The 3 Effective Tests of Assessing Human Dynamics of the Board

Editor's Note: Take a look at our featured best practice, Value-Driven Boards - Frameworks, Models and Tools (53-slide PowerPoint presentation). Boards often focus their most of their time and efforts on activities related to regulatory compliance and risk oversight, which helps preserve existing shareholder value. Increasingly, however, shareholders expect CEOs and boards to spend more time on long-term value creation activities. This [read more]

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Many Boards have improved their structures and processes. Yet, despite all the corporate-governance reforms undertaken, many Boards failed the test of the financial crisis. This shows that even if the Board of Directors is stacked with high qualified members and best practices, these are not enough.

Human Dynamics has come to fore in today’s highly volatile business environment. Without the right Human Dynamics, there will be a little constructive challenge between independent Directors and Management, no matter how good the Board’s processes are.

Without Human Dynamics, the Board’s contribution to the company’s fortune is likely to fall short of what it could and should. This is also a concern for executives who are not Directors but report to the Board. Without Human Dynamics, it makes it difficult for them to develop healthy and productive relationships with their Boards. This can have a dire effect on Strategy Development or when organizations are undergoing Business Transformation.

The Importance of Human Dynamics

Human Dynamics is an organizational state where collaborative CEO and Directors think like owners and guard their authority. Without the right Human Dynamics, there will be a little constructive challenge between independent Directors and Management.

Why is Human Dynamics important? When there is a lack of Human Dynamics between CEO and Directors, this can lead to an ineffective performance in the Boardroom. Board’s contribution to the company’s fortunes will fall short of what it could and should be. Non-director executives will have difficulty developing a healthy and productive relationship with the Board. Most importantly, aspiring Directors will be unable to learn what it means to be a good corporate Director.

This can be detrimental to the organization and can direly affect its competitive advantage. However, achieving the right Human Dynamics is not easy. Understanding and identifying the contours of such a fluid interpersonal exchange can be a challenge to both the Board and the CEO.

The 3 Tests in Assessing the Board’s Human Dynamics

While it may be a challenge, building the right Human Dynamics between the CEO and the Directors is essential.  There are 3 Tests executives can use to guide them in assessing the Board’s Human Dynamics.

1. Board Ownership Mindset. Currently, outside Directors continue to be passive participants. They do not challenge Management beyond asking a few questions during Board meetings. This test is focused on building Boards to be vital stewards of the organization.

2. CEO Collaborative Mindset. CEOs nowadays are failing to inform or involve the Board on critical developments such as merger discussions. As a result, there can be a breach of trust which can cost the CEOs their job. The second test ensures that a collaborative CEO is in place.

3. Board Authority & Independence. The third test is focused on enabling the Board to protect its stand and independence. This is necessary when the authority of the Board is being chipped away as the CEO experiences greater success. There is also less robust questioning of Management’s proposal or worst, the readiness of the Board to agree to unreasonable demands on executive remuneration.

The 3 Tests for Boards is an effective guiding principle in developing the right Human Dynamics between the Board and the CEO. When it comes to well-functioning Boards, best practice structures are not enough. It is essential that the right Human Dynamics exists as it can help the Board and Management to fulfill their potential.

Interested in gaining more understanding of Board Excellence through Human Dynamics? You can learn more and download an editable PowerPoint about Board Excellence: Human Dynamics here on the Flevy documents marketplace.

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