Business Maverick

AFTER THE BELL

Can the new Eskom board, or any board, save the power utility now?

Can the new Eskom board, or any board, save the power utility now?

The issue with Eskom is not the board or even the management, it’s the shareholder.

How often are you in a bar, rising unsteadily to your feet and announcing that you are going home because you are now too drunk to sing? And everyone around you says, “Oh come on, stay for one more.” And you do. 

Whether this has happened in this manner or some other way, we have all seen this movie; we tend to conform to the group. Most of us don’t like to be rude and unpleasant. We like to fit in. And anyway, we hadn’t actually, at that stage, had that much to drink. Or something.

Obviously, this tendency has been studied ad infinitum, partly because it’s so important in absolutely crucial forums in society; juries, work teams, committees and boards, just to mention but a few. The most famous is an experiment called the Asch conformity experiments, which were conducted way back in the 1950s by psychologist Solomon Asch. The experiment was simple: a group of people were put into a room and told they were part of a vision test. Sets of lines of different length were flashed up on to a screen, and the group was asked to announce out loud whether the lines were the same length or different lengths. 

What the subject of the experiment didn’t know, however, was that everybody else in the group was acting in cahoots with the experimenter, and every now and then they would announce that two lines were of different lengths when they were the same, or the opposite. The actual test was how often the actual subject of the experiment went along with the wrong assessments. 

Well, take a guess. How often do you think the unfortunate test subject of the group would reject their own judgement and concur with the group? Turns out, a lot – obviously. In one set of experiments, there were 18 different sets of lines, 12 of which the confederates claimed were the same when they were not, or the opposite. Turns out, 75% of the experiment subjects rejected their own judgement and went along with the group at least once. 

It’s depressing. We are sheep. 

This is fairly well known and obvious. But there were other aspects of the Asch experiments that are less well known. I guess it stands to reason but as the subject becomes more difficult, the more conformity increases. Conformity increases if the confederate group is of a higher status; also obvious. But the one that fascinates me is that if even one person in the confederate groups breaks ranks and gives the correct answer, the likelihood that the experiment subject will trust their own judgement shoots up. Turns out, minority opinions can be very useful. 


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The reason I’m citing all this now is because of the announcement of the new Eskom board, and I’m just wondering how much of a difference it will make. Is this just kicking for touch? Can this board, or any board for that matter, really save a dysfunctional organisation? 

Of course, lots of work has been done on boards, particularly after corporate fiascos. The question is always the same: Were the directors asleep at the wheel? Were they incompetent or in cahoots with corrupt management teams? It seems like it has to be one or the other. 

In the early 2000s, there was a string of corporate scandals: Enron, Tyco and WorldCom. Recently, we have had something similar, with Wirecard, Theranos and, locally, Steinhoff. In all cases, the boards of these organisations have come under scrutiny, obviously.

After WorldCom and Enron, a business academic Jeffrey Sonnenfeld did a study of the boards of these two companies and two others, Adelphia and Tyco. He came up with some really interesting results, which were published in the Harvard Business Review

A close examination of the boards revealed no broad pattern of incompetence or corruption, he found. “Members showed up for meetings; they had lots of personal money invested in the company; audit committees, compensation committees and codes of ethics were in place; the boards weren’t too small, too big, too old, or too young. 

“While some companies have had problems with director independence because of the number of insiders on their boards, this was not true of all the failed boards, and board make-up was generally the same for companies with failed boards and those with well-managed ones,” he wrote.

Enron famously fooled investors with disastrously complex financial schemes. But the board was packed with people who had the financial competence to unravel these schemes. The list included a former Stanford dean who was an accounting professor, the former CEO of an insurance company, the former CEO of an international bank, a hedge fund manager, a prominent Asian financier, and an economist who is the former head of the US government’s Commodity Futures Trading Commission.

Sonnenfeld found the problem was different: effective boards are essentially robust and effective social systems. And in order to achieve that, they need to create a virtuous cycle of respect, trust and candour. They need to be a team, because that develops mutual respect, and because they respect each other, they develop trust. Once they trust each other, they have no compunction about sharing difficult information and, once they have that information, they can challenge each other’s conclusions coherently. Once this spirit of give-and-take becomes the norm, people will adjust their own views in response to intelligent questions, Sonnenfeld writes. 

This all makes instinctive sense to me. The creators of boards tend to judge them against a set of formulaic criteria: are they truly independent, diverse, not too young or too old, etc. But in fact, great boards often seem at odds with prescriptive rules and strict segmentation. The test – and this particularly relates back to the Asch experiments – is there at least one person on the board with a truly independent opinion, the confidence to raise objections, and a trust environment to be taken seriously?

Now let’s look at the new Eskom board.  Phew. Well, you know, this is a better board than the previous one. There are at least two engineers on the board. There are some actual businesspeople. But you know, a big chunk of board members previously held jobs in the public sector. And that is part of the problem with state-owned enterprises; a single shareholder is appointing the board, and the board members have to get vetted by a party-controlled structure. I don’t know whether that happened in this case; it honestly doesn’t look like it, but who is to know?  

But can you honestly see this board achieving mutual trust and respect, and becoming a “robust and effective social system”. I hope I’m wrong, but I don’t think so. The issue with Eskom is not the board, or even the management. It’s the shareholder. That’s where the problem lies. BM

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Comments - Please in order to comment.

  • Max Price says:

    Thank you Tim for this truly insightful article on what makes good teams and effective boards. Like you, I don’t know about the implications for the new Eskom board, but the generic comment on boards and the imperative for at least one confident dissenter is profound.

  • Mary Hammond-Tooke says:

    The drumming up of calls for de Ruyter to be removed is a measure of the threat he represents to the looters and saboteurs…

  • Merle Favis says:

    I concur regarding the nature of boards. If it were not so sad, it would be highly amusing to watch the dynamics. Firstly, watch out for the one who ‘wears the power pants’ on the board. Then notice the flow of the conversation. When the ‘power person’ eventually gets to put forward his/her opinion (usually strongly voiced) watch how most of the others follow suit just as vociferously, impervious of any contradictions that arise as against their original thoughts and value propositions. And its not as if any real processing or integration of the arguments has taken place in the interim. Its very sad because decisions even where there are ‘top class’ individuals can be more a reflection of personalities or power dynamics, rather than a genuine indication of well considered opinions. Our animalistic nature is truly there to be witnessed.

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