Project In-Depth Governance: ‘Ethical dilemmas lead to tension’

The project Discomfort in the Boardroom organized six sessions with 38 carefully selected executives and supervisory directors. These professionals were invited to engage in dialogue with academia as co-creators in search of new ways to better align their personal ethics, their role as executives and supervisory directors, and their social responsibility. Blomme and Nullens were responsible from a scientific point of view, while Josephine de Zwaan made her contribution as a lawyer and experienced supervisory director. Ellemiek Etman, a PhD candidate, was involved as a researcher. The entire team is now setting the course for the next phase under the title In-Depth Governance. In addition to deepening, the project will also scale up by connecting with supervisory board training programs, a broader research platform and generating more awareness in the world of governance. This second phase is also funded by the Goldschmeding Foundation, as a people-centered economy requires a different approach to governance.

The sessions of Discomfort in the Boardroom led to seven good practices in which supervisory board members and executives managed to deal constructively and proactively with the perceived tension. Look for the discomfort and use it as a starting point to accelerate the transition, is the first good practice. Six other lessons complete the project’s output: listen and ask different questions, break through obstructive routines, avoid moral stupidity and act with ethical reflection, deepen your authenticity, dare to be touched and work together on new connections.

Gert van der Houwen interviews this duo of scientists about the follow-up project In Rob Blomme’s office. Van der Houwen is Director of VDH Bestuurszaken, one of the partners of In-Depth Governance.

You both led the project Discomfort in the Boardroom from academia and now the follow-up In-Depth Governance. How did this collaboration come about?
Nullens: ‘The project Discomfort in the Boardroom started at MVO Netherlands and the Goldschmeding Foundation, when MVO Netherlands Director Maria van der Heijden and Goldschmeding Management Team Member Suzanne Ekel noticed increasing tension in conversations among directors. It was about tension over the gap between the transition to a new economy and how directors personally view it. MVO Netherlands started to see how it could pick up on this signal, and that led to the project Discomfort in the Boardroom, which now has a sequel in In-Depth Governance. Rob and I came on board to lead discussions between board members in these projects from a scientific perspective. We found the discomfort among boardroom members fascinating; we wanted to help answer that. New thoughts arise where it chafes. Rob, as a behavioral psychologist, looks at the behaviors that fit the transition in the economy which permeate the boardroom, while I, as an ethicist, look at it and want to pay attention to responsibility and perception of values.’

Which transition are these two projects about?
Nullens: ‘It concerns the transition to a more humane economy, sustainability, more transparent chains and employees who feel good in their work. You can summarize this as multi-faceted value creation, which requires reporting other than just financial results. This transition also leads to the question of what a company’s social duty of care is. The climate crisis, the rise of artificial intelligence (AI), these are social issues that cannot be answered from the perspective of economics alone. For directors, taking these issues into account is not easy. Ever more frequently they are expected to consider the social utility of the company in their decisions, while it is already complex enough to achieve the results that keep the organization afloat.’

Why does this lead to discomfort among executives and supervisory directors?
Blomme: ‘It is mainly the ethical dilemmas that cause tension with executives and supervisory directors. I look especially at the functioning of a board and all the stakeholders involved who exert forces on directors. These have changed completely in 30 years. Until the 1980s, the social role was a natural part of many large companies. I grew up in Eindhoven, where the big companies Philips and DAF Trucks felt a social responsibility for their employees, even if that was more or less patriarchal. This was expressed in the provision of sports facilities, scholarships, and housing. In the 1990s, the focus in the board shifted to the market and profit maximization. The social goals fell away. Now social issues increasingly appear on the agenda at companies, while the focus on profit maximization has remained.’

How do executives and supervisory directors experience discomfort about the social role to which companies are called?
Nullens: ‘It is the feeling that there is an imperative to change, even if you manage a company that for the sake of continuity wants to change as little as possible. A company is not a charity, and a director needs to take that into account. The discomfort arises from the awareness that as a human being you want to do the right thing and that things can be done better, without knowing how to.’

How much enthusiasm is there among directors to get started?
Nullens: ‘The new generation of directors understands the underlying question very quickly; I see the transition happening with them. In recent years, the scientific framework of economics has become increasingly narrow, reductionist, calculating. The father of free-market economics, Adam Smith, was more concerned with humanity and ethics. The climate crisis and questions around wealth distribution are forcing us to look differently at economics and the role of our corporations. There is therefore genuine interest in a different view of business management with more attention to human flourishing and ecological context.’

What makes the In-Depth Governance project different from so many initiatives aimed at preparing directors for the future?
Nullens: ‘How do we do the right thing? The question of what is good cannot be answered strictly scientifically, so you start looking for the solution in normative and legal frameworks and get stuck in risk management and compliance. And yet we intuitively sense what is right, but we do not have the language to put it into words, especially in the boardroom. That is why we are using lessons from the humanities in this project, because they use wisdom and dialogue. That is what we are making room for in the In-Depth Governance project and, combined with behavioral sciences, that is a unique contribution to a new form of governance. Here we go into greater depth.’

Does attention to social issues in the boardroom lead to considerations other than profit maximization?
Blomme: ‘The feeling that you have to do something about it as an executive or supervisory director is something that has to come from within. This applies not only to multinationals, but also to smaller companies. For example, if a company is involved in chains that produce textiles in Bangladesh, the company must also be transparent about that involvement and the impact of the chains and communicate openly about it.’

Can this be addressed with rules, laws and provisions in the corporate governance code?
Blomme: ‘Rules and laws do not automatically lead to a sense of responsibility. Look at the discussions about PFAS or flights at Schiphol, you see that rules are not a solution for everything. There are companies that buy off environmental damage without taking responsibility for the consequences. If you want companies to start acting with the awareness that they bear responsibility for their environment, it starts with the person who makes the final decisions. Then it is about the CEO feeling personally responsible for the organization’s impact on society. That responsibility can be at odds with the pursuit of profit maximization, but it is precisely this tension of which directors must become aware.’
Nullens: ‘That does not mean that a totally new form of governance must be introduced. The classic governance principles remain. The search for an awareness of accountability with the director is a deepening of the governance that is already in place. But transition is challenging. Directors have developed so many routine behaviors that it is difficult to look at the same thing differently. Compare it to the physician who knows the entire system of vessels and tissues, but who no longer sees the patient. The question is how to retain that knowledge and experience but also create more awareness for the patient.’

Is this a plea for individual leadership, which former Unilever CEO and sustainability advocate Paul Polman also argued for?
Blomme: ‘We use the systems approach to encourage behavioral change in the board instead of developing personal leadership. Individual leadership creates heroes who get on the podium. But those who stand up there, no longer need to have a conversation with anyone - except themselves.’
Nullens: ‘Every transition has heroes who show exemplary behavior. But it is even better to get a different consciousness in the system. If it is only the chairman of the board who propagates a company’s social responsibility, it can be isolating. The CEO then runs the risk of being seen as a moralist who no longer sees reality. We hope to work on supervisory directors and executives who can change the organizational climate within the organization and in this way create broader support.’
Blomme: ‘In the In-Depth Governance project, we therefore want to initiate dialogue between directors on topics that are sometimes difficult to discuss. Just take the question of why directors have to express themselves in a businesslike and rational way, while having a very different kind of conversation with the family at home. Such questions can spark a conversation about what is important to convey.’

What is this project going to bring to boardrooms?
Blomme: ‘The realization that it is important for directors to realize how strongly their behavior determines the identity of the company. For example, if they proclaim that engagement is a value, then suddenly engagement is expected of everyone, as if that is the measure of things. Directors determine how the company as a whole looks at reality, regardless of the results of whatever improvement survey is held.’
Nullens: ‘That is why it is important that directors think about what the right thing is to do and no longer just about what is expected of them. That the question of why the company makes a profit, what success is, and how this is going to be communicated to shareholders is allowed to be on the table. Our definition of success also determines how we reward.’

What does a director need in order to put social responsibility on the map in the board?
Patrick: ‘It is about directors finding support in the board for the organization to go through a transition. That is why in our new In-Depth Governance project we are not only looking for leaders who embrace the economic transition, but also for directors who take a more wait-and-see attitude. The mere conversation between these two types of leaders can be valuable. Directors should be given time to ask themselves what role they want to play in the economic transition.’

Does a company that gives social impact a role not get in the way of the government, which determines what is socially valuable?
Nullens: ‘That is possible, for example when companies get into the field of housing, they are close to government issues. The problem with government is that all decisions are legalized, even when a legal approach is not appropriate. That creates uncertainty for companies. From a shared social responsibility there needs to be an honest conversation, where there is room for vulnerability of the own position, disruptive ideas, in short discomfort that can lead to deepening and co-creation.’

How do you encourage the insights from the project to become embedded in boardrooms?
Blomme: ‘Providing tools for the social role of the director starts with education, recruitment and selection, and advancement in organizations. We want to valorize the educational value of this project with training institutes, which is why universities are part of our client panel. If the insights of this project get a place in curricula of universities, that would be fantastic.’

When is the In-Depth Governance project successful?
Blomme: ‘When executives and supervisory directors who bring in personal considerations and discuss them, are participating. I would consider that a great success, because that means they feel social responsibility and want to do something about it. If this starts the discussion about the business of the future and the role of the director in it, then I will be a satisfied man.’

This interview was published in Management Scope 02 2024.