Most directors and shareholders understand that good corporate governance requires a mix of skills and experience. Many focus heavily on these aspects when selecting individuals for board positions. While these things can be great predictors of success, there’s something else that should be taken into consideration: a potential director’s attitude about the job.
Until a director has some experience under their belt, they may not understand what’s truly important when it comes to governance and leadership. Even after they have been at it for a while, it’s easy to develop attitudes and viewpoints that simply maintain the status quo instead of pushing back against faulty ideas.
It’s important that new and experienced directors alike understand the essential attitudes and dispositions they need to have to be successful in helping a company thrive at the highest levels. Without these attitudes, the health of their company and, in some cases, society at large may be at stake.
1. Knowing the Difference Between Governance and Leadership
While leadership and governance are two concepts that often work in tandem, every director must understand that they are not the same thing.
Leadership refers to a person’s ability to influence the attitudes and actions of others to lead them toward a common goal. Governance, on the other hand, should be about making decisions that lead to increased corporate performance and meeting or exceeding agreed-upon targets.
Being a good leader without shifting their mindset toward governance can make directors behave in selfish and territorial ways, putting undue focus on their own desires and beliefs. On the other hand, having the power to govern without the skill of leadership can often lead to passivity and a bend toward bureaucracy, which can easily stop board progress in its tracks.
Many directors understand that the key to good governance lies in being able to balance both of these concepts. A director can achieve this seemingly elusive goal by embracing three crucial duties:
- The Duty of Care: This involves careful consideration of the issues at hand, which means coming to meetings fully prepared to take a thoughtful stance
- The Duty of Candor: This relates to your willingness to speak honestly when anyone in leadership does something against policy or culture
- The Duty of Loyalty: This involves understanding your own biases and conflicts of interest and committing to doing what’s in the best interests of the corporation
By leaning into these duties, directors can ensure that their decisions are fair, balanced, and beneficial to all stakeholders.
2. Understanding That Doing the Right Thing Matters
Many directors — especially those who are new to the position — struggle with speaking up when they see something happening that needs the board’s attention.
They may be worried about receiving private or public backlash or derailing the company’s progress toward meeting targets. Some directors don’t want to be wrong or don’t want their ideas to face scrutiny in any forum where others will debate their validity.
Unfortunately, this attitude does more than just keep a director’s voice from being heard or their potentially good ideas from being seriously considered. It can also be an outright detriment to the company and to the community at large.
In no clearer way was this seen than when directors refused to speak up about risk management and asset liability statements ahead of the 2008 financial crisis.
If more board members had been willing to exercise their duties of care, candor, and loyalty, they might have been able to right the ship or, at the very least, prevent some of the damage that occurred to both the banking system and the global economy. This is a testament to the far-reaching effects of good — and questionable — governance.
It’s important for board members to know that even though today’s world seems a far cry from the 2008 financial crisis, opportunities to speak up about doing the right thing still abound.
Climate change presents one of these opportunities. As ESG investing and public outcry about corporate responsibility become cornerstones of Gen Z and those coming after them, it will be increasingly important for board members to use their voices to help steer their companies in the right direction.
3. Recognizing How & Why Culture Matters Across Your Organization
It’s important for directors to realize that neither good governance nor effective leadership happens in a vacuum. You can only exercise your duties of care, candor, and loyalty inside corporations where the culture allows for it.
Because board members are partly responsible for deciding on and creating company culture, it’s critical that they take the first step in promoting psychological safety in the workplace.
If there’s no place for disagreement or debate amongst anyone inside the corporation, directors are much less likely to ask questions or speak up when things are moving off course.
Most directors come from a background of high achievement, which often means being the person in charge and having all the answers. This stance, however, can backfire in the boardroom, muffling voices from those who don’t feel that they have it all together.
The better approach lies in coming to each meeting with a sense of curiosity about the issues before you. Be the director willing to ask questions and challenge the status quo, even when you don’t think you know enough to do so.
It’s essential that your workplace and boardroom culture supports this action. If it doesn’t, working hard to advocate for change in this arena should be your first step.
The Future of Business Depends on Having Good Directors Today
Good corporate governance primarily depends on one thing: having good directors.
While ideas of what makes a “good” director may vary, many agree that it involves understanding and embracing three core duties: caring about the issues that affect the company, speaking with candor when things are going wrong, and moving with a sense of loyalty to the company and its stakeholders.
To carry out these duties, it’s vital that board members understand that their voice matters. They must be willing to use it for good even when they fear scrutiny and backlash.
This willingness, combined with a company culture that encourages disagreement and debate over command and control, plays a key role in ensuring your corporation stays on the right track and continues moving toward its long-term goals.
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