Handling Differing Director and Board Perspectives

Directors and boards should work for the long-terms success of the companies for which they are responsible, but their views of what might constitute success may reflect their perspectives. These may vary and not necessarily be aligned with those of different stakeholder groups. Ideally, the perspectives of directors and boards should extend beyond the boundaries of an organisation and its networks of relationships with business partners and other stakeholders to embrace the contexts in which it operates and all aspects of their accountabilities, duties and responsibilities. Existing perspectives may be narrow or otherwise inappropriate. For many companies they also result in missed opportunities.

Whether and how boards perceive problems or possibilities, and their positions on issues and motivations, can likewise depend upon their perspectives. Given groupthink and a lack of diversity, especially when nomination committees actively seek candidates who are likely to 'fit in', assumptions, attitudes, perspectives and positions taken may also be slow to change. Sometimes it takes an external event, crisis or intervention to force a review of differing board perspectives and related attitudes. Peer group pressures, financial dependency, and a desire to avoid conflicts, confrontation and hassle can result in individuals with doubts going along with what seems to be a majority or consensus view. Some viewpoints, perspectives and opinions may be concealed rather than explicit.

Differing views of risks and returns

What directors and boards concentrate upon and prioritise, can reflect their perspectives, but other factors such as the size, stage of development, and situation and circumstances of a company can also be important. Financial awareness, keeping an eye on cash flows, and remaining solvent and able to meet financial commitments as they fall due are core directorial requirements. However, profitable activities can result in environmental damage and contribute to global warming. Resilience, sustainability, growth, and longer-term success can require more than 'just making a profit' and the sufficiency of financial capital. They may increasingly benefit from a perspective that encompasses relationships, human, intellectual, natural, social, and other forms of capital, as well as non-financial dimensions of performance.

Calculated and responsible risk-taking is the essence of entrepreneurship. Perspectives on risks and approaches to dealing with them can vary significantly between directors and across boards. In some companies, lists of individual and prioritised risks, with their impacts and allocated mitigation actions, are maintained and periodically updated before board meetings. These may categorise risks as high, low, or medium and/or use red, yellow, and green type heat maps with arrows showing their direction of travel. Some boards have a broader perspective. They are more aware of the complex nature of certain risks, the need for collective as well as corporate action in response to them, and the inter-relationship between risks and their interdependencies. They constantly monitor living and evolving risks.

Directors and boards may be held accountable, responsible, and liable for their actions. Their decisions might have consequences for them as well as for others. Awareness of this can result in risk aversion, excessive caution, and a reluctance to act when and where there is uncertainty and information and understanding are judged to be insufficient or incomplete. Additional checks and layers of assurance to reduce the chance of downsides and limit potential damage can seem prudent and be reported as responsible in current circumstances. When a change of direction and/or acceleration of action is required, it may become apparent to certain investors, directors, and CEOs that, within a board, some perspectives are beyond their sell-by date. The perspectives of directors and boards can sometimes inhibit required transitions and necessary transformations. As a result, opportunities can be missed.

While a board may still provide direction, there is mutual trust and greater engagement and collaboration with management. Executives may contribute ideas and opinions. Strategy may be cocreated. Such a company may find it easier to attract ambitious and talented staff who are in demand, have options and can choose, and are seeking an opportunity to make a difference and have an impact.

Aligning perspectives with realities and possibilities

An imperative for radical action before it is too late may cause some stakeholders to revise their views on what is acceptable and responsible. How directors and boards respond can depend on and reflect their perspectives. Should they, and in the future might more of them, be held accountable, responsible, and even liable for inaction and what they could have done and perhaps ought to have done, as well as for any action they take? As further people become aware of the impacts of global warming, will they become less tolerant of those who 'play it safe' and do not 'pull their weight' and do enough to help their communities, societies and people generally to survive when confronted with climate change and other existential threats?

Those with a narrow and corporate-centered perspective may just focus on a company's own capabilities. The perspectives of some directors and boards may extend to supply and value chain partners. However, the infrastructure, utilities, and other services upon which an entity and its stakeholders may depend might be largely taken for granted, or rarely questioned. The resilience of necessary infrastructure, utilities, and vital public services in the face of multiple challenges and their continuing availability and operation, should not be assumed. Much of the existing infrastructure in many locations is vulnerable to disruption, including by malevolent actors. It may also need to be updated and/or relocated to match changing populations and migrations caused by conflicts and/or global warming and climate change.

The perspectives and possibilities of some directors and boards are limited to what can or could be achieved with the resources and capabilities they own or control. They overlook opportunities for mutually beneficial cooperation with like minded people and organisations that have compatible aspirations and perspectives. Directors and boards with a wider perspective might also consider steps that could be taken in collaboration with others. Given the collective requirement to do more to confront challenges such as global warming and climate change, should corporate risk appetites be reviewed? Are more entrepreneurial responses required? Should greater attention and impetus be given to exploring opportunities and the consequences of delay and inaction?

Retaining and limiting control

The perspectives of directors and boards will not necessarily be aligned with those of governments and regulators. Actions and responses that result from board perspectives may influence the decision of a government and/or a regulator to intervene. The perspectives of some directors and boards on one or more issues may be partial and incomplete, like the phases of the moon. For example, they may be aware of the imperative for energy transition and the need for its funding and continuing supply while overlooking the reality that this may involve new infrastructure, as energy must be distributed to users as well as generated. Existing power lines converging on fossil fuel power plants may have to be complemented and then replaced by an alternative network linked to less damaging and renewable sources.

Existing ownership rights, arrangements that have evolved over years, and the speed of legal processes, may be incompatible with the requirement for immediate action in response to a global risk and/or existential threat. In situations and contexts in which the requirement for multiple transformations becomes acute, governments and regulators may look for ways to make directors and boards more willing to use corporate capabilities and resources to enable and support them. These could include compulsion, incentives, and/or penalties. A high proportion of the world's capabilities and human and other resources are controlled by companies. This includes intellectual property that may be critical for effective collective responses to certain existential threats.

As windows of opportunity for responding before an existential threat such as global warming becomes unstoppable rapidly narrow, pressure upon governments and regulators to act is likely to increase. Authoritarian regimes may be able to take control and direct the use of resources and the nature of responses. In democratic societies, parliamentary time is usually limited. Where the rule of law applies, the perspectives and priorities of private, personal, and corporate interests may influence whether and to what extent they seek to delay the use of what they own or control for the wider public good. Inertia may also be created when people delay, obfuscate and 'play for time' in the hope that an election might result in the change of a policy they do not agree with.

Identifying the roots of fundamental differences

Dissimilar perspectives and resulting priorities and responses, can result in some directors and boards viewing an event, challenge, or situation quite differently from other parties. For example, directors and boards may vary in their inter-generational, ethical, and environmental awareness and their perspectives on related issues. Some try to be economical and responsible in their use of scarce resources such as certain minerals and other natural capital that is likely to be required by future generations and without which their quality of life might be constrained and limited. Others try to make hay while the sun still shines. They might even seek to corner or hoard the remaining supplies. Arguments such as the possibility of unknown future innovations, discoveries, and alternatives may be used to justify a focus on present needs.

Unfolding events continue to reveal a wide gulf between the rhetoric devoted to ethical conduct and upholding corporate and other codes of practice, principles and values and the behaviours of many directors and boards. Very different reactions to illegality, the abuse of human rights and/or persecution of minorities, blatant aggression and an unprovoked invasion of a neighbour are evident. Generally, but not always, corporate reactions mirror those of the governments of the countries in which companies are incorporated. Evidence of directors exercising independent judgement and breaking ranks to put principle before profit sometimes appears limited. The influence of perspective may vary according to context, situation, and business requirements.

When confronted with illegality, some boards incur significant costs by doing what they feel is right and/or ethical, such as instituting or following a boycott, pulling out of a lucrative market, or scrupulously observing a sanctions regime. Other companies continue to trade through third countries or by devices such as transferring cargo between ships at sea. It is not easy to envisage situations that some boards would not see as a business opportunity, irrespective of ethical and moral considerations. Should responsible stakeholders base their judgements and assessments of companies on who they associate with and trade with rather than their corporate value and other statements? Are some directors and boards largely limited by what they think they can get away with, rather than what they believe to be ethical and legal? At what point, and where and when, does explanation become rationalisation or justification?

Possible consequences of fundamental divides

Some differing perspectives are more evident than others. In relation to the environment and climate change, it is doubtful if many courts would now accept a plea of ignorance of global warming, or of the impact of human activities upon the environment and the earth's ecosystems. Yet despite record temperatures and overwhelming scientific evidence of the existential threats we face, collectively, we are not moving quickly enough to tackle climate change. While doing just enough to show some progress in becoming more sustainable, many companies are dragging their feet and not taking the more radical action that is now required to ensure our collective survival. Are climate, the environment, and sustainability among the arenas in which perspectives most need to be identified and challenged?

There are many arenas or dimensions in which director and board perspectives may and do diverge. Are they clustering, consolidating, and polarising between those boards that take, practice, and defend a narrow corporate entity, predominantly financial, and those who are broadening their perspectives to encompass a wider range of considerations and dimensions? Understanding where the board of an organisation stands is becoming more important for responsibility, resilience and relevance reasons, future relationships, ESG investment, sustainability, and viability. For example, sought after talent, responsible executives, and potential directors may consciously favour and seek relationships with people and organisations whose perspectives are compatible with their own.

In some countries and markets, inter-generational differences and conflicts are evident in many arenas, from short-term home ownership to longer-term expectations and future lifestyle prospects. In mature economies, young people may no longer assume that, at the end of their lives, regardless of how long they live, they will necessarily be better off than their parents. They witness finite natural capital being consumed at a ferocious rate. In an era of increasing polarisation, some more concerned and younger people may shun those whose perspectives differ from their own, and/or are perceived as incompatible with their beliefs, values, and sense of who they are. Those with narrower and more mercenary perspectives, and financial commitments, may view 'the common good' and restraint as luxuries they cannot afford. Instead, they may follow the money and prioritise personal and family interests.

Coping with conflicting and incompatible perspectives

Some directors are increasingly aware of the differences between their perspectives, priorities, beliefs, and values and those of their board colleagues and certain executives. They may become uncomfortable with what they perceive to be differences between rhetoric and reality, areas of inaction or avoidance, the implementation of certain policies and positions, and/or the consequences of some corporate activities. They may experience early and perhaps defensive reactions to requests for clarification or information, attempts to distract, and/or increasing pressures to conform. These may cause concern and give rise to worries about being marginalised or excluded. At what point, when uncomfortable should a director resign?

How a director reacts to growing awareness of differences of perspective may depend upon many factors, such as the extent and nature of openness, diversity, and/or groupthink, whether others may have similar views, and/or whether, when, or how opinions on issues are sought or are shifting. The independence of directors and their willingness to speak up, question, initiate a discussion, and/or challenge may also reflect their financial dependence upon a particular board position. How many directors feel they cannot afford to raise issues or are on so many boards that they are often distracted and have insufficient time and bandwidth to question, explore, form deeper relationships, and exercise independent judgement?

Board chairs seeking honest and objective opinions should look for board members who can afford to walk away. Responsible directors in a position to do so may still consider whether, when, where, and in what form it might be worthwhile and productive to raise an issue, concern, or question. Much will depend upon the situation and circumstances of the moment and the availability of alternatives. Being aware of differences of perspective among one's colleagues and boardroom dynamics, and thinking through one's own position on fundamental issues, may increase the chance of avoiding missed opportunities and having an influence and impact. Perspectives should not be constant or immutable, but might broader ones be more likely to change as the wider areas they embrace develop and evolve?

Governance considerations

Perspectives on relationships between boards and executive teams can also vary. Some directors and boards still perceive their organisations as hierarchies to be occasionally restructured. They adopt a top-down or command and control approach to providing direction. Delegation may be limited and reluctant. Over time, their companies may become staffed by people who are more willing to fit in and go with the flow. Corporate culture may reflect the tone at the top. CEOs, C-suit, senior and other executives, and potential independent directors would be wise to: assess the perspectives, awareness and attitudes of directors and a board before joining a company; look for differences of perspective during their induction; and be aware of and monitor changes while serving on a board.

Many directors and boards have long moved on. They view their companies as living, learning, responsive and resilient organisms, and as networks of relationships that are continually adapting to changing situations and able to flexibly expand or contract according to conditions and opportunities. While a board may still provide direction, there is mutual trust and greater engagement and collaboration with management. Executives may contribute ideas and opinions. Strategy may be cocreated. Such a company may find it easier to attract ambitious and talented staff who are in demand, have options and can choose, and are seeking an opportunity to make a difference and have an impact. Instead of dependent employees and standard ways of working, there is greater diversity. Relationships are sought with potential business partners on transition and transformation journeys.

Strengthening governance through the introduction of more checks and balances may appear appropriate when events are unpredictable, situations are shifting, and conditions are volatile. However, they can lead to delays at a time when urgent action might be required, and the consequential negative consequences and financial and human costs of inaction may rise exponentially. The unprecedented combination of global risks and existential threats that cause anxiety, breed caution, and result in muted and defensive reactions increasingly demands, immediate and rapid responses. More responsive and flexible network models of organisations can benefit from mutual trust and respect, thinking, and responsible directors. Boards whose members individually and collectively have broader perspectives on multiple dimensions, encourage diversity, and welcome variety.