Fashioning Governance in Action: an Ethnographic Exploration of Boardroom Talk

Title:

Fashioning Governance in Action: an Ethnographic Exploration of Boardroom Talk

Name Author: Dr Nick Beech

University Affiliation: School of Human Resource Management and

Organisational Behaviour, Faculty of Business and Law, Leeds Beckett University,Rose Bowl 404, City Campus,
Leeds LS1 3HB

E-mail Address:

Fashioning Governance in Action: an Ethnographic Exploration of Boardroom Talk

Abstract

Purpose – To examine the mainstream theories of corporate governance in an attempt to suggest that their underlying assumptions are misplaced and that the need is to analyse the impact discourse has on decision-making practices within the boardroom. From suitable HR strategies can be developed to enable more effective boardroom performance to prevail.

Design/methodology/approach – The paper engages with traditional governancetheoryfrom a business and organisational perspective. It then considers the boardroom environment and the challenges the relevance and limitation of such traditions. Drawing upon the ethnographic method the work explores how directors employ talk-based interpersonal routines to influence boardroom processes.

Findings – The analysis suggests that the established underlying assumptions and rational ideologies of corporate governance are misplaced and to understand the workings of corporate governance we need to gain deeper insight into the employment of talk within boards.

Originality/value – The paper makes a case for greater focus to be placed upon fine-grained studies of talk-based interpersonal practice within boards. The work further challenges the suitability of mainstream theories of corporate governance as credible approaches to exploring how influence is employed bythe power elite.

Research limitations/implications - The work is limited to the workings of one board but provides insight in to the employment of ethnographic methods to boardroom enquiry.

Practical implications – The work provides greater insight in to boardroom talk and events from which HR theorists and practitioners can enrich their understanding and devise suitable development strategies to support boardroom effectiveness.

Keywords

Corporate Governance, discourse, ethnographic, talk, sense making, boardrooms, management elite.

Scholarly Practitioner Stream

Track: Corporate Governance

Word Count: 5,239

Fashioning Governance in Action: an Ethnographic Exploration of Boardroom Talk

Introduction

In recent years, there has been substantial growth in the literature focused on corporate governance. This has to a large extent been stimulated by a wide range of corporate fraud, major corporate failure, abuse of management power and excessive executive remuneration, which can be highlighted in such cases as WorldCom (Peasnell, et al., 2003; Rovella and Baer, 2005), Enron, Arthur Andersen, (Bryce, 2002), Lehman Brothers (Fernando, May and Megginson, 2012; Johnson and Mamun, 2012), RBS, HBOS, Northern Rock and Bradford and Bingley (Porter, Kirkup and Rayner, 2008).

The sustained and ongoing nature of these major failings, for well over three decades, has further fuelled the debate surrounding the degree of effectiveness (or rather ineffectiveness) of the current concepts, theory, rules and mechanisms employed in addressing these governance shortcomings (Clarke, 1998; Letza et al., 2004; Sun, Stewart and Pollard, 2011). The established debate appears to be a polarisation of the rational economic model of agency (Jensen and Meckling, 1976) versus a collective and potentially idealised stakeholder model (Mitchell, Agle and Wood, 1997; Freeman, 2004; Friedman and Miles, 2006; Greenwood, 2007). It has been suggested that this polarised debate appears superficial in nature and that there is a need to give greater importance to gaining insight into the actual governance practice of boards. However, what is apparent is that Anglo-American corporate governance does appear to have progressively worsened and this lack of fortitude contributed to the crisis of 2008 (Clarke, 2011; OECD, 2009).

It is evident that someone somewhere is facilitating or overlooking such excessive breaches in corporate governance. The focus now is on the epicentre of the corporation and specifically the detailed working and outputs of the board (Higgs and Dulewicz, 1998; Tricker, 1995) and how, through the skilful use of talk the management elite manage meaning and make sense of their world (Smircich and Morgan, 1982; Knights and Willmott 1992).

This paper will provide a greater understanding of and insight into the linguistic interactions between directors, will consider how they use talk to develop understanding and share meaning and establish boardroom norms, and will help to clarify how language is used to support directors in their collective decision making. Specifically, the work focuses on how, in its many forms, language is used to construct a collective and shared reality upon which decisions can be based; in so doing it considers the power effects of corporate strategy discourse (Knights and Morgan, 1991). The aim is to provide an insight in to how best directors or aspirant directors can be prepared and developed for boardroom life and effectively engage with the management elite.

Tricker (1983) suggested that many studies have been produced without talking to a single director and with little consideration of a boardroom powerbase. Many studies seem to overlook the fact that they are studying social actions and interactions and therefore cannot be addressed purely from a detached, objectivist perspective. With this in mind and adopting and ethnographic method approach, the work will critique the employment of talk within a boardroom context with the purpose of gaining greater insight in to boardroom working practice. Firstly, we will consider the contextual necessity for board-room studies.

Crisis and the Board

The corporate crisis does appear to have stimulated a resounding call from both practitioners and regulators for a generic one-size-fits-all board mechanism and composition (Sur, Lvina and Magnan, 2013) or just more and more external regulation. The concern here is that this approach avoids reviewing the evidence regarding the validity and relevance of current underlying governance theory and concepts in context to the complicity of working practice (Daily, Johnson and Dalton, 1999; Merritt and Lavelle, 2004). What is evident is that practitioners and regulators have taken a detached, formal and static interpretation of the workings of governance mechanisms, which negates the intimate, dynamic and complex nature of boardroom life: an area that appears to be elusive to access and research (Samra-Fredericks, 2003; 2005). Further, even though scholars and practitioners have attempted to study the board as a corporate decision-making device for decades (Mace, 1971) little progress seems to have been made in providing a deeper understanding of practice.

The tension between the dualistic paradigms asserting the primacy of stakeholders (Freeman, 2004) over shareholders (Jensen and Mechling, 1976) or vice versa: i.e. who should benefit from value creation private ownership or broader society, has provided some theoretical and conceptual insight into corporate governance, although the extent of the validity of such work has been questioned (Letza and Sun, 2004; Letza et al., 2004). It can be seen that such research has not investigated the dynamics of in situ boardroom practice which is both an oversight (Pettigrew and McNulty, 1995; Samra-Fredericks, 2000) but also a distraction to gaining deeper insights in to boardroom working practice. These conceptual orthodoxies appears to ignore the way in which directors, set within a dynamic board environment of interaction and interpersonal complexity, employ their personal skills and attributes (Klein, Dansereau and Hall, 1994) to interact with their peers; how they negotiate and build meaning, establish consensus and select appropriate outcomes (Samra-Fredericks, 2005). A serious short-coming of directors’ participation during board meetings are key factors in understanding board effectiveness (Samra-Fredericks, 2000, 2005; Bezemer, Nicholson and Pugliese, 2014; Machold and Farquhar, 2013). Consequently, there are numerous call for new, direct investigation into how boards actually work (Letza and Sun, 2004; Samra-Fredericks, 2005; Pettigrew, 2013).

HRD and SHRM Context

Human Resource Development (HRD) and Strategic Human Resource Management/Development (SHRM/D) cannot negate consideration and scrutiny in this debate particularly as it can be argued that SHRM/D role is to develop, focus and align human capital so that it can lead and support the achievement of both the organisations short and long term goals and thereby secure sustained success (Garavan, 2007; MacKenzie, Garavan, & Carbery, 2014). Key is that HRD plays a central role in the development of leadership and management within an organisation and thereby is integral to the organisations cultural infrastructure (Kuchinke, 2010) shaping the acceptable operational norms that dictate how it does business.

The primary role of SHRD is the development of both organisational and leadership capability (Garavan, 2007; Peterson, 2008). It does this by developing appropriate policies and practices that secure human capital aligned to the organisations strategy and objectives. Clearly this will influence the development of the appropriate working culture in structure and agency, and in so doing will positively motivate (Thoresen et al., 2003) and legitimise employees’ actions to be taken. What strategies SHRM/D do and do not do will provide signals to employees that reinforce symbolic messages of what are appropriate actions to be taken; effectively their initiatives socialize, legitimize and institutionalize organisational culture and social action.

Concern can be raised as to the nature of the role SHRM/D undertakes i.e. is it merely a device of implementation or should it be seen in a more holistic institutional developmental role which challenges management thinking, that contributes to the development of a more critical and ethical approach to both the strategic vision and planning and operational practice (MacKenzie, Garavan, & Carbery, 2011, 2012, 2014). It is noted that the development of effective leadership capability is a fundamental contributor to sustained competitive advantage (Barney, 1991; Lei & Slocum Jr., 2005; Teece, Pisano, & Shuen, 1997) therefore care is needed not to create an asymmetric imbalance by focusing short-term goals as this can undermine the organisations strategic value (Greenwood, 2013) and long term wellbeing.

However, when considering this within a boardroom context the HR function may not muster sufficient power and respect (Bierema, 2009) to influence events and therefore cannot drive policy (Fenwick, 2005, p. 233). This said SHRD does have the local capability to develop programmes that foster key skills (Peterson, 2008) attitudes or virtues that can facilitate this by getting management to consider the consequences of their and their organisations actions. Thereby, HRD could provide a counterbalance by developing the leadership skills and background culture where managers are free and willing to ask questions that challenge the dominant orthodoxies, assumptions and narratives (MacKenzie, Garavan, & Carbery, 2011, 2012) that surround them.

Narratives can become so imbedded within the organisational social norms that they become concealed, obscured and shrouded within the everyday routines of practitioner life, subtly sabotaging organisational intent and therefore there is a need for greater critique of what is said, it’s context and sub-text. As scholars, we must challenge our assumption and develop theories that delve deeper into narratives and backgrounds that motivate and dictate people, organizations and institutions actions. This includes the development of greater conscious and critical awareness of text, context and sub-text and the symbolic nature of action and the complicity of silence and inaction.

There is a need for scholars to challenge the economic centric theories that often provide legitimacy for short-term ventures (WerbelBalkin, 2010) and reflect and develop social theories considering the role HRD as a balancing force that develop leaders, throughout the organisation, who demonstrate conscious vigilance and courage to ask appropriate questions that challenge the norms.

The Managerial Elite

When considering boards and directors, one cannot avoid touching on the idea of a social/corporate elite, a small minority, a network of economic elites, who hold considerable power independent of a state's government. It is suggested that there are cohesive interpersonal networks composed of top leaders in business and other executives who control key national decisions (Mills, 1956; Moore, 2002), a set of overlapping 'crowds' and intricately connected 'cliques‘ (Mills, 1956, p. 11; Moore, 2002), who are both enmeshed and complicit in retaining power.

It is contended that this cohesion is born out of social class, homogeneity, family and educational background (Useem and Karabel, 1985; Ott, 2011), while others suggest that these relationships are value-based pragmatics (Putnam, 1976; Moore, 2002). Within this review scholars have attempted to map interpersonal or interorganisational connections (Moore, 2002), either reported by these elites or through more informal membership network analysis (Domhoff, 2005; 2009), which includes studying of cross-board membership by directors and general association and membership of other organisations. Such research focuses on the importance of the informal communication networks (Higley and Moore, 1981; Moore, 2002) found in tightly integrated elite circles which represent diverse elite groups in cohesive central circles and the core groups within each central circle, which consist of the most powerful elites in each country, demonstrating tight integration: circles within circles. Higley and Moore (1981) support Mills (1956), who described them as shifting, informal elite circles power invisible to outsiders, select networks of influence and shared opinion providing relatively easy, safe access to one another, with directors not only holding corporate boards but also holding seats on key non-profit boards of trustees (Useem, 1985; Bond, 2005; Burris, 1991). This suggests that there is a fine corporate web, with the employment and movement of power within and between the corporate elite that maintains an established orthodoxy.

Elite networks are complex and their interplay and relationships can often be subtle. Although they may be distinctly talk-based, they may therefore need a greater appreciation of history and of personal power and relationships. Such an understanding questions the accuracy of recording of events: what is purported to have transpired may or may not reflect a total reality because factors such as the way in which something was said and by whom could have an impact. This can be divisive, but when interpreting accounts of events, one must understand the observer‘s personal perspective. One can suggest that interpretation is both context- and experience-based, requiring the observer to consciously recognise and reflect on what is happening in front of them; this can present the opportunity for deeper insights to be gained.

Corporate elites’ power can be considerable, operating at grand strategic levels (national/ international and socio-political), but it can also be relative set within confines of the local corporate structure, which can be distinctly focused on the boardroom and the interplay of its specific corporate elite. Within this study one can focus on the local elite to see how their style and specialist language is used to affect interpretation and effect action. In support of this one can see that discourse contributes and constructs relationships and that there is therefore a clear link between discourse and power (Wodak, 1985; van Dijk, 1989; Mey, 1985; 1993) which informs both the subject to be studied and the methodological approach to be adopted.

Methodology

To devise an appropriate methodology it is well worth evaluating how researchers can enhance understanding of the boardroom, exploring alternative research approaches that have been adopted, and considering the challenges the researcher faces in accessing the board and applying appropriate tools to gain insights into the decision-making process (Pettigrew 1992; Samra-Fredericks, 2000). It is acknowledged that this area is notoriously difficult to access (Finkelstein and Hambrick, 1996; Clarke, 1998) because there is a general need for confidentiality in boardroom matters. This, in part, can be understood due to the relative magnitude of many of the decisions that are made and the consequent risks of exposure for both the corporate entity and individual board members.

The problem with discovering the details of what actually happens in the boardroom is that even if an executive says what they believe happened, this is only their account from one personal perspective. The challenge is in reflecting on the fullness of the account they present and assessing whether it is really an accurate reflection of the detail in the boardroom dynamics or this just one descriptive interpretation of events. It can be difficult to interpret meaning from their comments or to substantiate them. Clearly one can see that surveys, questionnaires and interviews do not provide the depth necessary to reveal the relational dynamics of the boardroom (Pettigrew and McNulty, 1995). At best such tools are one step away from determining what actually goes on in the boardroom. Without such in-depth insights into the detailed workings of boards it is difficult to gauge the realities of boardroom practice (Samra-Fredericks, 2005). Therefore, there is a need to actually observe board behaviourin situ, because this is the only way that these relationships can be meaningfully understood; only then can we gain insights in to what directors actually do, how they collectively build relationships and how they engender collaborative agreement in order to make decisions (Clarke, 1998; Heracleous, 1999). With this in mind one can demonstrate clear justification for approaching the research using an ethnographic methodology to produce a sufficiently fine-grained study (Clarke, 1998).