High performing boards in the era of psychological profiling? It’s the vibe that counts

The 1997 film, The Castle, is not exactly the first place you would look for insights into what distinguishes Australia’s high performing boards from those that are run-of-the-mill or struggling. But as the Kerrigans’ increasingly flailing solicitor approaches the end of his court appearance, he hits on an important insight; sometimes what matters is not the hard facts or the processes, it’s the vibe. 

A board’s ‘vibe’ is critical to how well it does its job. Good boards know this and, increasingly, it’s of interest to regulators.

In a board room, the vibe is set by the behaviours and traits of directors. The vibe is the tone of the relationship between directors. It’s whether the board encourages both differences of opinion and collective decision making. It’s the relationship with management and whether it strikes the right balance between constructive challenge and supportive guidance. 

Ultimately it is the vibe that determines whether a board as a whole is greater than the sum of its parts. What then is the right vibe?

There are several behaviours and traits boards will want to see consistently on display in the board room, although not every one has to be demonstrated by every director all the time. For a quick self?assessment of some of these traits, boards should ask:

• Which directors are good at listening to what is being said, and what’s not being said?
• Who can synthesise information and then feed the critical facts and omissions back into the discussion?
• Which directors can see through walls of information and complexity and help the board focus on the nub of the issue?
• Who asks the penetrating questions, the questions everyone else wishes they’d thought of?
• Who asks questions in a way that triggers reflection from executives rather than defensiveness?
• Which directors are keenest to learn more about the business, and to understand competing views?
• Who is willing to change their minds when presented with new facts or arguments?
• Who can read the room as well as the board papers and know whether something important is going unsaid?

It is the sum of these, and other traits and behaviours, that creates a board’s vibe and lifts its performance.

This is no longer just an issue for boards and whether they are getting the most out of directors.  Regulators now see the vibe as an important measure of whether a board is up to its job.

Following revelations during the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, ASIC is taking a keen interest in the cultural dynamics, or vibe, of boards. As part of the work of its Corporate Governance Taskforce, ASIC has an organisational psychologist completing behavioural analyses of several prominent boards.

Not surprisingly, many directors are uncomfortable with ASIC’s new interest in their psychology and some have been critical of the approach. Despite this, ASIC’s interest is unlikely to be a passing fancy. Regulators around the world are focussed intently on conduct and culture, not just in the entities overseen by boards, but within board rooms themselves.

There are three things boards can do to ensure the boardroom dynamic is as strong as it can be, and to prepare for greater inquisitiveness from regulators.

1.      Assess your own performance

Individual directors can assess their own contribution towards the board room dynamic, particularly whether they are able to display at different times the traits and behaviours described above.

2.      Reflect on the collective dynamic

Boards can reflect on the cultural dynamics, or vibe, they experience in the boardroom, as part of scheduled board reflection time at the end of meetings and as an element in their annual performance self-assessments.

3.      Validate the vibe

Chairs can ensure their external board performance review is conducted by experienced people who understand behavioural nuances and use a methodology that focusses on dynamics and directors’ traits as well as more traditional governance measures.

For the Kerrigans, it was all about the vibe. For boards, cultural dynamics, the ‘vibe’ in the boardroom, has always been the key to higher performance but now it is also an area of regulatory scrutiny.

Steven Münchenberg leads the board practice at advisory firm Blackhall & Pearl.

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