Could groupthink be the greatest risk facing bank leadership teams and boards today?
Merriam-Webster defines groupthink as “a pattern of thought characterized by self-deception, forced manufacture of consent, and conformity to group values and ethics.” It often occurs when members of a group — say, a bank’s board — don’t reflect a diversity of backgrounds and perspectives. Given the homogenous nature of many corporate boards and leadership teams (including banks), it’s a very real issue that threatens creative decision making and strategic planning.
Cognitive diversity, where a variety of perspectives are represented on the board, counteracts this risk. In fact, a higher level of cognitive diversity correlates to better performance, according to a study conducted by two British professors from the London Business School and Ashbridge Business School.
Bank boards today are largely comprised of male baby boomers, and bank boards and leadership teams face a generational shift as boomers increasingly exit the workforce. With this change, it’s become even more important that directors focus an appropriate level of attention on executive succession planning — perhaps the board’s most important responsibility.
At the same time, boards and nominating/governance committees must work to recruit new directors with new perspectives to the board. But finding qualified talent that contributes to board discussions — with the right mix of skills, diversity and, perhaps, youth — can be difficult to achieve, particularly when boards lack the tools and resolve to bid adieu to less engaged directors and attract new directors to serve on the board.
Identifying potential director candidates in the bank’s community is a perpetual responsibility of the board and nominating/governance committee, says Flynt Gallagher, president at Compensation Advisors. “Boards need to know who they want to target, what skills do they need on the board that they don’t have or need to replace,” he says. “It’s an ongoing process, just like hiring an employee or an executive, so you need a pool of those candidates, that’s the tough part. So, [nominating/governance] committees have a very important place in the structure of the board of directors.”
Bank Director’s 2019 Compensation Survey, sponsored by Compensation Advisors, focuses on these issues.
For more on these considerations, read the white paper.
To view the full results to the survey, click here.