There is no empirical evidence that forcing independents on to boards of directors will improve the level of decision-making, a leading academic has told the superannuation industry.
The point was made by Sally Wheeler, a professor of law at Queen’s University in Belfast, at briefings held by the Australian Super Funds Association (ASFA) in Sydney and Melbourne.
Wheeler said putting independents on super boards would only achieve the aim of broader representation and that their presence could, if anything, hinder decision-making.
She made the point that the very best and worst US, Australian and UK listed companies all have independent directors, adding that forcing super funds to accept independents, could create conflict and tension on boards which would lessen the quality of their decision-making.
She said the only known way of improving governance was to focus on skills and process, rather than tests of independence.
Peter Rowe, acting chief executive officer, VisionSuper, who chaired the ASFA briefing at which Wheeler spoke in Melbourne, agreed, but urged funds not to fight the transition to having independents.
“It is not just about the composition of the board; it is really about the quality of the directors and the accountability. I have actually served on boards with equal representation and those with a three-thirds model, and at the end of the day in the decision-making process, the outcomes are not any different. [Super funds should] take solace from that so, even though the change might be enforced on the industry, it is not the end of the world and funds that have adopted it or have started to move in that direction will just get ahead of the game.
“Our own board has not moved in that direction yet, but it has started to be discussed, which is a healthy sign.”
The following quotes are extracts from Wheeler’s speech.
On the value of having boards without outsiders or independents
“Groups where social cohesion is present are more likely to see individuals voice dissent and then that group deal with the dissent as an opportunity for discussion.
[Boards] need an atmosphere of high trust and respect, and that is based around individuals who have shared values and norms. That is apparently what independents will phase out. Research and psychology tells us that you get much more discursive, teased-out decision-making if you have exactly those groups.”
On the danger of independents
“If you go down the route of attracting in to boardrooms individuals who do not share norms or values, groups that possess that diversity are probably prone to relationship conflict.
All the experiments show that relationship conflict has a negative effect on the performance of groups. You might end up with a group that is completely polarised, that is not able to discuss in any meaningful way issues at hand, that is not discursive and does not question each other and other people’s behaviour.
Differences result in the distraction of group members from the task at hand and emotions such as anger and frustration that are either buried or openly articulated, both of which lead to poorer quality decisions, lower trust, less frequent communication, less commitment to the group and less contributions to tasks.”
On group think
“Boards without independents are often accused of ‘group think’, a situation where the board lacks challenge and starts to believe it has powers beyond its actual ability.
The most recent work on group think suggests that any meeting has an element of group think in it. It is completely ubiquitous and you cannot design it out. Any setting where you have to make decisions as a collective, you will have an element of group think: social identification with the group, a desire to show allegiance, a desire to conform. There will be the presence of a shared philosophy and possibly a feeling that where individuals lack a confidence in their own ability, they will have confidence in the group.”