THE BLOG
07/31/2015 10:31 am ET Updated Jul 31, 2016

Building Trust: Effective Board Governance in Times of Public Scrutiny

At the recent Aspen Critical Issues & Risk Forum -- convened by Edelman, the University of Chicago's Harris School of Public Policy and Cambridge University's Centre for Risk Studies -- participants delved into the implications for board directors of the perilous increase in corporate risk.

Represented among them were 15 corporate boards, two leading governance experts from academia and two authorities on global risk. We covered considerable ground and learned a great deal from one another. Below are a few of the Forum's key insights.

One of the participants elegantly described three common board pathologies that stymie robust risk governance:

The Culture of No

In practical terms, this category includes boards in which NO refers to the pathology of pocket veto power of one board member; typically it's the board chairman. What this means is that diverse points of view and the consideration of real options to risk management are rarely sought because, ultimately, the decision-making power rests with a single person and resistance proves futile. This is particularly dangerous because the majority of these boards have been conditioned to accept the outcome before the question(s) is fully vetted or even properly understood.

The Culture of Yes

Much as we witnessed with Richard Fuld and the fall of Lehman Brothers, the pathology of YES includes board cultures in which consensus is reached quickly but after the meeting concludes, immediate and dissenting side-barring erupts that makes executing a particular decision challenging at best. In essence, this could also be tagged The Culture of False Consensus.

The Culture of Maybe

This describes the board pathology in which decisions are made but systemically litigated again because debate and the introduction of 'new information' is never truly cut off. This is likely the most destructive board culture given that inaction results by default.

Wisdom of the Crowd

In addition to looking at cultural challenges that boards must acknowledge and rectify, we also discussed the application of Wisdom of the Crowd to improve board competency. Much like the popular television program Who Wants to be Millionaire in which a contestant can use a lifeline to help answer a question, research proves unambiguously that it's always the crowd or, in this case, the audience that has the highest probability, by a large margin, of getting the answer correct. Translated for boards, this means that board recruiting must include a mandate for seeking directors with diverse backgrounds and skill sets that can then be deployed to improve the outcomes of risk governance.

Process on How to Decide How to Decide

Given the challenges for many boards in making quality decisions, much discussion ensued about building board cultures in which trust and non-negotiable guiding processes are a klieg-light for good governance. Boards are confronted frequently with risks and crisis that create a toxic cocktail if trust and clear processes are lacking. The decisions always involve time pressures, secrecy and hefty stakes. Without trust and process, boards typically resort to one option more often, reflecting fear masked as decisiveness. In so doing, they forfeit consideration of real options that might make a material difference to the company for decades to come.

Procedural Justice

A possible design principle for boards to consider emerged from our discussion of group decision-making generally. Behavioral research overwhelming proves that as long as the process of getting to X decision is perceived as fair and inclusive, people will buy-in even if they disagree.

As the Forum concluded, we challenged ourselves to find one quote that summarizes best our collective governance call to action. We believe we succeeded:

Diversity of Counsel, Unity in Command
Cyrus the Great