A critical stance may seriously harm a director’s social status and satisfaction in serving
Non-executive directors (hereafter: directors) have to take a critical stance towards the top managers they supervise. This has been the dominant perspective among researchers and the media after the financial crisis of 2008 and recent major corporate scandals. In her PhD thesis, Irene Mostert concludes that such a critical stance can be socially costly for directors. It may harm their advisory role, it may lead to a strained relationship with the top management team (TMT) and it may seriously harm their social status within the board and, therewith, their satisfaction in serving.
Mostert proposes that to more fully understand what drives board-governance effectiveness, researchers need to pay more attention to TMT-board interactions and behavioural dynamics within the confines of the boardroom itself. By using innovative questionnaires and collaborating with the Dutch Central Bank, she was able to gain access to the usually hermetically sealed boardrooms. This led to interesting insights.
Criticism harms advisory role
Incorporating survey data from 285 directors of 102 Dutch banks and insurance companies, Mostert shows that it becomes more difficult for directors to monitor, and give advice to, high-tenured TMTs. Interestingly, whereas taking a critical stance towards TMTs may help directors to monitor these high-tenured TMTs, it may also undermine TMT-board advisory interactions and, therewith, may negatively affect board-governance effectiveness.
Emotional tensions
When the board is more negative about TMT’s performance that the TMT itself, emotional tensions are likely to arise between the TMT and the board. Moreover, building on a unique multi-source dataset that incorporates survey data from 828 top managers and directors of a large Dutch cooperative, Mostert shows that these tensions are most likely to arise when TMTs and boards both have a high male representation. Importantly, she also finds that emotional tensions increase the likelihood of directors leaving the board during their first-term period. Mostert thinks this is bad news, as it implies that critical directors may leave their boards early.
Loss of social status
Mostert also studied the social costs that individual directors may face as a result of being critical towards their CEO. Incorporating data from 40 CEOs and 206 directors across 40 different organizations, including financial institutions, large hospitals and housing corporations, Mostert shows that individual directors disagreeing with their CEO might actually undermine their social status within the board, and, therewith, their satisfaction in serving on the board.
Psychologically unsafe climate
This mostly applies to directors working in a psychologically unsafe board climate: an environment in which discussing issues openly and voicing differences of opinion is not tolerated. All in all, Mostert demonstrates that a critical stance is not automatically a sine qua non for board-governance effectiveness.
Last modified: | 01 February 2023 4.20 p.m. |
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