Article may be viewed in its entirety at:
http://www.palgrave-journals.com/jdg/journal/vaop/ncurrent/index.html#08012009
This research study focuses on the problems involved in nominating board members based solely on rules and regulations, which neglect the affective dynamics of board behaviour and board process. For example, choosing board candidates who are independent (not part of a company's management), a rule imposed by the Toronto Stock Exchange (TSX) guidelines, may ensure that an organisation remains listed on this lucrative exchange. However, it does not ensure that the candidates have the necessary knowledge or are well versed in the company's business activities to effectively serve on a particular board. Having independent board members does not ensure that they ask tough questions of themselves or of management or that they have an extensive network from which to draw for advice on strategic issues. These are equally important areas of board governance that cannot be ignored when choosing candidates for the board, and these questions should not be suppressed in favour of concentrating solely on formal concerns such as independence.
Information about board characteristics can provide management theorists with a broader range of 'informal' variables that can contribute to the decision-making process. Board characteristics assist the board in operating as a team, improving the efficiency of the board. Selecting board members with the most suitable and effective characteristics for a particular board ensures that directors are spending their limited time on the company's most important challenges. This research was carried out in several stages in order to gather both qualitative and quantitative data. In this research there was a significant relationship for values and decision-making and no relationship for TSXFormal and decision-making, which is consistent with the literature, suggesting there must be a change in executives' values to ensure changes in behaviour.
A corporate governance model was developed. This model helps in ensuring that boards populated with board members who have knowledge and values (skills matrices) are more aware of the detrimental effect that groupthink can have on the decision-making process. Several executives mentioned the ability of board members 'to apply due diligence' to strategic decision-making. This means that directors apply their experience and expertise to better understand issues and bring these to bear upon the decision-making process. Additionally, knowledge, values and groupthink (skill matrices) may be used both when nominating new board members and as an annual evaluative tool.
Businesses are continually diversifying and board members need to continuously embellish their skill set and knowledge in order to adapt. However, the finding and the development of this corporate governance model are significant as they mark the start of how board characteristics can be operationalised. What is needed is more balanced research that looks at both the formal and the informal system. In doing so, more articulate measures of board decision-making process will evolve.
The business environment is ever changing and dynamic; research in these areas will convey the interrelationship between the formal and informal system. Nevertheless, this research is unique as it has investigated the formal and informal system using both primary qualitative and quantitative data analysis and therefore provides much needed information about the characteristics requisite for nominating board members.
Dr. Rookmin Maharaj's Model can help US President Barack Obama get the United States back on track!!contact Dr. Maharaj : maharajl@netzero.com
Showing posts with label Groupthink. Show all posts
Showing posts with label Groupthink. Show all posts
Wednesday, January 28, 2009
Monday, March 24, 2008
CORPORATE GOVERNANCE, GROUPTHINK AND BULLIES IN THE BOARDROOM
EXECUTIVE SUMMARY:
This research study discusses corporate governance issues from a behavioural viewpoint. It makes a distinction between strict adherence to formal rules and regulations: CEO/Chair separation, independence of board members and board size and informal characteristics of board members: knowledge, values and groupthink.
There are three main conclusions:
1) This research clearly proves that formal rules and regulations are inadequate; they have little effect upon decision making by board members. Informal characteristics must be considered in unison with the formal system when nominating board members in order to restore shareholder confidence and to rebuild trust in board governance.
2) Similar values and groupthink can contribute positively to board members' decision making. There is, however, a high possibility for groupthink and values to become redundant, masking board members' knowledge.
3) Skills matrices that include questions related to values, knowledge and groupthink and three behavioural characteristics should be considered by boards to ensure the nomination of well-rounded members.Changes to board process, and board decision making, are seminal in preventing future Enron and WorldCom fiascos.
It is only by changing the behaviours of the board of directors, through adopting skills matrices, that sweeping changes can occur. In the past, boards have asked: who are our board members?
The most important question a board can ask today, however, is: how can the skills and knowledge of our board members be used in service of the strategic direction of the corporation?
This can be achieved by recruiting new board members who fill the needs of an organisation, in contrast to nominating 'friends' and continuing the tradition of the old boys club.
It should be noted that out of the 100 of the largest economies in the world, 57 of these are corporations and 49 are countries. Corporations are powerful entities in our society, operating in a manner similar to representative governments.
Like heads of government, at the top echelon of each corporation is the board of directors; their decisions have enormous ramifications for everyone. Although most citizens have a limited or a passive interest in corporate governance, we each depend on these corporations for jobs, salaries and as investors.
Governance of these gargantuan corporations, which wield considerable economic power in the world, concerns each and every citizen.
This study draws novel conclusions about the state of governance today, and presents practical solutions for corporations to consider when selecting board members. The detailed discussion about what happens in the boardroom demystifies board process and provides the bases for three critical objectives when selecting new board members or evaluating current board members performance:
1) ascertain and embellish the knowledge base of directors;
2) motivate directors to share and gather information to ensure personal values are congruent with organisational values; and
3) ensure clear and fluent transmission channels exist to reduce the potential of having groupthink on board.view
Dr.Rookmin Maharaj's full journal article at:http://www.palgrave-journals.com/jdg/journal/vaop/ncurrent/abs/2050074a.html
This research study discusses corporate governance issues from a behavioural viewpoint. It makes a distinction between strict adherence to formal rules and regulations: CEO/Chair separation, independence of board members and board size and informal characteristics of board members: knowledge, values and groupthink.
There are three main conclusions:
1) This research clearly proves that formal rules and regulations are inadequate; they have little effect upon decision making by board members. Informal characteristics must be considered in unison with the formal system when nominating board members in order to restore shareholder confidence and to rebuild trust in board governance.
2) Similar values and groupthink can contribute positively to board members' decision making. There is, however, a high possibility for groupthink and values to become redundant, masking board members' knowledge.
3) Skills matrices that include questions related to values, knowledge and groupthink and three behavioural characteristics should be considered by boards to ensure the nomination of well-rounded members.Changes to board process, and board decision making, are seminal in preventing future Enron and WorldCom fiascos.
It is only by changing the behaviours of the board of directors, through adopting skills matrices, that sweeping changes can occur. In the past, boards have asked: who are our board members?
The most important question a board can ask today, however, is: how can the skills and knowledge of our board members be used in service of the strategic direction of the corporation?
This can be achieved by recruiting new board members who fill the needs of an organisation, in contrast to nominating 'friends' and continuing the tradition of the old boys club.
It should be noted that out of the 100 of the largest economies in the world, 57 of these are corporations and 49 are countries. Corporations are powerful entities in our society, operating in a manner similar to representative governments.
Like heads of government, at the top echelon of each corporation is the board of directors; their decisions have enormous ramifications for everyone. Although most citizens have a limited or a passive interest in corporate governance, we each depend on these corporations for jobs, salaries and as investors.
Governance of these gargantuan corporations, which wield considerable economic power in the world, concerns each and every citizen.
This study draws novel conclusions about the state of governance today, and presents practical solutions for corporations to consider when selecting board members. The detailed discussion about what happens in the boardroom demystifies board process and provides the bases for three critical objectives when selecting new board members or evaluating current board members performance:
1) ascertain and embellish the knowledge base of directors;
2) motivate directors to share and gather information to ensure personal values are congruent with organisational values; and
3) ensure clear and fluent transmission channels exist to reduce the potential of having groupthink on board.view
Dr.Rookmin Maharaj's full journal article at:http://www.palgrave-journals.com/jdg/journal/vaop/ncurrent/abs/2050074a.html
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