Improving corporate performance by enhancing team dynamics at the board level

Abstract

Board performance research conducted over the last 50 years has focused on individual directors’ economically-motivated behaviors and outcomes, and has generated inconsistent and disappointing results. Most research does not consider the board as a team, despite recent calls for a focus on collective board processes and behaviors. A recent survey revealed that 90 per cent of directors rate their individual performance as very effective but only 30 per cent rate overall board performance at an equivalent level, exposing a gap that needs to be addressed. The discrepancy between individual and team performance effectiveness was the focus of this research, based on original data from 182 directors and their assessment of their board’s dynamic, team task performance efficacy, team potency and the impact of their activities, as a board, on firm profitability. Our findings show that director experience, social network and cultural intelligence quotient, as well as their ability to achieve high levels of team interaction – thereby lowering information asymmetry – have a significant impact on corporate profitability. Our study demonstrates that the impact of board functioning as a team is an eight times greater predictor of corporate performance than individual director demographics. We found that this team dynamic as well as team potency has a positive impact on profitability, while the focus on compliance-oriented tasks has a significantly negative effect on profitability. The insights of this study should help boards and their advisors better focus their efforts to improve team dynamic, optimize board interactions and refocus their attention on value-creating activities. We also believe that improving board team dynamics will have an unintended consequence of bringing a level of individual and team satisfaction back to the boardroom.

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