The game is up

Someone’s leaking to the press! Quick, get the chairman to facilitate a discussion! It’s not the most exciting rallying cry. But it might make more sense than spying on your boardroom colleagues, in the manner of Hewlett-Packard. The exercise destroyed what little sense of common purpose remained at the company’s most senior cadre, and may yet result in criminal charges. Hewlett-Packard has admitted using private investigators to access phone records of board members to see who had been talking with journalists. Chairman Patricia Dunn stands accused of orchestrating this activity. Director Tom Perkins resigned in protest, calling for the chairman to go, and in September Dunn resigned.

Boardroom political games and spats erupt frequently onto the business pages. Another recent example was Vodafone, where chief executive Arun Sarin has been embroiled in a fierce and public battle at the board of the world’s largest mobile phone company. Given the repercussions that such disputes can have, it is worth considering whether they can be either avoided; also whether the energy generated by a policy or personality clash can be channeled into creative activity.

In the case of Vodafone, for example, some genuine differences over strategy have occurred. Sarin sold the poorly performing Japanese operation, appearing to signal an end to the global ambitions set in train by the audacious earlier takeovers of Airtouch and Mannesmann. But it became personal, with non-executives briefing against Chairman Lord MacLaurin, and plots to remove key executives emerging in the press. On 12 March 2006, Britain’s The Observer newspaper described the board as “more like a faction-wracked politburo than the inner sanctum of one of the world’s most admired companies”.

Yet a falling-out need not be a disaster. Sometimes, when a nadir is reached in a company’s (and a board’s) fortunes, and enough stakeholders appreciate the gravity of the situation, it can become a turning point. In the case of Marks & Spencer, serious boardroom disagreements had been a feature of its travails, but the subsequent change of leadership and overhaul appears to have been successful. The trick is to recognize that dips in fortune, and disagreements, are inevitable. It’s how you respond to them that matters. When it becomes public, often the board members are managing their own PR, rather than the company; leaks and briefings become commonplace.

At the heart of the problem is a reluctance to acknowledge that basic human needs like trust, well being, respect and a sense of purpose are as relevant in the boardroom as in any other walk of life. The problem with the HP board member was not that he was leaking stories to the press per se, but that he was angry and disengaged. Finding out why would have been a more effective intervention than imposing more stringent controls.

I have come to the conclusion that two factors often dismissed as ‘soft’ – trust and motivation – are at the heart of everything we do in business. They make or break the board. They make or break the organization. Any approach that does not make them a high priority is an extremely risky one to take.

What happened at Hewlett-Packard was that trust had broken down and, instead of trying to repair it, the Chairman Patricia Dunn damaged it further by introducing surveillance. It is quite clear what she should have done: spoken with every board member, one-by-one, and asked them what was bothering them. Found out what their ambitions and niggles were. Got to know them. There may be an individual who is disenchanted; there may be a group. But it is part of the chairman’s job to know.

So while honest conflict of view, openly aired and discussed, is perfectly healthy, a full-blown crisis rarely is. If it does emerge, the chairman has to devote attention and energy to understanding the root causes, defusing the personal element and facilitating the discussions that lead to recovery.

There are some unique features of operating at board level, however, and one is the recent flurry of new corporate governance rules. Some of them appear to be at odds with the desire for teamwork and understanding, and so require careful implementation. There has been much emphasis on greater openness and on independence of the background of non-executive directors, to prevent ‘chummy’ cliques operating against shareholder interests. The separation of the chairman and CEO roles are emphasized, and quite rightly; these are distinct areas of responsibility that should not be blurred. The chairman is responsible for the board; the CEO for running the company.

But while clarity of role and accountability are to be welcomed, independence should not become remoteness. The CEO needs to have a good working relationship with the chairman, and with other non-executive directors. After all, they are all on the same board, and under company law each board member has equal status around the table. In one case where I worked with a board, the CEO lost his post after a falling-out with the chairman. Afterwards, he acknowledged that a major failing was that he had no real relationship with the non-executives.

The sense of openness and accountability that have come with governance reforms are welcome, however. Another welcome, albeit slow, development has been the move towards greater diversity on the board. It is difficult to prove that this helps the business in a direct way. But it is logical that a wider range of background – in terms of professional discipline as well as gender and nationality – means that a richer resource is available in terms of problem-solving abilities and business perspectives.

Much research indicates, for example, that men are more inclined to analytical and economics-based approaches and women to the understanding of social relationships. It is therefore likely that, for example, the high failure rate of mergers and acquisitions is linked to the concentration of planning by men with accountancy and law backgrounds, treating the companies as sets of assets, rather than complex social networks. A study by KPMG – Unlocking Shareholder Value – found that most mergers fail, and the few that succeed pay great attention to the misleadingly titled ‘soft’ matters.

One of the features at Vodafone was the common mistake of overpaying for acquisitions (especially Mannesmann) and underestimating the difficulty of integration. However, this is a generalization. After all, the board at HP had a gender-mix. Of over-riding importance are the skills that a boardroom needs. An effective non-executive will challenge the executive team, but also counsel. They will not tolerate complacency, but they will be supportive where appropriate. This tricky balancing act is difficult to maintain, especially when it is the more lurid tales of boardroom clashes or malpractice that hit the headlines.

People pay less attention to the ‘soft’ stuff than they should. Most senior executives I have spoken with describe it as both more important, and more difficult, than they initially realized when they first commenced a senior post. Clarity of role is also essential. There have been moves recently for annual appraisals of a non-executive director, which is laudable. But how many non-executives have a sufficiently clear remit for this to be workable? There is never a job description, so how is it possible to know if they have been effective?

It is easier to drive effective stewardship at board-level by treating it like any other team, with perhaps a few unique features, rather than imagine you are entering a completely different world through a corporate looking glass. Effective governance rests on trust, communication and engagement as well as the right blend of corporate strategic skills. Without these key elements, be prepared for unwelcome briefings to the press.