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What Drives a Strong Culture & Effective Board?

Russell Reynolds Associates Just-Released Global Board Culture Report Surveys the Director Behaviors That Contribute to and Create a High-Performing Culture and Drive Board Effectiveness.


Hunt Scanlon | October 26, 2016


The Hunt Scanlon article, “What Drives a Strong Culture & Effective Board?” looked at the firm’s research on "Global Board Culture Survey Understanding the Behaviors that Drive Board Effectiveness." Russell Reynolds Associates consultant Rusty O’Kelley also shared his insights on the research findings in the article and the accompanying podcast. The article is excerpted below.

Nothing is more important to a company than driving culture. What is sometimes overlooked is where this effort truly begins — in the boardroom. Corporate boards, therefore, need to be recognized, shaped and fostered for maximum effectiveness.

Jack ‘Rusty’ O’Kelley and his corporate governance team at Russell Reynolds Associates recently set out to capture the essence and behaviors that create a high performing board culture and drive board effectiveness. Russell Reynolds, like other executive search and leadership advisory firms, are now using trends and insights gleaned from companies around the globe to help their client base remain competitive.

Aggregate Knowledge

In the case of Russell Reynolds, the firm’s consultants take this data to customize consulting solutions to meet their client’s talent and human capital management needs. At the board level, this has become an increasingly sophisticated endeavor and it brings skill sets to bear that go far beyond traditional recruiting methodologies.

For this survey, the firm captured analytics from 369 directors from 12 countries, a large data set focused solely on board culture — and not on board mechanics or board processes which other surveys have captured in somewhat great detail over the years. “This was a culture-focused survey,” said Mr. O’Kelley. More importantly, he said, ‘we wanted to have director behaviors we could screen against for recruiting purposes.” That tie-in to Russell Reynolds’ core search business has made this survey one of the more important it’s consultants have conducted in recent memory. “Many boards fall into a culture,” added Mr. O’Kelley. “But few of them try to actively set a culture.” This survey takes a close-up look at this phenomenon.

Today, firms like Russell Reynolds aggregate knowledge from corporate governance experts, lawyers, management consultants and current and former public company directors to drill down on how best to maximize a company’s performance, better align its people strategies and find new ways to bring competitive advantage to their clients. For the headhunting business, it is a new world order and executive search consultants focused on C-suite recruiting and board consulting are gunning for lead position in this expanding advisory business.

In many ways, any discussion around culture comes down to behavioral science. And that’s where Russell Reynolds Associates’ latest thought leadership report adds value. According to its just-released ‘Global Board Culture Survey,’ directors around the world were surprisingly consistent in the top five behaviors they named as key to a strong culture and an effective board.

 

The survey showed that the attributes that define an effective director transcend cultural and national differences. Most important director behaviors, this study found, include possessing the courage to do the right thing for the right reasons; a willingness to constructively challenge management when appropriate; an ability to demonstrate sound business judgement; asking the right questions; and possessing independent perspective and avoiding ‘groupthink.’

Although survey participants agreed on five key director behaviors, the survey also revealed that only the most effective and well-led boards are the ones that can incorporate the desired director behaviors into how the board actually operates. When Russell Reynolds’ consultants observed behaviors of the most effective boards surveyed, they identified three characteristics that drive an effective culture built upon the most important behaviors: 1) a chair who is an effective facilitator; long-term horizon for strategic solutions; and strong relationships with senior management.

Global Consistency

The ‘Global Board Culture Survey’ asked directors which behaviors are most important in fostering a board culture that drives effectiveness and company performance. Research and global experience working with boards show that boards develop their own culture and behavioral norms. For boards to function optimally, this study concluded, the board must have the right mix of relevant expertise and experience, and the board culture should be constructive and engaged.

Given the wide range of corporate governance regimes that exist globally, Russell Reynolds expected that the behaviors directors would cite as most important would also vary widely, especially given that corporate boards exist within the context of a national culture.

Yet the study uncovered a surprising degree of consistency in the behaviors that directors believe are most critical for an effective board. Respondents identified and prioritized the most important director behaviors as depicted in the following chart:

 

The five most important director behaviors identified topped the rankings for every region surveyed. Remarkably, they were also ranked in the same order of importance in every region, with the exception of a small variation in Asia. This suggests that the desired qualities of an effective director transcend cultural customs and regional differences.

When the study compared the responses of directors serving on a board in their home country with those serving on a board outside their home country, the weighting and ranking of behaviors remained consistent. This suggests that rather than focusing on the traits that make a director suited to a board in a particular country, boards should focus on these five core attributes, which are the most important in any setting.

 

This global consistency can also be viewed as some evidence of the acceptance and use of the board-centric model of corporate governance that the largest long-term institutional investors (such as BlackRock, State Street, and Vanguard) and pension funds (such as CalPERS, Hermes, and PGGM) have been promoting around the world. This model holds the independence of the board as a central tenet, with heavy emphasis on the board’s ability to challenge management and hold it accountable.

Three Drivers Taking Boards From Good to Great

While most directors globally agree on which director behaviors are most desired, many boards struggle to incorporate those behaviors into the actual operating norms of the board. In analyzing the data on observed behaviors of boards that were rated extremely effective compared with those that were rated moderately effective or ineffective, the Russell Reynolds report found that the most effective boards were 25 percent to 40 percent more likely to consistently demonstrate the top five behaviors.

What are these highly effective boards doing differently? Initially, the report investigated whether the amount of time spent on board work was a key factor in driving board effectiveness. It is logical that hours invested preparing for board meetings and knowing the business may help make a board more effective. However, analysis found that the amount of time spent in the boardroom is less important than how that time is spent.

To listen to Rusty's thoughts in Hunt Scanlon's podcast, click here.

To read the full article, click here.

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What Drives a Strong Culture & Effective Board?