Corporate governance, groupthink and bullies in the boardroom
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Rookmin Maharaj PhD is a graduate of the University of Calgary. Her thesis research integrated the disciplines of Political Science, Education, and Business in the area of corporate governance. Her dissertation topic focused on corporate governance and was entitled ‘Corporate Governance and the Board of Directors: Study of the Importance of the Role of the Formal and Informal Systems’. She has developed a unique model that can be used as a compass by companies to build better boards. She is currently consulting with companies in Alberta, Canada on Corporate Governance. She has worked in the energy sector in Alberta, Canada for over 15 years. She has a master’s degree in Higher Education and has taught in France, the Caribbean and in Canada at the University of Calgary and Mount Royal College on Environmental Management and Business.
EXECUTIVE SUMMARY KEYWORDS: corporate governance, board of directors, behavioural characteristics, formal system, informal system, decision-making process This research study discusses corporate governance issues from a behavioural viewpoint. It makes a distinction between strict adherence to formal rules and regulations: CEO/Chair separation, independence of board members and board size and informal characteristics of board members: knowledge, values and groupthink. There are three main conclusions: 1. This research clearly proves that formal rules and regulations are inadequate; they have little effect upon decision making by board members. Informal charac-
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teristics must be considered in unison with the formal system when nominating board members in order to restore shareholder confidence and to rebuild trust in board governance. 2. Similar values and groupthink can contribute positively to board members’ decision making. There is, however, a high possibility for groupthink and values to become redundant, masking board members’ knowledge. 3. Skills matrices that include questions related to values, knowledge and groupthink and three behavioural characteristics should be considered by boards to ensure the nomination of well-rounded members. Changes to board process, and board decision making, are seminal in preventing future Enron and WorldCom fiascos. It is only by changing the behaviours of the board of directors, through adopting skills matrices, that sweeping changes can occur. In the past, boards have asked: who are our board members? The most important question a board can ask today, however, is: how can the skills and knowledge of our board members be used in service of the strategic direction of the corporation? This can be achieved by recruiting new board members who fill the needs of an organisation, in contrast to nominating ‘friends’ and continuing the tradition of the old boys club. It should be noted that out of the 100 of the largest economies in the world, 57 of these are corporations and 49 are countries. Corporations are powerful entities in our society, operating in a manner similar to representative governments. Li
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