Looking for Trouble: How Boards Spot and Weed Out Dysfunction

By Debra Cope

Setting boards up for success starts with recruiting a good mix of people and perspectives to create a dynamic and engaged cohort of directors. But what are some of the hallmarks of a board of directors that isn’t functioning as well as it should be?

Of the many factors that can affect board performance, “perhaps the most complex and difficult issue that has to be dealt with is the group dynamics inside the board itself,” says David Chaudron, managing partner of Organized Change, a consulting firm in San Diego.

This article originally appeared in the July/August 2020 issue of ABA Banking Journal Directors Briefing. Subscribe now.
Bank directors acknowledge and embrace the importance of having healthy discussions in the boardroom, where “cognitive diversity,” or the ability to respectfully air and discuss divergent viewpoints, is an ideal. Boards have to be able to push back at management and at one another, says Rita Lowman, president of $430 million-asset Pilot Bank, Tampa, Florida. “If a board is just there to say yes, that is not an active board and that is not a board you need around the table,” she said.

Keeping discussions from tipping into animosity, however, can take effort and balance. “A lively discussion of ideas, and maybe some civil disagreement, is good,” says Ryan Reiffert, a business attorney in private practice in San Antonio. “You don’t want a board where one director runs roughshod over the rest of the board, who all seem to be asleep.”

On the other hand, Reiffert adds, “you also don’t want a board that devolves into shouting matches regularly with opposing parties digging into diametrically opposite positions. A dysfunctional board is one that’s too far to either extreme. A good board is somewhere in the middle, like Goldilocks and the Three Bears.”

Jack Vonder Heide, president of Technology Briefing Centers, a consulting firm in Oak Brook, Illinois, and a frequent speaker on banking topics, cites two early symptoms of a board that isn’t functioning well. One sign is that meetings consistently run longer than is necessary. This can indicate that the board has “a chairman who allows verbose members to keep talking and who does not have control of the meeting.” Another red flag is reluctance to replace members who no longer add value or whose heads are no longer in the game, Vonder Heide says.

Chaudron says it should be concerning if one board member has been labeled argumentative. “That’s a problem, because disagreement should be coming from everybody,” he said. “Not all the time, of course; that’s not good either.” But consensus should not be more important than open and vigorous discussion.

Chaudron cites several other telltale signs that trouble is brewing in the board room, including:

  • Groupthink, where consensus is more important than an open, conflict-filled discussion.
  • “Head man” syndrome, where decisions are made by the chairman, and everyone else falls into line.
  • Ongoing political infighting, where the focus is on winning and losing, not accomplishing the mission of the organization.

The best inoculations against dysfunction, Chaudron says, are prior board experience and ongoing education. Ideally, board members will bring with them a track record of serving on other boards. Having this experience helps directors develop a well-rounded concept of what good governance looks like. He acknowledges that it isn’t always realistic for community bank boards to expect such experience, though many bank directors may have served on nonprofit boards.

If directors haven’t served in a governance capacity elsewhere, Chaudron says, the next best thing is to rub elbows with other board members at educational events to learn how they have approached corporate governance challenges.

It is also a best practice to perform a systematic, periodic assessment of the board itself, Chaudron explains. This should not be allowed to devolve into a check-the-box exercise where the purpose is to be able to demonstrate that the board brought in an independent evaluator. Rather, board members must be committed to an open discussion whether things are going well or not.

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Debra Cope

Debra Cope is editor-in-chief of ABA Banking Journal Directors Briefing.