How to improve board dynamics

The 1990s Hubble Space Telescope episode can be adapted into a corporate governance tool if practitioners teamed up with academics/behavioural specialists to do so

In my column “When a leader is manipulated” (September 14), I had mentioned some factors that could cause a leader to feel vulnerable and become prone to governance mishap — for example, a loner or a void in life, not listening to anybody, and a preoccupation with a place in history. In crisis management writings, these are called ‘prodromal signals’, namely, precursors to behavioural aberrations. If directors can learn to use their long experience to recognise and discuss such signals, some governance mishaps may be possible to avert. 

Last week, I participated in a conference on how boards can be more effective. After every corporate episode, there is soul searching and considerable independent director bashing (ID) — perhaps appropriate, though I wonder why the criticism of IDs is more strident than that of auditors, rating agencies and executives. 

In entrepreneurial businesses, mishaps will occur — like safety incidents will occur in manufacturing. Like with industrial safety, excellence in corporate governance requires adoption of system-oriented improvement to (a) minimise risk and (b) reduce the incidence of mishaps. Experience with safety teaches us that while the technical aspects of safety are critically important, behavioural aspects also have immense importance. The acclaimed DuPont safety system strongly emphasised behaviour training.

The same applies to corporate governance. The current discourse has a disproportionate emphasis on rules, procedures and tick-in-the-box routines by committees and regulators. I argue that apart from the accounting/legal/regulatory specifications with respect to corporate governance, there needs to be some thinking and training on directors’ behavioural aspects. There is a compelling case to heighten and deploy judgement and natural intelligence (artificial intelligence may even help with predictions in the future!) In my board work, I see companies that really want better board outcomes. Social dynamics principles help, though its application in corporate governance is under-developed. Social dynamics is best illustrated through the example of the Hubble Space Telescope episode of 1990.

At that time, Dr Charles Pellerin was director of astrophysics and head of the project. He was a top-class scientist, leading talented engineers, and responsible for spending a large budget. The project cost was $1.7 billion because high resolution cameras and mirrors were mounted on a rotation mechanism with hyper accuracy. Due to this exceptional precision, scientists would get pictures that had never been obtained before, leading to fresh insights. 

After the rocket was launched successfully, they found that the super-accurate mechanism was malfunctioning. What, after all, were those rigorous testing protocols and precision engineering planning? The null corrector mechanism was flawed. The episode was headlined in one newspaper as “National disaster, Hubble launched with flawed mirror”.
 

The Failure Review Board traced the failure to a flawed null corrector and, believe it or not, there were hints of the flawed mirror in the pre-tests. These were not reported. In the aggressive atmosphere of schedules and budget pressures, conditions of tension had been created as also the habit of not speaking up. Scientists and vendors found it safer to keep quiet. The test-failure of the mirror mechanism fell prey to this behavioural tendency. The Failure Review Board reported to US Congress that it was “a leadership failure that caused the flawed mirror”. 

In short, the engineers had focused so strongly on the technical aspects of the project that they failed to notice, let alone manage, the team’s social context. The head, Pellerin, accepted responsibility, stepped down and joined the University of Colorado. For the next 15 years, he researched the possible remedies, developed training materials and wrote a book (How NASA Builds Teams, Charles Pellerin, Wiley, 2009). Pellerin’s 4D methodology is sound. 

I feel sure that it could be adapted into a corporate governance tool if practitioners teamed up with academics/behavioural specialists to do so. More on this in future articles.
 

I have experience of two cases when the board acted on such signals; the results were beneficial. There are behavioural aberrations among powerful people as evidenced in the Martin Sorrell-WPP and Thomas Middelhoff cases, and indeed in Indian cases like Religare, YES Bank and ICICI Bank. The aberrant signals were noticed, but directors felt hesitant to recognise and act on such signals.

This ‘softy subject’ deserves more attention in the delicate art of reducing corporate governance failures. I hope to explore this more in future columns.

The writer is an author, corporate advisor and distinguished professor of IIT Kharagpur Email: rgopal@themindworks.me