A Corporate governance is successful when it is led by the more efficient group of board of directors and others. In badly led boards, personalities and political performance can prevail and directors will play games. An awareness of some of these games can help create a board culture in which they become apparent and are stopped.
Here are few of the games directors play, by which he/she will be biased, fraud, or other by which they make the board act as per their interest and wish of the organisation.
Alliances:
Two or more member of the board conspire together to influence a board decision.
For example, two executive directors, each responsible for an operating division in a group, work together to prevent the introduction of a proposed management control system that would result in greater transparency of their divisional activities; however, they both agree to argue their case on the grounds that the system would prove expensive and that cost would outweigh any benefits.
Coalitions and Cabals:
Groups of directors work together, inside and outside the boardroom, to bring about a specific outcome to a board decision. Coalition building involve the canvassing of support for an issue informally outside the boardroom so that there is a sufficient consensus when the matter is discussed formally in the boardroom.
For Example, a group of directors in a non-profit company incorporated to run a sports faculty opposed plans to build a new swimming pool. The members of this clique were all non-swimmers, and refused to sanction other expenditure unless the swimming pool plan was dropped.
Cronyism (Friendship):
Relationship between directors can influence decision on the basis of personal relationships not the rational merits of the case. Cronyism can produce decisions that are not in the best interest of the company.
For Example, three directors on the board of a listed company were all members of the same country club. They tended to support each other in board discussions, all favoring the same outcome and opposing the same alternatives. Cronyism can affect an entire board.
For Example, a director declared a personal interest in a tender for a project being discussed by the board. He was asked to leave the room during the discussion of that contract. But the board decided to support this bid because of their personal relationships with that director, even though the bid was not the most worthy.
Deal Making:
Agreements made outside the boardroom between two or more directors to achieve a specific outcome on a board issue. Deal making is a classic game, usually involving compromise.
For Example: The medical member of a hospital board agreed, during a private dinner, to put pressure on the board to acquire some new sophisticated medical equipment they wanted. They were successful, even though there were more pressing needs for the available funds, including cleaning equipment for the wards.
Divide and Rule:
When a contentious issue in being discussed, the outcome wanted by one faction is more likely to be achieved if the other directors can be divided into a number of disagreeing factions. This is ploy adopted from the chair in some boards. Divide and rule can be a dirty game, in which the player sees the chance to set one director against another, or groups of directors against each other. An issue in the financial accounts might be used, For Example, to divide the executive directors, the non-executive directors, and the auditors from each other, in order to achieve an entirely different personal aim.
For Example, a senior director serving on the board of cooperative advanced arguments that divided the board into three groups reflecting the views of the various representative groups - suppliers, customers, and the administration, thus he could push through the strategy he wanted.
Empire Building:
Usually adopted by executive directors, empire building involved the misuse of privileged access to information, people, or other resources to acquire power over organisational territory. The process can involve intrigue, battles, and conquests.
Take the example of a company in the IT consulting business, which acquired a marketing company to promote its business. The operations director of the IT company moved his staff to the more palatial offices of the marketing company, took over its fleet of cars, and argues in the board meeting that his deputy should also become a board member, because of his enlarged portfolio of responsibilities.
Lobbying:
Lobbying involved attempts to influence directors, or those in a position to influence directors, usually outside the boardroom.
Example of Lobbying: Consider the implication when a directors or consulting practice sought out the wife of the CEO of a client company during a cocktail party and encouraged here to persuade her husband to accept a quotation.
Log Rolling:
Two or more directors colluding, to their mutual benefit, is a classic board level game.
For Example: Two executive directors in a manufacturing company came to an agreement before the board meeting. The first would enthusiastically support an investment proposal benefiting the second, whilst the second would offer mitigating arguments during the review of the poor budgeting performance of the first.
Propaganda:
Propaganda is the dissemination of information to support a cause, without attempting to show the complete picture. The Chief executive of a financial institution made a power point presentation to his board, advocating the introduction of a new derivative-based product without once mentioning the word 'risk'. Unfortunately, none of the non-executive directors raised the question, the board approved the proposal, and a year later the company had to issue a profit warning following losses on the new product.
Scaremongering:
Scaremongering, is used by some directors to emphasize the
downside risks in a board decision, casting doubts on the situation without
presenting a balanced perspective, thus attempting to have the proposal turned
down. As a director in a multinational manufacturing group
argues convincingly, when the board were considering building a new
manufacturing facility in another country. A risk assessment would have
shown the probability of these future uncertain events to be low.
Window Dressing:
Window dressing includes making a fine external show of sound corporate governance principles and practice, whist minimizing failure. Some companies' mission statements, social responsibility and sustainable reports, and core principles suffer from window dressing. Window dressing can also involve showing financial results in the best possible light, whilst hiding weakness, although this runs the risk of an adverse audit report or worse.
