Dysfunctional boards: Symptoms and effects

dysfunctional boards

Every corporate board has a degree of dysfunctionality. However, the extent to which dysfunctional boards impact performance depends on the steps it takes to mitigate associated symptoms. The adoption of effective governance frameworks and the implementation of a robust, team-based culture are examples of such steps generally considered characteristic of useful boards, even ‘great’ ones[1].

The symptoms

A dysfunctional board exists where there is evidence of one or more of the following indicators:

  • ambiguity exists around board direction and organisational objectives and priorities;
  • absence of board evaluation, performance and improvement measures;
  • a lack of trust amongst directors;
  • directors fearing conflict;
  • evidence of failure to facilitate the open exchange of opinions and perspectives of all board members;
  • missed opportunities due to excessive analysis and unnecessary delay;
  • resentment exists among individual directors;
  • failure to address ‘poor’ (or under) performing directors;
  • a culture of second-guessing, lack of confidence and fear of failure among directors;
  • a situation in which time and energy is consistently spent on back-channel politics, personal attacks, posturing or interpersonal risk management and not issues which are essential to the organisation;
  • the prevalence of personal attacks between board members or the holding of ‘grudges’;
  • unnecessarily revisiting resolved items or issues which have otherwise been the subject of concluded discussion by the board previously;
  • concealing of mistakes or weaknesses;
  • hesitation to help other members, seek help or provide constructive feedback;
  • directors are avoiding attending meetings;
  • lack of consensus or overall support regarding decisions reached;
  • different points of view are not encouraged or discussed at meetings;
  • absence of plans for the future development of directors;
  • over-reliance upon the chair to impose disciplinary measures or bring order back to meetings;
  • lack of planning and preparation – late or non-existent board agendas, untimely access to papers, directors come to meetings ill-prepared and not across the issues; and
  • the absence of questioning, without hesitation, the approaches adopted by other directors.

These symptoms are not exhaustive. If they exist, a board may be considered dysfunctional. [2]

The effects of a dysfunctional board

A lack of trust, fear of conflict and a lack of commitment to a robust, team-based culture within a board are critical indicators of a dysfunctional board[3]. History has revealed many well-publicised examples of dysfunctional boards and their effects[4]. Dysfunctional boards cease to be effective. A dysfunctional board may also mean a dysfunctional business[5]. Failure to properly discharge legal, social and ethical duties, and the absence of good governance practices, is common among dysfunctional boards. These characteristics are likely to contribute to a decline in firm value[6] and, in some cases, annihilate it. Intervention becomes the only remedy.

This article was first published on Linkedin on 23 November 2018 and revised for this publication.

© 2018-2020. Robert Nicholls. All Rights Reserved.


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Notes

[1] Jeffrey A. Sonnenfeld, What Makes Great Boards Great, Harvard Business Review, September 2002, pp.1-8.

[2] David Doughty, https://www.linkedin.com/pulse/20140808133120-5081335-is-your-board-dysfunctional/ 8 August 2014.

[3] Ibid.

[4] In the United States, Enron and Worldcom are each notable for the enormity of the scale of financial loss and ruin, which followed their respective demise. In Australia, One-Tel, HIH Insurance, Qintex and Cricket Australia are some recent examples.

[5] David Doughty, https://www.linkedin.com/pulse/20140808133120-5081335-is-your-board-dysfunctional/ 8 August 2014.

[6] See, for example, M.Ammann, D.Oesch and M.M. Schmid, Corporate governance and firm value: International evidence, Journal of Empirical Finance, Volume 18, Issue 1, January 2011, pp.36-55.

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