A cohesive culture is vital for companies to thrive, and lawyers play a key role
Most fans think of professional sports franchises as collections of individual stars: highly skilled athletes whose oftenexorbitant pay depends on their personal statistics. A moment from the World Series shows how incomplete that view is.
In Game 4 of the Blue Jays’ American League Championship Series against the Mariners, veteran pitcher Max Scherzer “insisted” on staying in to finish what became a scoreless fifth inning. On television, viewers saw the manager’s interaction with Scherzer and the apparent tension around the decision. Asked afterward why he agreed to leave Scherzer in, the manager acknowledged that while clubs have endless statistics and analytics of individual performance, at the end of the day it is about people – the “soft stuff” – cultivating trust, cohesion and conviction. For the Blue Jays, that approach helped the team defy all odds in its World Series matchup against the Dodgers. One of their relief pitchers, Louis Varland, referred to the team as “the Glue Jays.”
We make the same mistake in the corporate world when we treat a corporation merely as a legal entity composed of a set of assets (human, physical, financial, and reputational) constrained in its conduct by contractual obligations and legal and regulatory requirements. Any good CEO will say that such a narrow view misses the point. Corporations are more than a bundle of assets and contracts. They are communities of interest, shaped by history and shared understandings. They are relationships that produce results greater than what any individual could achieve on their own.
Corporate law implicitly recognizes that firms are real entities – not in a physical sense, but as social phenomena with their own dynamics. When individuals join a firm, their behaviour adapts. The duty to act in the best interests of the corporation and the requirement to establish effective internal control systems reflect the reality that companies operate through organizational structures. The law focuses on ensuring proper decision-making processes, rather than dictating specific outcomes.
So what does this mean for corporate governance?
The National Association of Corporate Directors (NACD) recently issued a “call to action” for boards and CEOs to treat their relationship as one to be “cultivated with purpose, discipline, intentionality, and a shared commitment.” Its report, “Building a High-Trust Board-CEO Relationship,” argues that growing stakeholder activism, shrinking Csuite tenures and increased complexity and ambiguity make it urgent to build such relationships. In the face of boards increasingly assuming management responsibilities and management becoming more skeptical of board effectiveness, the report maintains that a strong foundation of trust between a board and CEO is critical and can serve as a “strategic differentiator.”
Such a culture cannot be constructed or prescribed by corporate policies or statements about governance “best practices.” It is not a corporate values statement, nor established by chanting some pious “tone-from-the-top." It is coded in humour and routines and revealed in who speaks up and when and how conflict is handled and by whom. It can only be cultivated over time, from what is repeated, reinforced and rewarded in informal, daily interactions.
Like baseball, corporate governance is a “team sport,” especially in an era of radical uncertainty. The challenges confronting boards in exercising their oversight responsibilities are often, in principle, insoluble. The best that can be hoped for is a cohesive, well-functioning organization in which a meaningful consensus can emerge and be challenged and tested aggressively – without tearing at the relationships that form the fabric of the firm – so that directors can ultimately justify the firm’s decisions and conduct.
Such a process requires a high degree of mutual trust, with both management and boards suppressing their egos and believing that others are acting in the best interests of the firm (including themselves). But trust entails a weakness: the pressure to “go along” may prevent critical questions from being asked and considered. The “wisdom of crowds” is often later revealed as the “wisdom” of a herd.
Counsel (in house and external) should play a key role in addressing these cultural challenges, both in the advice they provide (including when they challenge what their clients hope to hear) and in their interactions with clients (management, boards or both). In doing so, they can help delineate roles and responsibilities in ways that anchor strong relationships and ensure alignment on when and how authority is delegated to the executive team. They should also play a key role in facilitating effective communications and otherwise enhancing the board’s value in supporting management. Doing so can often be a delicate exercise and a lesson in humility, but this conscientious pursuit of truly effective governance – as opposed to mechanical adherence to boilerplate “best practices” – is the best way to guide and justify firms’ decisions and conduct and, as courts have long observed, to mitigate director liability.
