Evidence submitted by William Tate to the Financial Reporting Council and the Institute of Chartered Secretaries on the subject of Boardroom Behaviours relating to planned revisions to the UK Corporate Governance Code. Observations on ICSA’s Boardroom Behaviours report prepared for Sir David Walker (Sept 2009)
It is stated that companies failed to foresee the events that engulfed them. At a company and industry level that seems to be so. But there were some prescient voices beyond company boards, those who foresaw a financial crisis, but the system was unable to listen to them. They included the BBC Business Editor Robert Peston, the IMF’s deputy managing director, at least one book (Frank Partnoy’s Infectious greed), and of course Paul Moore, sacked in 2005 by Sir James Crosby, then CEO of HBOS, for being outspoken and arguing that the bank was taking excessive risk by growing too quickly. Even the FSA had been concerned about the level of risk in HBOS as early as 2002. Yet nothing happened. Organisations are not good at hearing dissenting voices and handling doubt, especially when things at the particular moment appear to be going well. Watchful of their competition and mindful of short-term financial pressures, companies cannot afford to step off the treadmill.
Walker’s prime focus is on individuals and the dynamic between board members. But there are wider systemic considerations, and indeed systemic leadership issues that affect risk in all its forms – inside and beyond company boards. The report on boardroom behaviours understates the behaviour of organisations as complex systems. In my book, using a popular analogy, I describe this as a need to work on the fishtank more than the fish; that is, all those things that surround people that, in large measure, influence and explain their behaviour – the rules, protocol, access, power distribution, climate, incentives, goals, silos, accountability arrangements, etc.
Psychologists speak of the ‘fundamental attribution error’ – the tendency for people to over-emphasise personality-based explanations for behaviours, while under-emphasising the role and power of situational influences. In other words, people assume that what a person does is based more on what kind of person he or she is, rather than the social and environmental forces at work on that person. Recent research on decision making gives more emphasis to social influences on individuals.
The HR issues described above contain two closely related and important governance questions:
‘Who is recognised as the responsible official in the company (who may not be a board member but may be accountable to a board member) whose job includes:
- being responsible for monitoring and advising on the health, design, functioning and improvement of the organisation as a system? and
- being responsible for advising on and ensuring that a proper accountability system is in place in respect of leadership, that is understood, practised and respected?’ (which may be part of 1. above).