Individual board members must behave in the correct way towards each other and the executive management team. The board needs to set the right tone from the top by behaving in a wholly professional manner. It should be a model of ethical behaviour in articulating and exemplifying the organisation’s values. The board and executive management team need to treat each other with respect and value the distinct contribution that each makes.

At the heart of a board’s professional behaviour is the need to understand and manage the human aspects of leading the business. The crisis at many of the world’s leading companies has led many commentators to consider the role of key personalities.

Mercurial characters
For example, Financial Times columnist and private-equity executive Luke Johnson wrote in 2009: “I don’t believe there is a single field of capitalist endeavour that is free from mercurial characters and fairly constant conflict and over exuberance… Envy, megalomania, competitiveness and even madness can feature in the mix.

A Financial Times report that same year described the management style of Sir Fred Goodwin as chief executive of RBS (Royal Bank of Scotland). He exercised control through a daily 9.30am meeting where he would quiz managers about their divisions and openly question their competence. One morning he reduced a senior executive to tears. “It wasn’t a positive or healthy atmosphere,” a former RBS executive told the Financial Times. “You have to wonder about the decisions people make in that environment.”

In another newspaper report, the Sunday Times wrote about how, in between rounds of golf, RBS executives were divided into small groups and asked to identify problems within management. “Every group cited a ‘culture of fear’ as the bank’s biggest problem… The morning meetings… were invariably described by former executives as ‘unpleasant’ or ‘hostile’,” the article said.

Media reports of Lehman Brothers are further examples of the human aspects involving leadership culture and role played by key personalities.

“To say he [Dick Fuld, Lehman Brothers’ CEO] was surrounded with a cult of personality would be an understatement,” a 2008 article in the Sunday Times asserted. “He was the textbook example of the command and control CEO. Fuld inspired great loyalty and, on occasion, great fear. Those closest to him slaved like courtiers to a medieval monarch… insulating him from trouble – from almost anything he might not want to hear.

According to another Sunday Times report, “even when in a relatively upbeat mood he seemed to take pleasure in violent imagery… Fuld had used this aggression to consolidate his reputation as the most successful chief executive in the banking business and one of the most respected corporate leaders in America. However, the style also contained the seeds of disaster. This meant that nobody would or could challenge the boss if his judgment erred or if things started to go wrong.”

The prevalence of emotional factors in corporate success and failure means that they should be recognised as being at the heart of boardroom leadership and effectiveness. There may be a temptation to overlook such ‘soft’ factors or see human idiosyncrasies as ‘just the way things are’, about which nothing can be done. This is understandable: confronting aggressive and disturbed behaviour is often uncomfortable.

But lessons should be learnt from the corporate crisis, in which such behaviour has played a decisive role. The self-belief required to climb to the pinnacle of a multi-billion dollar business such as an investment bank may come at the price of a failure to listen to others – a particular weakness of the forceful or charismatic leader. This topic merits further study if corporate leadership standards are to be raised.

 
Culture of effective challenge
A recurrent theme in addressing the evident shortcomings in corporate leadership is the need for board directors to create a culture of effective challenge. Better decisions are reached when they have been thoroughly debated and subjected to proper scrutiny.

A board can fall into group think – the situation whereby all members think the same way. Members can become closed to new ideas and unable to incorporate a range of diverse factors into their thought processes. A fixed way of viewing things may not be so damaging once decisions are being implemented and total commitment to action is needed, but it can be disastrous at the decision making stages.