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It's time for 'Reflective' practices in Boardrooms

 
 
 

It's time for 'Reflective' practices in Boardrooms

Governance literature refers to the four pillars of governance: accountability, transparency, culture and leadership but it’s time we dug deeper. At the heart of good governance is the ability of directors or trustees to critically think about and test both management assumptions and market place activity. Without this the four pillars will just be standing alone, like the many Roman columns that have been left standing as a reminder of a civilisation that could not change with the times.

Hopefully the recession has taught us at least one lesson: the importance of strong decision-making in the boardroom. As a result regulatory bodies are quite rightly turning more attention towards activities being carried out in the boardroom. In doing so they are reminding us that directors and trusteeships can no longer be viewed as they were in the past, as keepers of management. The consequences of poor or quality decision-making to shareholders and the economy can be far reaching. 

While we need to continue to place more emphasis on how we create an appropriate mix the abilities around the board table and that includes ensuring we have directors or trustees who actively and constantly research and understand the information placed in front of them and who are prepared to tests assumptions we also need to develop appropriate boardroom processes. Reinforcing this is the notion that strong decision-making at a governance level needs to be based on understanding data and what it is telling us.  No longer can board directors or trustees rely on their peers to deal with the essential financial information: Each must actively ensure that he or she not only understands the numbers but more importantly what the numbers have the capacity to reveal. There is often a story behind the numbers that is even more important that the numbers themselves.

Failing to continually test information; not revisiting strategic issues and the implications of them; only casual acceptance of regulatory requirements; or, not ensuring that business processes are effectively operating may put an organisation at risk.  Yet the principal task of a board is to manage risk. However, to do so requires that the information presented to board members is effectively tested and examined.  Anything short of that is failure to carry out both legally assigned and morally bestowed fiduciary duties. This requires board members to stay ahead of market changes and to understand the ramifications these could have on the organisation they serve. It also means directors or trustees must consider information presented from a number of perspectives. Thus the role of a board is: “to bring independence and objectivity to decision making via critical thinking to test management’s assumptions while providing the organisation with strong thought leadership” (Edlin. B.J., & Lockhart J.C. ( 2010)). 

 In our opinion boards that master ‘critically and reflective thinking’ will lift the quality of their governance.  As they do so they will no doubt find that there are stones yet unturned or information that is needed before decisions are made. The ability to critically think is a developed skill and one that directors or trustees need to possess. Accompanying this is the ability for directors to recognise that they don’t always know everything, to be aware of their own shortcomings (we all have them) and therefore ask appropriate questions. In this way directors and trustees will be acting even more diligently and demonstrating that they are taking their responsibilities seriously.  But it doesn’t start in the boardroom its starts much earlier than that. Carrying out thorough due diligence before accepting a board appointment is something that appears to be often overlooked. 

As trainers in this field, we encourage boards to at least reflect on this message.  We would welcome your feedback.