The Board's Role in Corporate Culture & Preventing Reputational Crises

Dottie Schindlinger

The Board’s Role in Corporate Culture & Preventing Reputational Crises

This blog is based on Episode 12 of the The Corporate Director Podcast, where we interviewed UC Berkeley professor and board member Jennifer Chatman. 

>> Listen to Episode 12 on Apple Podcasts

In 2018, 17.5% of the 
world’s largest 2,500 companies experienced CEO turnover. Notably, that number is up 3% from the year before. What’s even more notable? The top reason for CEO forced turnovers was misconduct.

This leads us to believe that the corporate culture of those 438 organizations was less than desirable. This statistic also makes us wonder… how many of the remaining 2,062 companies are experiencing a toxic corporate culture—and are the boards aware?

Jennifer Chatman, Professor at the Haas School of Business at UC Berkeley and Independent Director at Simpson Manufacturing, has dedicated her research to demystifying corporate culture.

In this episode, she shares with us:

  • How to identify a narcissistic CEO
  • How to recognize a toxic culture
  • Recommendations for cooperation in the boardroom

What is a narcissistic CEO?

Silicon Valley has done its part in fabricating myths around founders. According to the narrative, CEOs have to be selfish, narcissistic, a little delusional, and cold to be successful.

According to Chatman’s findings, this simply isn’t true.

CEOs who support a healthy corporate culture can be just as successful as those considered narcissists. So, how do you identify a CEO with damaging narcissistic qualities?

A narcissistic CEO is likely to…

  • Broaden the pay gap between themselves and the rest of top management.
  • Involve the organization in more lawsuits (even if it’s clear the organization won’t win).
  • Disregard risk.
  • Systematically create a culture that’s low in collaboration and integrity.
  • Have an unwillingness towards the board checking in on other top management.
  • Exploit others for their own benefit.
  • Not be interested in others’ development.
  • Not want to share the spotlight.

“Narcissists are much more insensitive to risk.”

– Jennifer Chatman

Moreover, once a CEO has generated a toxic culture, Chatman found that even if they leave the organization, the culture is likely to remain.

How to reveal a narcissistic leader

The board should be able to identify a narcissistic CEO and toxic culture using a combination of the following strategies.

  1. Make it a requirement in the CEO’s compensation package that they work to develop others (not just themselves). Oftentimes, a narcissistic leader will only be concerned with making their own track record look good. However, succession planning and building up all members of leadership should be among their top priorities.
  2. Ensure that board directors have exposure to all top management positions, not just the CEO. By doing this, the board should be able to take a pulse of whether or not other executives agree with the culture that’s being cultivated.
  3. Take field trips to each department of the organization. In the same vein as method #2, board directors should become familiar with every department of the organization and analyze what they see to assess if the culture is consistent throughout.
  4. Monitor external sources, like Glassdoor. Keeping an eye on platforms that allow employees to rate companies is a good way to collect unsolicited, uncensored information. Glassdoor even has a special section for rating CEOs.
  5. Ask the CEO and top executives how they’re using culture to drive strategic effectiveness (this should be something they’re doing). The ideal answer will be a carefully thought out plan on how the culture is being used to help reach the organization’s overarching mission. If this isn’t so, it’s time to investigate further, push for such a plan, or perhaps make some tough decisions. Chatman notes that it can be difficult to spot a narcissistic leader before you hire them. Normally, they put their best foot forward, just like anyone else. Over time, their ulterior motives begin to surface.Therefore, board directors should practice identifying narcissistic tendencies in leaders to see them more clearly when hiring.

    “The telltale sign of narcissistic leaders is that they exploit others for their own benefit.”

    – Jennifer Chatman

    Cooperation and disagreement in the boardroom

    Chatman confirms that there is much more diversity in the boardroom today than there used to be. Even so, she urges board members to think beyond the most simplistic notions of diversity in relation to team performance.

    In one of her most famous studies, Chatman observed how diverse groups of mountaineers cooperated while on risky expeditions. It turned out that when the groups were focused on summiting, it helped to work in complete cooperation with each other. Differences in expertise or experience didn’t necessarily need to be highlighted.

    However, if the same group was in a survival situation, it helped to exploit the differences in the team. For instance, if one member excelled at first aid, it’d be savvier to allow them to dress a wound as opposed to allowing someone with little experience to take a crack at it.

    The same philosophy can be used in the boardroom. While it’s essential to have cooperation in a diverse team in terms of gender, ethnicity, background, education, and experience, it’s also crucial to let the specialist take the reins in a “life or death” type of situation.

    Additionally, Chatman points out that board members should become comfortable with a certain level of disagreement. Otherwise, it’s likely that groupthink will ensue.

    Don’t be so quick to agree just because you might be uncomfortable. If there is a deficiency in conflict, a toxic organizational culture may be the result.

    “Diversity is something that leaders need to think very carefully about.”

    – Jennifer Chatman

>> Listen to Episode 12 on Apple Podcasts