psychological safety

‘Psychological Safety’ Needed Between Boards and C-suites

5 October, 2020

The boards that are steering their company in the right direction during the pandemic have a common thread, according to Vanessa Pigrum, chief executive at Cranlana Centre for Ethical Leadership.

“Each board is idiosyncratic,” she tells Investment Magazine. “But if I could generalise to some extent, the organisations that are handling this well have a strong, robust relationship between the executives and the board.”

A lot of this success, she says, has to do with communication and understanding.

“The boards we see that are doing it well have a dynamic relationship with the C-suite, they’re not afraid of disagreement, there’s psychological safety between the executive leaders and the board,” Pigrum says. “Respectful disagreements can happen and it’s about the issues, not the personalities.”

If the board doesn’t have the right relationship with its C-level executives, however, challenging periods will more commonly lead to compromised decision-making and subsequent breakdowns in governance.

The CEO, CFO, COO and other heads of department are vital links between the board and the rest of the company, she explains. It’s simply not feasible for boards to meet their governance, management and strategy objectives without this conduit working effectively.

“Sometimes we get lost in this notion that it’s the board that sets the strategy in isolation, but it’s just not true,” Pigrum says. “They work together. If the executive team expects the board by themselves to set the agenda they’re not maximising the business’s capabilities.”

On a recent Market Narratives podcast with Conexus Financial head of institutional content Alex Proimos (see below), Pigrum spoke about the importance of investing time and effort into building trust and transparency within not only executive levels, but the entire organisation.

“The executive group should always have outlets or mechanisms by which other parts of the organisation can feed constructive criticism or questions,” she said. “As an executive, if you’re only talking to other executives then you’re probably doing yourself a dis-service.”

For board members, a healthy relationship with the heads of department needs to be complemented by an open line to the rest of the company.

“If all your communications are being filtered through the C-suite as a board member, aren’t you then curious what is being filtered out? Wouldn’t you want to know?”

Ethical courage

Alongside the need for effective relationships, Pigrum cited the balance between ethics and business survivability as the major concern executives are dealing with in the pandemic.

Pigrum’s concern is that boards, whose companies are buffeted by market volatility and depressed economic conditions, will use the crisis as a reason to de-prioritise ethics. She says the fight to maintain a balance between ethics and survivability is something she encounters “all the time”.

“It’s the central question that any professionals grapple with; how to integrate your sense of values and your ethical courage into the decisions you would be making,” she says. “It can be very easy to separate that part of yourself from the day-to-day, more commercial decisions that have to be made.”

Instead of compartmentalising, Pigrum believes, the core values of a leader need to be integrated across both personal and professional worlds. Ultimately, whether that decision is made at work or at home, that decision becomes a part of the person responsible.

There is an underlying tension to these decisions that needs to be acknowledged, she explains: “How does the future me look back on the decision made, and will I stand by it?”

An ethical test for boards

Pigrum points to recent legislative amendments relaxing some cornerstone regulations as an ethical test, of sorts, for board members.

In April Treasurer Josh Frydenberg suspended insolvency laws, then in May the Corporations Act was amended to give company directors more forecasting leeway in response to the market uncertainty during the pandemic. There has been some concern that this watering down of law – however justified – could be part of a trending ‘legal land grab’ where concessions are made without due consideration.

Pigrum says it is incumbent upon board members to be wary and use their ethical lens when deciding if they should take advantage of the constraints being loosened.

“If these changes represent a quick opportunity… it will take some strong voices on boards to say ‘hold up, lets project forward; where this will lead us?’” she says.

Ethical judgement has an element of imagination in it, she believes. Regardless of the legislative amendments, imagine yourself in the future and try to see where this decision will lead.

“If you just rely on the rules that are written down without exercising your own judgement you won’t sense of what’s right and wrong and where risk lies,” Pigrum adds.

Investment Magazine, Tahn Sharpe, 5 October 2020. Read the full article here.

Cranlana Centre for Ethical Leadership’s programs include the 2 day Executive Ethics, 6 day Executive Colloquium and year-long Vincent Fairfax Fellowship. We also deliver online and tailored corporate programs. Find the right program for you. They are all held under the Chatham House Rule to encourage genuine and open debate, and allow participants to candidly discuss sometimes sensitive issues in private while allowing the topic and nature of the debate to be made public, and contribute to a broader conversation. The alumni program offers ongoing leadership development support and a lifelong connection with Cranlana.

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