Boards of directors, in various countries and systems, lately have been subject to considerable frowning, loathing, smirking and indecent hand gestures. “They’re all part of the same elite”, “corporate amateurs”, “never really objective”, “not really independent”, “an old-boys-network”, etc. etc. Surely, it is said, those directors that are pretty much personal friends of the CEO will be quite useless; they will just protect him and never really be critical, asking the nasty and awkward questions they should be raising.
Yet, is this necessarily so? Are “friends” bad directors? Professor James Westphal, of the University of Michigan, became sceptical of the sceptics. He investigated whether social relations between board members and CEOs really are as harmful as assumed. He extensively surveyed 243 CEOs and 564 of their outside directors and examined whether personal friendships and acquaintances made for less effective board members.
First of all, he found that the boardroom friends hardly ever engaged in less “monitoring” of the CEO (that is, checking strategic decisions, formal performance evaluation, etc.) – the traditional stuff that directors are supposed to do. They were still quite active in that sense, despite being the CEOs personal friend.
In addition, Jim found that boardroom friends engaged a lot in another type of behaviour towards the CEO: ongoing advice and counselling. They gave their CEO informal feedback about the formulation of the firm’s strategy: they acted as a ‘sounding board’, continuously provided general feedback and suggestions, etc. All this happened outside the company’s formal board meetings. Directors who were not personal friends hardly engaged in this type of behaviour.
Usually CEOs don’t easily do this; accept or even ask for ongoing counselling and opinion. It is well-known from research that a primary inhibitor to seeking advice is the perceived effect it could have on the advice seeker’s status. People often believe that others will view their need for assistance as an admission of uncertainty or dependency and as an indication that they are less than fully competent or self-reliant.
Little doubt that CEOs – who are expected to be confident, proud and self-assured – have these tendencies too! Fierce, testosterone-driven CEOs may not take criticism or even advice easily, but if the director is a personal friend, it might just be a bit easier to swallow. Psychologically, it is just a bit more secure to listen to criticism from someone you know and trust than from a formal stranger. Hence, having your friends in the boardroom may not be such a bad thing after all.