Conform All Ye Dissenters!

From Tom Glatt, Jr…

Last Friday I attended a board meeting for a rather large credit union. I was there to update the board on a bit of work related to a succession project. My portion of the meeting was short, so after my update I sat back and observed the board as it worked through its scheduled business. I only wish I had had the opportunity to video the meeting as it was a near perfect example of proper board governance.

To illustrate, allow me to reflect on the best part of the meeting – the budget discussion.

This credit union’s budget begins in a budget committee, then makes its way through the Asset Liability committee, and then finally to the board for deliberation and vote. By the time the budget gets to the board, it has been thoroughly discussed, annotated, revised, etc. The board could be forgiven for believing that after all of that, casting a casual “yes” vote to approve the budget would be proper execution of its duty.

Not this board.

Not only was there dissension, the actual budget vote was not unanimous.

Here is a point-for point summary on the process of the discussion and vote. It went like this:

  • A motion was made to approve the budget, which opened the debate.
  • A board member, after ensuring an understanding amongst fellow board members and the management team that the concerns to be expressed were in no way personal, began outlining the reasons why he would not be able to vote in favor of the budget.
  • The CEO rebutted with specific budget rationale that he hoped would alleviate the board member’s concerns.
  • The board member thanked the CEO for his input.
  • Some general discussion followed.
  • The budget passed, with two no votes registered for the record against five yes votes (two board members were absent).
  • The board member expressing concerns regarding the budget stated for the record that though he opposed the budget, the credit union and his fellow board members would have his support as the credit union moved forward given its strategic plans and newly adopted budget.

In reading this, one could be forgiven for thinking that there is nothing groundbreaking about this exchange. I agree, however, I would say that this is not reflective of most board interactions. Most interactions of this nature, at least in my observance of a multitude of board meetings/board policy discussions, end up as unanimous votes – even when board members don’t necessarily agree in principle with the outcome.

In the 1950’s, a researcher at Swarthmore College named Solomon Asch conducted a series of experiments that shed light on how individual decision-making can be heavily swayed by the desire for conformity. You can read a brief description of the experiments here. In effect, Asch showed through his analysis that people, by a large margin, would rather conform than dissent.

Though over the years other experiments show that perhaps individual desires to conform are not as strong as suggested by Asch, I do think that Asch’s results are instructive as we contemplate a new age of heightened focus on board roles and responsibilities.

Consider the credit union’s budget discussion scenario – but with a different outcome. Suppose that after the discussion of budget concerns, the board vote ended up being unanimous in favor of the budget. Suppose then that in a year or two following the vote, this same credit union is failing and is ultimately conserved by regulatory authorities. Now consider that the regulators will begin looking into the details of the Board’s role in the credit union’s failure – starting with an assessment of policy decisions. Perhaps this budget was the turning point, and the regulators zero in on the decision-making behind the budget.

The key question for me in this scenario is how board members will recall their deliberations and decisions. I can see where a board member would say, “I didn’t like that budget, and my dissent should be reflected in the minutes.” However, the dissent and the vote in our scenario don’t match up. The “I didn’t agree” defense is whitewash because the member voted for the budget.

What the Asch study and follow-up experiments show is that, at least in some circumstances, people will conform to the majority. My own theory is that people tend to conform when they don’t have a strong opinion one way or the other about a particular issue. With reference to board governance, such conformity, especially if based on the absence of an opinion or “care”, is troublesome. It is, in effect, a violation of the duty of care.

I think credit union boards should begin considering ways to eliminate the problem of conformity – regardless of its cause or prevalence (as even one case of conformity is bad board governance).

So what can boards do?

Perhaps boards should encourage members that if they have no opinion on an issue that they vote no rather than yes.

Perhaps boards should swap the standard practice of asking for yes votes before asking for no votes.

Perhaps boards should proactively raise dissenting “opinions” in discussion even if they don’t initially exist in the minds of board members.

Of course these are simple suggestions meant as temporary aids for boards of directors whose members do not engage in in-depth discussion when making policy decisions. The real way to eliminate conformity is for each member to truly understand their roles and responsibilities, and then execute to the best of their abilities.

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