Social and psychological incentives propel directors towards collegial consensus.
- Siobhan Sweeney
Public companies should appoint a ‘Contrarian Director’ who systematically challenges management recommendations to the board and suggests a range of alternative outcomes, argues a Cambridge graduate student in recently published research.
A Contrarian Director (CD) would help prevent rubber-stamping of management decisions by too-collegial boards whose supposedly “independent” directors are anything but, according to MBA student Siobhan Sweeney. Her paper cites last year’s comment by Warren Buffett that companies recruiting such directors often “do not look for Dobermans. They look for Cocker Spaniels and then they make sure their tails are wagging.”
According to Sweeney, there have been “significant failings of boards,” as shown by the recent financial crisis and other corporate failings.
Currently, “social and psychological incentives propel directors towards collegial consensus,” and acting as a devil’s advocate in the boardroom is “currently a dangerous career path.” So appointing a CD to every public company board is an “innovative solution that is simple yet has the ability to significantly increase the board’s ability to discharge their corporate governance and risk oversight.”
The CD concept was inspired by the Catholic Church’s ‘Devil’s Advocate,’ introduced in 1587 to argue against a candidate’s canonisation in order to uncover any character flaws, but modelled more on the Advocate General of the European Union, who delivers impartial recommendations to the full EU Court of Justice.
The CD’s role would be more impartial than that of the church’s Devil’s Advocate: while both present a negative hypothesis, the CD’s proposed role is then to “assess the strength of the negative hypothesis to assist the board to form a balanced opinion.”
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Image :Devil's Advocate
Credit: Matt Wells
Reproduced courtesy of the University of Cambridge
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