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The Role of Guardrails in Maintaining Board Integrity

Thought Leadership on Entrepreneurship
Cambridge Judge Business School Entrepreneurship Centre

 

 
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By Jonah Zankl, PhD Candidate in the Organisational Theory & Information Systems at Cambridge Judge Business School and Matthew Grimes, Reader in Organisational Theory & Information Systems and Academic Co-Director of the Entrepreneurship Centre at Cambridge Judge Business School.
 

“Theranos has assembled what may be, in terms of public service, the most illustrious board in U.S. corporate history. It includes three former U.S. cabinet secretaries, two former U.S. senators, a retired Navy admiral and a retired Marine Corps general.”
Paraloff, 2014, Fortune Magazine

The board of Theranos perhaps will be remembered more as infamous than famous. Addressing the elephant in the room, Theranos would be considered demographically non-diverse with no female directors, only one BIPOC member (a nepotistic inclusion of the founder’s partner), and an average age that exceeded 801. In some respects, the board was assembled with a set of strong socio-cognitively diverse board members, including those which addressed key geographic markets, provided access to the political institutions (including the Centre for Disease Control which would aid in the startup’s growth), and a mixture of personalities that may have pushed towards divergent thinking. Yet, the startup will be known in history for its incredible fraud and fall from grace. If a star-studded board (including 5-star generals) was not a truly great board, what went wrong?

Our research suggests that an important coupling of guardrails with director diversity is required to unlock the value of a truly great board. Just as guardrails keep vehicles from veering dangerously off-course, it is important for your organization to establish guardrails to keep both the business and the board moving in the right direction. Selecting a group of diverse board members is not sufficient to ensure that they provide the strategic opportunities and guidance, which lives up to their potential. Rather, additional focus is required in curating and developing policies and practices which steer your board to developing a coherent and collaborative environment that thrives through the diversity around the boardroom.

1

Deliberate Divergent Thinking: Many CEOs seek to find approval and avoid deadlock of their board, introducing scripted interaction patterns around boardroom tables. You can likely envision your own board meetings: updates from the C-Suite, financials, sales updates, and a brief strategy exercise are common recurring activities. A guardrail reinforcing deliberate divergent thinking requires opening the space to challenge. Working with your board chair, how can you ensure that the voices of minorities are heard? Just as university lectures have taken the “flipped classroom” approach where students lead discussions and learning, can you shift entrenched interaction patterns of board meetings through flipping the order and focus on divergent thinking rather than routine updates? This comes at a risk, however, of veering away from coherency of discussions. Managing information flows, establishing clear purpose in these divergent activities, and maintaining a collaborative environment must be prioritized for risk of information overload or the development of “subgroup agendas”2 which derail the governance process.

 

2

Alignment over Consensus: The board governance model typically relies on the approaching of consensus in establishing strategic direction for the startup. However, we posit that a guardrail which focuses on alignment may arise even amongst a lack of consensus. The role of the board chair and CEO in establishing shared understanding of how consensus and alignment differ, and where consensus-seeking is in fact a hindrance to progress of the startup, is an important early and on-going process in the boardroom. Reaching alignment requires building structures for paradox thinking — defined as “both-and” solutions over “either-or” — thus enabling a broader set of possibilities rather than constrained limited sets. This approach is counterintuitive: paradox thinking requires activities which allow for the hearing of many perspectives by nature and overcomes the limiting of views that consensus-building can (unintentionally) create when the focus is on arriving at a singular understanding. 

3

Psychological Safety: Developing a coherent and collaborative environment requires board members to trust one another and have space for vulnerability. Research on psychological safety and “in-group vs out-group” dynamics highlights how top performing teams require spaces in which they can voice dissent and uncertainty comfortably in order to succeed. Curate this amongst your board, foster activities that go beyond the governance routines in which board members can build familiarity and psychological safety in order to speak out. As boards become more diverse there is a danger in assuming that intra-board relationships will form naturally; rather, psychological safety must be actively fostered and cultivated within all boards. 

In this article and our previous, we have provided three additional frames of strategic diversity, geographic, temporal, and divergent diversity, which can be paired with corresponding guardrails of deliberate divergent thinking, alignment over consensus, and psychological safety. By shifting the focus of your board’s diversity through these lenses, we believe your organization can create a truly great board, one which enables an unforeseen realm of opportunity while creating and maintaining important boundaries around scaling and growth. 

Sources:
The Startup Board Report. KPMG High Growth Ventures and Think & Grow, 2018.
https://home.kpmg/au/en/home/insights/2019/04/startup-board-report.html

When Diversity Goes Awry, Academy of Management Insights, 2018.
https://journals.aom.org/doi/10.5465/amd.2015.0129.summary

 


 

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