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How do you hold Boards to account?

Posted on Oct 16, 2017

How do you hold Boards to account?

Board accountability is often discussed as expectations – what should be done and by whom and how. These expectations are then captured in regulation, codes and other formal governance and accountability frameworks. Even corporate governance specialists approach board accountability through the prism of corporate law and economics, tending to focus on the role of formal structures in oversight and control.

However, a review of how accountability is created, in the way it is actually practiced, holds the key to developing more accountable institutions. That is, the focus should be on the informal processes of board level accountability and, in particular, the way in which these processes bridge the gap between board-role expectations and actual board-task performance.

The term accountability implies the anticipation of an “accounting” that is, having to report or explain oneself in response to others’ explicit or implicit expectations. Accountability is therefore contextual and relational and cannot be truly achieved by simply relying on tracking compliance with rules, regulation and codes.

Board level accountability is a socially accomplished activity shaped by individual expectations, routines and norms in and around the boardroom. The reason for this is clear. Given directors’ limited power in exercising accountability on behalf of shareholders (in that they are non-executive, and have to continually work with information asymmetries between the executive and non-executive arms), they achieve this through relationship power, exercised by skilful personal influence, either individually or collectively.

These informal sources of accountability are rooted in dependence and relatedness, and cannot be accounted for in traditional accounting or economic terms. So what are these informal sources of accountability and how do they operate?

There are 3 aspects to the informal sources of accountability: role expectations, routines and interactions between members of the group. Role expectations represent an element of the “social reality” in and around the boardroom that may be difficult to delineate even for those inside the boardroom. For any group, internal organisation requires agreement on a set of expectations and roles guiding the behaviour of members in the group.

Directors for example may be of one mind in their understanding of the expectations of their roles as directors, but the actual behaviour they each demonstrate when enacting their accountability in the role may vary.

Routines emanating from social interactions may also themselves be sources of accountability. Routines are repetitive recognisable patterns of interdependent actions carried out by individuals and groups and defines “the way we do things around here”. An example of a routine unique to each board is the way in which board meeting discussions are conducted – some are formal, reserved and more procedural and others more open, engaged and reflexive.

These routines become the means by which control may be exerted over members and deviance or conflict potentially suppressed. Such routines become codified in relationships, ultimately shaping the character of the board.

In addition to routines, interactions that constitute group dynamics can also themselves be sources of accountability. For example, the actual practice of corporate governance can deviate from prescribed principles enshrined in corporate governance codes for a number of reasons, primarily because directors develop a history of successful interactions which in turn influences their expectations, conduct, heuristics associated with their board activities in a complex circular way. An example of interactions that may dilute accountability for example is the habit practiced by a powerful sub-set of directors to conduct offline discussions outside the boardroom.

In conclusion, directors who hold multiple directorships report different experiences on different boards they serve, even for similar tasks. These variations may hold valuable insights for important questions including why the same or similar practices pursued by each board can have vastly different consequences or how regulatory codes and formal accountability frameworks are variously practiced by different companies.

As long as the behavioural aspects of board function are not understood, the gap between role expectations and role reality will continue, potentially impacting the creating of accountability.

Meena Thuraisingham is an author, executive coach and leading authority in the area of people and culture. An organisational psychologist by training, she runs a niche consulting practice, advising select global clients in the UK, Asia and Australia in capability and culture.