When ignorance can be anything but bliss

We spoke last time about representative boards and the self-interest that can inflict them but equally disturbing is the role ignorance can play in both the creation and ongoing preservation of these boards.

The ignorance, of course, seldom comes from the individuals who sit on these boards.

Rather, it’s more likely to stem from the architects, those who establish them, often with little regard for how costly and ineffective the structure they are creating might be.

I’m thinking here primarily of some of the boards created in the government and not-for-profit sectors, where politicians and legislators – their advisors and departments usually aren’t blameless either – or lawyers don’t quite understand the ingredients needed to arrive at a dynamic board. Nor are they au fait with the dangers and general ineffectiveness of representative boards.

And rather than guard against these potential pitfalls, they unwittingly tend to exacerbate the situation by fashioning a constitution that could well fan the flames of failure.

Perhaps the best example I have come across in my many years in corporate governance was an entity in a state created under empowering state legislation.

It was all about forming a shared services company, to promote efficiencies among eight operators working in the same sector.

The rookie company’s constitution contained some rather interesting entries, a few of which deserve sharing.

It stipulated that all eight operators would have compulsory membership, which effectively meant that none of them could get out regardless of how much they may have wished to.

It went on to call for a board comprising the CEOs of the eight member organisations, the charter describing them as ‘representatives of the member organisations’.

And finally, it specified that the board could make decisions only by unanimous agreement – and this included everything from the funding model to what the members would pay for the shared service.

How do you think it’s going?

In a word, horribly!

That’s because the eight individuals are understandably a little parochial, thinking about and talking about ‘my organisation’, a situation that makes unanimous decision-making difficult if not impossible.

The fact that they can’t get out is also worrying as it could potentially lead to disgruntled directors with little positive or constructive to contribute.

It does beg the question how such an entity could be conceived. The answer must lie with the creators who, it would seem, lack the nous to understand the governance environment and what’s required to achieve dynamism in the boardroom.

Until next time,
Kate.

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