position.

Being a board member appears to be an excellent position with obvious benefits (prestige, salary, belonging), but board members still have needs, concerns, and fears. If those needs are not met, or concerns and fears are not addressed, they may lead to dysfunctional behaviors.

Part I of this book covers the board’s position, team members’ needs, and the Chair’s role. While the CEO’s role is challenging, especially in an increasingly dynamic and complex environment, her responsibility is clear-cut. What a Chair should do (or not do), however, is less obvious and visible. While the main objective is clearly to make the company, the CEO, and her team successful, the Chair’s role is less clear-cut.

The Chair plays the central role in the team-building process of the board. It starts with the crucial question:

What Does the Chair Want From His Team? In theory, the Chair intends to have a strong team, fighting for the best outcome, where anybody can speak openly and make an impact. Such a board sounds excellent on paper, but in reality, as a Chair, managing it could be a daunting task: strong teams inevitably lead to tensions and conflicts. While this would be in the company’s interests, as multiple opinions contribute to the best thinking overall, it would be unsurprising for a Chair to (sub) consciously seek an easier life. So, as a Chair, you may see the rationale for conflicts and debates, but default to a tamer, more relaxed board.

Chair positions are filled by alpha animals, individuals with successful track records, strong presence, and opinions. One of my questions for you is: Does the Chair, or do other board members, genuinely have an appetite to have a board where intense debates can occur? If so, what can they do to create that culture? What can they do to foster a constructive challenge and growth atmosphere so that the executive board looks forward to the next board meeting instead of seeing it as a hurdle?

BM: My vision is that the executive board is looking forward to the next board meeting because they feel appreciated, supported, and challenged simultaneously. We all learn together for the benefit of the company. If this happens, I have won as a Chair.

The Multidimensional Role of the Chair. The Chair’s role is crucial in developing such a culture and delivering that vision. The Chair manages a web of relational issues; he leads the board; interacts with senior management, in particular the CEO; and talks to regulators, investors, and the media.

The role of the Chair calls for self-restraint. He can potentially strengthen his reputation, self-esteem, and appreciation from the board, maybe even from the public, should he choose to intervene vis-à-vis management. However, such a decision would almost inevitably be at a cost to the company and its management team. The Chair has to think carefully before overruling the CEO: what looks strong and decisive for him personally can easily damage the company’s well-being. The judgment to make the call in the ultimate best interest asks much from the Chair, calling for a reflective personality.

The way Chairs are selected aggravates the challenge. A former, experienced Chair said:

BM: Let’s call a spade a spade. Chairpersons are often chosen for celebrity and relationship reasons. The insight that the central task of the Chair demands qualities in respect to the group dynamic and the group psychological leadership issues of the board and the interaction with the management is not part of the mainstream knowledge or consciousness of the people who propose the Chairs.

In Part I, I suggest an ideal Chair profile before I take a closer look in Part II at the interactions at the top. Based on my interviews, literature, and my own experience, reporting for many years to Chairs and CEOs, I have developed recommendations on improving our working relationships at the top while simultaneously building effective teams. In each of those chapters, I include examples from my interviews and personal experiences. I provide do’s and don’ts to help Chairs, board members, and management reflect on how to interact.

The book ends with Part III about reflections for the boardroom. I distinguish between self-reflection, reflection-in-action, and joint-reflection after the action, as well as reflection workshops for board reviews, including behavioral traps to avoid and tips for conducting each session.

Board members are in a unique position to provide feedback and reflect together. In the quantitative part of my INSEAD study (Sieber 2019), I found that the board of directors’ joint reflections were the most significant drivers for the boardroom’s psychological safety and voice behavior.

PART I

The Board of Directors

CHAPTER 1

The Picture From the Past

The best time to plant a tree is twenty years ago. The second-best time is today.

—Chinese Proverb

Grant me the serenity to accept the things I cannot change, the courage to change things I can, and the wisdom to know the difference.

—Reinhold Niebuhr

Boards Were Passive and Formal Institutions

Boards were traditionally considered to be formal and passive institutions (Mace 1971). The prevailing wisdom was to get along and not expose yourself (Sonnenfeld, Kusin, and Walton 2013). As one CEO describes the phenomenon: In the boardroom, the thinking is: ‘You have to be equal. Don’t be overwhelming or dominant, don’t hurt feelings, and don’t take someone’s chair’ (Sonnenfeld et al. 2013). So, rather than playing to win, you play to avoid losing:

BM: I am in—I want to get along. No reason to expose myself.

As a traditional board member, you may be delighted to belong to a prestigious circle providing external admiration and decent financial benefit, especially considering the time spent on the board’s mandate.

You were likely chosen to join the board by a Chair who knows you well. You could therefore feel stronger loyalty to the Chair than to the company. In the event of doubts about raising your voice on a critical issue, this could make you more likely to choose to be silent.

Indeed, my quantitative research (Sieber 2019a) confirmed that. The relational silence motive—not to speak up because you want to protect a relationship—is a strong motivator to remain silent. On this basis, boards who wish to debate should restrain themselves from recruiting from the old boys network.

BM: Sometimes board members are too good buddies of the Chair and therefore they are not ready to rain on his parade.

From an insider perspective and past experiences, it’s unsurprising that a strong Chair and management prefer a restrained board, where board members have prestige without putting in too much effort. Obligations outside of board member roles more central to their careers are another reason not to engage at full throttle. A likely outcome, then, is a somewhat passive board. Describing such a picture is a gross generalization. Still, I would be surprised if many board members disagreed with my overall painting of the reality of board members from the past.

The Wrong Focus on Formal Independence

For a long time, the academic world focused on seemingly quantitative topics like board member demographics and formal independence. A hot topic was the demand to get independent directors on the board. Jensen and Meckling (1976), in their influential agency theory, made the distinction between the non-independent (insider) director and the independent (outsider) director on boards. The general assumption was that independent directors lead to better board performance; independence meant being an outside director with a tenure of less than a specified number of years.

Corporate Governance Guidelines of proxy advisors like ISS or Glass Lewis stress formal independence. As an example, Ethos (2018), a Swiss advisor, had written—promisingly—in its proxy voting guidelines that a person’s independence is fundamentally a question of character, only to conclude: It is thus necessary to evaluate the independence of board members against generally accepted objective criteria, ending in a list of conditions to be fulfilled to qualify as independent. This point neatly shows our propensity to what can be measured, controlled, and even audited. But external parties can hardly address the real issue: independence in mind, to which I will return in Chapter 5.

Around the turn of the millennium, major crises hit the corporate world. A common perception was that those scandals could have been avoided if boards had taken their responsibilities more seriously. Lawmakers and regulators reacted: corporate governance was the salvation. I was general counsel and secretary of a board of a publicly listed company at that time, so to a certain extent formed its corporate governance structure. Corporate governance regulation and, quite often, soft law brought many good initiatives that it is hard to imagine today’s business world without. However, the new rules and regulations also led to a checkbox mentality, focusing on legal and structural issues since the lawmakers had no other access to board rooms.

Unfortunately, new scandals were still hitting the corporate world. Companies like Enron who had a stellar reputation and shining corporate governance—at least on paper—went bankrupt. What went wrong?

As it transpires, complying with governance requirements advocated by governing bodies, proxy advisors, and shareholder groups was insufficient (Griffin, Larcker, Miles, and Tayan 2017). Finkelstein and Mooney (2003) conclude that academics, consultants, and reformers pursue the holy grail of independence without success because they tend to look at the usual suspects, such as formal independence, which ultimately seem to be irrelevant.

Research has found no systematic relationship between either the board’s independence based on formal criteria (Dalton, Daily, Ellstrand, and Johnson 1998) or tenure (for an overview of research, Johnson, Schnatterly, and Hill 2013) and company performance. Stevenson and Radin (2015) concluded that formal independence does not necessarily translate into the ability to influence others or result in the independence of decision making.

While the law encounters significant hurdles in accessing inner dynamics and the often-hidden and unconscious sides of the decision-making process, the following quote from the Swiss Supreme Court (BGE 4a 129/2013 E 4.3) is remarkable: It cannot be excluded that the wish of the Chair influenced the decision of the board to grant the loan and that the board members felt obliged or maybe did not want to risk their board seat. The quote raises specifically the question of whether a board member is unwilling to risk his or her seat and, therefore, does not act as a genuinely independent director.

A Board Is a Group of Human Beings With a Social Contract

Researchers (Pettigrew 1992