Friday, October 06, 2006

The board of directors - a fatally-flawed structure?

James Surowiecki, the author of the great business book "The Wisdom of Crowds," and financial columnist for the New Yorker, takes up the HP leak scandal in his latest column, but provides a different take on the matter.

Rather than focusing on the dunder-headed leak investigation, Surowiecki looks at the damage a leaking board can do to a company. But in providing a solution to improve board performance, he comes dangerously close to paradox.

He defines two types of conflict typical of workgroups. Says Surowiecki,

Social scientists like to say that good decision-making groups engage in “task conflict,” fighting over the best solutions to particular problems, while bad ones engage in “relationship conflict,” interpreting differences of opinion as differences of character.

Workgroups typically suffer from both types of conflict, but the best overcome it with trust and belief in others' integrity. Surowiecki goes on:

They found that groups whose members trusted one another’s competence and integrity were more likely to engage in task conflict without succumbing to relationship conflict. Paradoxically, the more people trust one another, the more willing they are to fight with each other.

OK, so let's bring that back to boards of directors. In order to be truly effective, board members need to trust one another's competence and integrity. But independent boards are made up of people who don't have lots of history together (i.e., they're independent). They are also typically financially well-off, have large egos, balance lots of priorities and meet only occasionally.

I frankly don't see how this type of board could work in the way Surowiecki envisions. In fact, "rubber-stamp" boards, which have members with tight ties to the company and long tenures, have a better probability in my mind of engaging in productive "task conflict" than independent boards.

The best workgroups I have belonged to met Surowiecki's criteria for trust, integrity and fighting with each other--over ideas, not personality. But those groups worked together forty+ hours a week and shared a mission. And we had to make it work, because we needed our jobs.

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