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Board reform

 

Improving board effectiveness requires a focus on the relationship aspect of boards as well as their structure, says a new book by Dr Philip Stiles of Cambridge Judge.

A female executive presents to a group of board members.
Philip Stiles.
Dr Philip Stiles

Discussion about boards of directors has often centred on their structure, but improving board effectiveness also requires a focus on the relationship elements of boards, says a recent book by Philip Stiles, Associate Professor in Corporate Governance at Cambridge Judge Business School.

“Looking at the board as a social group focuses attention on improving the way directors are chosen, the contexts in which they interact and make decisions, and how they hold each other accountable,” says the book, Board Dynamics, published by Cambridge University Press as part of a series on Elements in Corporate Governance.

Philip says that that this focus on a social group can entail such elements as selecting directors from wider pools, increasing the psychological safety within boards, and using technology to better communicate information both within and outside the board.

“All these aspects may improve functioning and reduce some of the pessimism that unitary boards are inherently set up to fail,” says the book, which focuses on the unitary board structure common in the UK and US. “Improving the training of directors to embrace more complexity in their decision-making process, and to understand the cognitive and emotional aspects of being in such a demanding and unusual environment would undoubtedly help.”

The book also looks at the need for boards to ensure their organisation has a “clear purpose that emphasises long-term value creation and articulates the societal benefits this purpose will bring.”

Philip highlights several reforms that could contribute to this, including reducing independence from shareholders to boost accountability, greater employee representation on boards, and greater attention to disruptive technologies such as artificial intelligence.

“The need to change boards and organisations generally has become ever more in evidence since the financial crash of 2008 and reinforced by the coronavirus outbreak in 2020,” the book concludes. “During the 2008 crash, there was a strong feeling that capitalism and in particular the shareholder primacy model needed to be reformed, or maybe even overhauled. The coronavirus pandemic has prompted similar thoughts. Leaders of businesses have long been urged to adopt greater long-term perspectives and to develop greater resilience in their firms by having higher levels of reserves in the organisation to offset risk and to increase focus on all stakeholders, not least their employees. The aftermath of the coronavirus suggests that these changes in perspective are no longer optional.”