Trust in the Familiar?

May 20, 2010

Linda Crompton, President and CEO, BoardSource

The other day, someone drew my attention to a recent white paper put out by the National Committee for Responsive Philanthropy (NCRP). The paper makes some interesting points to strengthen the case for more diversity on boards — a case that many of us argue for, including BoardSource.

NCRP researchers analyzed the long list of foundations that had invested with Bernie Madoff, looking for correlations between their boards of directors and their exposure to his fund.  They concluded that a “notable homogeneity” existed among the board members of these organizations that, in their view, may have contributed to the lack of due diligence that would have revealed the fraud.  They postulate that in any homogenous group there may exist an implicit and dangerous “trust in the familiar.”  Combined with a culture of collegiality (the overly polite kind) that still prevails in many boardrooms, an atmosphere can ensue where certain decisions, even investment decisions, seem beyond question.

Increasingly, the case is being made for the need for “cognitive diversity” – different experiences, cultural heritages, and backgrounds – as a prerequisite for the possibility of improved decision-making in the boardroom.

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11 Responses to “Trust in the Familiar?”

  1. Grace Meng Says:

    I appreciate this post and the comments. I’m working with a young nonprofit that’s taking on the ambitious task of creating a data bank of sensitive personal data that can be released without violating privacy for research and public policy. Obviously, we need to think carefully about governance.

    One of our goals is definitely to diversify and grow our board, but we’ve also been looking into other ways that boards can be responsible but also responsive. We’ve been thinking about how best to create our governance infrastructure, and whether there’s a way to create a system of checks and balances, where authority is distributed and transparency is paramount so that there are many eyes watching. We’ve posted some of our thoughts on our blog, http://blog.myplaceinthecrowd.org/2010/06/03/governing-the-datatrust-answering-the-question-why-should-i-trust-you-with-my-data/, as well as our website.

    Are there any models for such decentralized, transparent governance out there? We would appreciate any feedback.

  2. Kelly Says:

    Diversity of a Board is important to bring balance and perspective to the governance of the institution. We are currently looking at diversity in all aspects including, race, gender, career, economic status, skills, experience, expertise, etc. because everything an individual brings to the table will impact the decisions and contributions of the members.

  3. Terri Bragg, Board Member Says:

    I completely concur with the need for “cognitive diversity” among boards. Too often boards welcome homogeneity just for the simple fact that it’s easier to make decisions and meetings will go quicker.

  4. Mary Helms Says:

    Thanks for this article. I chair the committee responsible for identifying potential trustees for a nonprofit board, one that has moved from being a ‘legacy’ board. We are working to ensure that new trustees become acclimated and integrated while still retaining an individual ‘new voice.’

  5. Liz Rice-Sosne Says:

    Diversity is necessary for success. The boards commitment to diversity and accountability go far in making an organization successful. Board education and assessment move a board towards accountability. Many board members do not understand liability, responsibility or accountability.

    I tend to work on small boards. These are organizations that have sprung from the passion of a strong and innovative visionary. My function is to assist a grass roots board in moving to the next level. Generally grass roots boards have little structure and what they do have is often not relevant. I work to put into place relevant structure that assists the board with moving forward. The goal is to make the board professional and accountable. Some see the need to move forward and do so with enthusiasm. Others are unwilling to make the changes that are necessary. When a board will adopt change, someone is unwilling to relinquish control and power. Small boards can have difficulty attracting new members. They often rely upon the friends, peers and family network because these are the people who initially supported their cause. Nepotism discourages diversity and accountability. Relying upon ones peers to populate a board reinforces homogeneity. In a small organization it can be a vicious cycle.

  6. Gary L.Gannon Says:

    My current doctoral research, at the Ontario Institute for Studies in Education, University of Toronto, focuses on issues tied to governance and leadership in the provincial community college system. One element of my data collection has focused on the recruitment experiences of current board members matched against their preferences for such methods or alternative approaches for bringing in external governance talent. I believe such organizations can utilize proven human resources management strategies (e.g. recruitment and selection processes) to deal with the question of board diversity as referred to in Ms. Crompton’s article. Given the cultural and ethnic demographics in many parts of the province, recruitment outreach by not-for-profit boards, particularly those that are by definition linked to their communities as is the case with our public colleges, should consider utilizing local agency networks set up to interact with ethnic and Aboriginal populations within their service area. A board’s governance committee also has increasing opportunities to explore and reap the advantages of more transparent public recruitment protocols that are made possible through emerging Internet-driven social networking and web-based technologies.

  7. Ray Fellows Says:

    It is the Executive Committees job to ensure due diligence, specifically the Executive Director, board members do not have enough daily involvement to handle these duties. If the Executive Director did not discover improprieties in cases such as the Bernie Madoff fiasco, those organizations need a new director.

    That being said, diversity in your organization at any level can never be a bad thing.

  8. john f.heimerdinger Says:

    In the New York region , this is true of many 501(c)3 institutions, These boards are often “legacy” boards often peopled by family and social friends generation after generation. The primary qualification for board membership is wealth and social standing. Too few board members truly understand their accountability and their fiduciary responsibility. If one examines the size of these boards it becomes readily apparant that they are designed to raise funds not to direct the institution. That is left to a small core executive committee.

  9. Dave Kenney Says:

    I agree entirely with this posting on “cognitive diversity”. If all of us were the same, then most of us would not be needed.

    More pointedly, if the main job of the board is to determine the desired Ends (Carver)of the organization, then the diverse connections, interests, and abilities of the various board members are an asset that would be seriously limited if the group was notably homogenous. Variety is essential at the board level. Lack of variety leads to tunnel vision.

    The lack of due diligence mentioned in the article is not only a problem of “notable homogeneity”, but is also an issue of board members not fulfilling their legal obligations.

    One solution is proper recruiting of new board members. The good ol’ boys club motto of ‘come out for a good time with your friends’ doesn’t cut it. What you attract them with, is what you attract them to. New board members have to be recruited and trained with a deliberateness that is beneficial to the organization, not just the camaraderie of the board itself. This is not to downplay the importance of chemistry on the board among the members though. The ordered priority should be to recruit board members with character, competence, and chemistry (Hybels).

  10. Barbara Says:

    Regarding the article”Trust in the Familiar?” on a recent Board Source web page.
    While I totally agree that cultural diversity is an absolute must when selecting Board members in the non profit sector, I also believe that “the polite kind” is also still a virtue. The desired board director is the one whom is educated about the facts and can politely question actions when voting in order to maintain due diligence. I am afraid that this article regarding “homogeneous” Board of Directors, while insightful, may inadvertantly cause members to assume hostility and rudeness are acceptable in the Board room.


  11. I wish I’d had this information a few months ago while working on my doctoral dissertation: Multiperspective Strategic Decision Making: Principles, Methods, and Tools. My research shows that boards are becoming more diverse (Sarbanes-Oxley demands it for for-profit organizations, transparency and accountability demand it for non-profit boards). This diversity, while it can get in the way of consensus, can broaden the set of strategic options being considered, and can bring more diverse resources to the table. The famous “Groupthink” phenomenon comes from homogeneity, and favoring cohesiveness over better judgment.
    Has anyone looked at how board homogeneity affects other outcomes? I have a few studies that talk about risk-taking behavior.
    Thanks for the info,
    Lynne


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