In May 2013, Ivey Business Journal published “Leadership Character and Corporate Governance,” which proposed that being an effective board member requires competencies, character and commitment. In that paper, which was also published by the Institute of Corporate Directors, we further noted that qualitative research indicates that character is the one fundamental requirement that poses the biggest challenge in terms of recruiting and selecting both directors and CEOs of private, public and not-for-profit companies. Finally, we identified 11 dimensions of character (see Figure 1 below) that collectively play a critical role in director effectiveness. We raised this issue because while various dimensions of leader character are mentioned in the literature on board effectiveness, we found a distinct lack of qualitative and quantitative research on root-cause analysis of board performance.
The article was an extended essay that was short on hard data but long on ideas derived from the extensive academic and practitioner literature on character, as well as formal and informal discussions with senior leaders from around the world, who helped us in bridging theory and leadership practice. Our motivation for writing was our conviction that while leader character is critical to the success of individuals and organizations alike, it is seldom explicitly addressed or actually used by governance professionals engaged in board selection, performance review or the renewal process.
After the article’s publication, we were invited to present our ideas at nine chapter meetings of the Institute of Corporate Directors held across Canada. The objective was to facilitate a thorough discussion on leader character with people experienced in the practice of corporate governance as well as with individuals interested in becoming directors. While our initial paper was based on thorough scholarship, we wanted to put our ideas on trial by those with experience and interest in corporate governance while obtaining feedback to help sharpen our thinking. We also wanted use insights gained from these meetings to influence our teaching in business degree programs, executive education and board development courses. Following the sessions, an Internet-based survey of attendees was conducted.
The purpose of this paper is to present what we learned and offer six recommendations to improve governance in both the private and public sectors.1
LEADER CHARACTER DISCUSSIONS AND SURVEY
In total, 786 directors and would-be directors attended the nine sessions, which were each moderated by one of the authors of our original paper serving as session leader. Each meeting lasted between 75 and 90 minutes and started with a brief presentation of our ideas on leader character, including the main graphic of the paper (see Figure 1). In three of the sessions, a panel of three experienced directors discussed our presentation and the article on which it was based. The panel discussions at these meetings were followed by questions and comments from the audience before a quick summary by the session leader was delivered. In the other six sessions, no panel discussions were held. Instead, participants engaged in table-discussions that focused on several key questions. After the opinions expressed in these discussions were reported to the entire group, a meeting summary was offered by the session leader. All the discussions held as part of this research could have gone on long past the strictly imposed deadlines. Indeed, participant interest in the subject matter was very high and the topics raised during the meetings were wide-ranging. In all cases, a post-doctoral fellow, who had not been involved in the research for the original paper, took detailed notes.
Examples of questions addressed include:
- Do directors and boards pay sufficient attention to issues of character when recruiting, selecting and evaluating directors? What could they do better?
- Which dimensions of leader character do you think are most evident and most absent in the boardroom?
- What are the consequences of “character-deficiency” in corporate governance? How could they be addressed?
- How effective are boards and individual directors at assessing leadership character in others? What are some of the best ways of doing this?
- Do you think leader character can be developed or do you think it is either “there or not” by the time someone is in a board capacity? How have you, as an experienced director, helped others develop leader character?
Figure 1: Dimensions of Leader Character
Within three days of each session, attendees received an Internet-based survey with four sets of questions. The first asked respondents to indicate how beneficial or detrimental they thought each of the 11 character dimensions was to individual director effectiveness. The second series of questions focused on the perceived impact of these on board effectiveness. The third asked respondents to agree or disagree with 10 statements about leader character and corporate governance that we had formulated from our prior qualitative research. Finally, the survey asked board members to reflect on their own experience and tell us what dimensions they would have liked to see more or less present in other directors who they had served with on boards in the past. We also asked respondents for information on age, gender, governance experience and educational background to see what impact, if any, those variables had on their responses.
Our survey sample was mature, experienced, educated and gender-balanced. We received 219 responses from 111 men, 103 women and five individuals who declined to state gender. The median age of respondents was between 41 and 60 and most participants were college or university graduates. Collectively, survey participants represented 443 boards, including 140 from the private sector, 115 from the public sector and 188 from the volunteer community.
Each of the 11 character dimensions was considered to have a high degree of positive impact on director effectiveness when survey participants were asked: “Based on your personal experience, what impact do you think that each of these character dimensions have on (a) individual director effectiveness and (b) the overall performance of the boards on which they serve?”
All dimensions averaged higher than 4.0 on a 5-point scale running from “Very detrimental” (1) to “Very beneficial” (5). Integrity (4.8), Judgment (4.8) and Accountability (4.7) scored highest, followed closely by Collaboration and Transcendence (both 4.5), Justice, Courage and Humility (all 4.4), Temperance and Drive (both 4.3) and Humanity (4.1). Interestingly, 10 per cent of our sample actually believed that Humanity was detrimental to a director’s effectiveness, twice as many as any of the other dimensions.
We looked at the “top-box” scores for each of the 11 dimensions — those who considered each dimension to be very beneficial (i.e. scored 5 on a 5-point scale). The rankings and percentages in the top-box were as follows: Integrity (92 per cent), Judgment (88 per cent), Accountability (82 per cent), Collaboration (68 per cent), Transcendence (58 per cent), Humility (57 per cent), Drive (51 per cent), Courage (50 per cent), Justice (47 per cent), Temperance (47 per cent) and Humanity (32 per cent). The “Big-3” of Integrity, Judgment and Accountability clearly stood out as being very beneficial, whereas less than half of the respondents identified Justice, Temperance and Humanity in the same way. The scores for board effectiveness largely mirrored those for individual director effectiveness.
A rather different picture emerged when we asked board members to indicate which of the 11 character dimensions they wish there had been “more or less of” on the boards that they had served on as directors in the past (see Table 1). On a scale from 1 (much less of) to 5 (much more of), it was Transcendence (appreciative; inspired; purposive; future-oriented; optimistic; and creative) that stood out in want-some-or-much-more-of responses, followed by Judgment (situationally aware; cognitively complex; analytical; critical-thinker; intuitive; insightful; pragmatic; adaptable; and decisive) and Courage (brave; determined; tenacious; resilient; and confident).
Table 1: What Directors Want More or Less of
(N = 206–217)
Finally, we asked directors to respond to a number of questions about leader character and governance using a 5-point scale running from “Strongly disagree” (1) to “Strongly agree” (5). The results are shown in Table 2.
Table 2: Responses to Leader Character and Corporate Governance Statements
(N = 207–217)
The following survey results also help paint a clear picture of boardroom perspectives on leader character:
- 70 per cent of respondents believed that boards spend insufficient time addressing or assessing the character of potential nominees to their boards, notwithstanding the fact that they believe that character is very important.
- 79 per cent of respondents agreed that it is difficult to assess character compared with assessing competencies. But more than 60 per cent of respondents believed good interviewing and deep reference checking can be successfully used to assess character.
- 64 per cent of respondents believed that the educational system does a poor job of developing character and an overwhelming 92 per cent believed business schools need to better address character-related issues.
- 66 per cent of respondents believed character can change after someone becomes an adult.
- 82 per cent of respondents believed early workplace experiences can have a substantial impact on character formulation.
- 92 per cent of respondents believed that a critical role of the board is to evaluate the character of their CEOs and C-suite executives.
- Finally, 94 per cent of respondents agreed that the character of the CEO has a tremendous impact on the effectiveness of the board. We ran statistical tests to explore whether gender and years of experience on boards affected the results; however, no significant differences in responses emerged.
CONCLUSION AND RECOMMENDATIONS
Following the Global Financial Crisis, we initiated an ambitious research and outreach program to address the challenges involved in bringing leader character into workplace conversations because we believe it really matters. Our work over the past five years shows that leaders in the public, private and not-for-profit sectors readily agree. But they also told us that they seldom refer to character in conversations or use it in recruiting, promoting and developing leaders.
When it comes to corporate governance, our data shows that directors believe it is possible to assess the leader character of potential and existing directors through deep reference checking, expert interviewing and candid reviews. And yet, boards don’t spend enough time and effort doing it. Why? There are at least two main reasons.
First, there has been a great deal of ambiguity around the construct of leader character. Individuals may perceive character to be a highly subjective construct and do not have access to a contemporary, practice-focused vocabulary with which to address character in the workplace. We have addressed this issue by developing the leader character framework discussed above and by developing both a self-assessment and 360-degree feedback instrument of leader character. Practitioners were involved in this process to ensure we got the language right.
Second, developing the kind of behaviourally based interviewing skills that can expose character strengths and deficiencies requires training, time and dedicated effort. It is not a trivial exercise. After all, unless done very skillfully, it can upset potential board candidates who do not recognize the process as something that all responsible organizations should do. Unfortunately, our research indicates that very few board search committees have members formally trained in effective interviewing techniques. As a result, boards frequently search for “rare” candidates based on status in the business or governance community, experience, gender, lack of conflicts and other criteria. And when this is done, there is often a reluctance to conduct thorough and systematic interviewing due to concerns over having the process put off any nominee identified as an ideal choice for new board membership.
Boards and their selection committee are also often confronted by a “reputation smokescreen.” One author of this paper came across a good example of this issue while he conducted a three-day interviewing workshop. The CEO of the company sponsoring the program attended the workshop. On the last night, the CEO in question hired a new senior vice-president almost immediately after meeting what appeared to be a good candidate for the job in the hotel bar. “He’s a known quantity in the industry — no risk there,” he responded when asked about the logic behind his decision. The newly hired executive lasted a year before being let go over a lack of “alignment of values.” In effect, the age-old “halo” effect obscured reality in this case and led the CEO to make a costly bad call.
Simply put, too many leaders believe that it’s just fine to base hiring decisions upon reputations that are not verified via probing interviews and deep reference checks. What they fail to realize is that the more experienced a potential director is, the more she or he becomes a so-called “known quantity,” and therefore the less likely she or he is to be the subject of probing interviews and deep reference checking.
All reputations should be checked. As noted by Bell Canada CEO George Cope, it is important to be careful about what the outside world tells you about potential hires and business partners, especially what the world of social media tells you. “I’ve developed a lot of new business relationships,” Cope notes in Good Leaders Learn, highlighting the joint $1.32 billion acquisition of Maple Leaf Sports & Entertainment that he negotiated in 2012 with the former head of Bell’s number-one competitor. Prior to the move, few industry watchers expected a strategic partnership between these two aggressive competitors. But Cope didn’t listen to the outside noise. “It was very important for me to determine whether the CEO was someone we could work with. We met, got to know each other as people, and realized that while we and our companies must compete fiercely in the market every day, we could indeed work together on this project. You may have impressions of people from the media, and other information sources, but I’ve learned not to pre-judge people. Go and talk to them — get to know them directly.”2
The bottom line is that listening to the outside world without doing your own homework often leads to bad recommendations for directorship roles, especially when they are made by sitting board members. Indeed, since such recommendations can carry overwhelming weight, self-censorship (e.g. for political or self-preservation reasons) often leads to an abbreviated form of candidate evaluation.
Based on our research, it appears that too many companies simply “assume” that character will be addressed in the hiring process. To make matters worse, an “absence of negatives” is often assumed to indicate positive character dimensions. But not hearing anything “bad” about an individual is clearly not enough to conclude that they have the valued leader character dimensions — such as courage, transcendent thinking or excellent judgment — that support individual and organizational success.
Our research also revealed an overemphasis on collaboration amongst board members, often at the cost of courage, accountability and the quality of decisions. Individuals refrain from disagreeing with other board members even when they should. A board member in one session stated that: “I think the one dimension that boards experience in excess is collaboration. Boards are natural breeding grounds for groupthink — the persistent belief that we need to come to consensus; boards are expected to come together. I think collaboration is an admirable goal, but in its excess is detrimental to the board and the decisions it produces.”
Board members in our research also recognized the place of judgment as being pivotal to effective boards and that, without judgment, decisions can be potentially disastrous. One board member articulated that, “It’s amazing how good people can do bad things. What is it in the context that people miss? This comes down to the central role that judgment plays — you can have all the (other) 10 dimensions of character but if you exercise poor judgment, you can still end up with disastrous situations.”
The following recommendations are designed to address the issues raised in this paper and help improve the director search, evaluation, performance review and renewal processes:
- Be explicit about search criteria and include the character dimensions along with competencies; make sure that if you are using a search consultant they know and understand the character dimensions that are important to the board.
- Ensure that whoever does the interviewing is, in fact, a good interviewer and, if they’re not, insist that they take some training. If members of the governance committee from whom a selection committee is usually constituted are unqualified to be the interviewers — and many will disqualify themselves — substitute with other directors or consultants.
- When multiple interviews are done sequentially, ensure that each interviewer has a set of questions so that the sessions are comprehensive but not repetitive. Furthermore, schedule a session of all involved in the process to share their observations. As the chair of the selection committee, check to ensure that all the criteria have actually been covered in the aggregate and that no key criteria have been ignored.
- Task the search consultant, if one is used, to develop a comprehensive list of referees who actually know the potential nominee rather than just his or her reputation and be thorough in requiring the consultant to fully share the content of the references, checking that the consultant has actually probed for character strengths and deficiencies.
- When asking a referee whether they “know” someone, care must be taken to understand the context of that knowledge. Has the referee actually observed a potential director in their role as director, as a competitor, as an executive, as a customer or supplier, as someone who has worked for them and so forth? Or, are they relying on reputation?
- If a candidate resists or resents discussion about character, then you should resist the candidate. You should be looking for candidates who themselves consider discussion about character to be important and, if asked the right questions in the right way, will feel good about the organization they are being asked to consider serving.
We urge all boards to address character in their review processes. After all, if, as our research suggests, directors view the character dimensions we describe in this paper as important, then surely any review process that does not address character is deficient. We recognize that many boards do not have formal processes for character assessment and rely instead on informal discussions. Nevertheless, we urge these boards to think about the importance of character dimensions and feed them into their hiring process and informal performance reviews. We also see some value in directors doing a personal, character-based self-evaluation that can be used in discussions with others or simply for personal reflection.3
While boards quite properly seek diversity of experience, perspective, gender, ethnicity or other criteria, this should not extend to character. It is not sufficient to have some directors with accountability and others who lack it; or some who are courageous while others are timid; or some who lack good judgment while others have it; and so on. Good governance requires these character dimensions in each director (e.g. the dimensions work separately and together to influence decision making and action; for example, individuals who have courage in excess may act recklessly unless they have access to the character dimensions of temperance and judgment) and hence in the board as a whole.
When someone is appointed as a director, they have to work immediately with other directors — who may be complete strangers — on important matters requiring trust, discretion, independent thinking and excellent judgment. If there are doubts about character, the board will not function well. Once appointed, it is very difficult to terminate a director and the longer that inappropriate or dysfunctional character-driven behaviours are accepted and tolerated, the harder they are to remediate. A thorough, complete and expert assessment of character will not guarantee board performance, but will go a long way towards it.
1 The authors acknowledge the great contribution of the Institute of Corporate Directors and its chapter chairs, and especially Ms. Vicki Jordan and Ms. Agathe Manikowski, in facilitating our research.
2 G. Seijts, Good Leaders Learn: Lessons from Lifetimes of Leadership, Routledge, New York, New York, 2014.
3 We have developed a leader character diagnostic — the Leader Character Insight Assessment (LCIA) — in both self-administered and 360-degree formats. The LCIA is a resource to help individuals unpack and discuss the dimensions and elements of leader character. Individuals who complete the LCIA receive a report that provides individual feedback on the character dimensions of leader character and their associated elements. The report also provides suggestions on how to strengthen character dimensions. We have worked with several organizations who found the process insightful.