The Black Box of Governance: Boards of Directors Revealed by Those Who Inhabit Them

335 Pages·2021·9.786 MB·English

by  Sandra Guerra

The Black Box of Governance
In the world of corporate governance, the board of directors is often
viewed as the “black box” of companies: only the board members who
are seated at the meeting table understand how this “decision-making
machine” works. In this book, a board member with over 25 years’ ex-
perience pulls off the lid and shows both how boards have worked and
how they could work.
This book is grounded in extensive research in three different surveys:
one with more than 100 Brazilian directors, another with 340 board
members from 40 countries, and a final one with 103 Brazilian directors
serving on 238 boards. It also includes interviews with Ira Millstein, Sir
Adrian Cadbury, Robert Monks and Mervyn King. The inner- workings
of the board of directors are revealed:
• What keeps directors awake at night
• Obstacles to efficient decision-making
• Behavioral dynamics, both within the board and in relation to the
management
• Pitfalls that arise from individual and group biases
Based on these insights and the author’s own consulting and board ex-
perience, the book presents a guide to behavioral tools enabling direc-
tors and executives to confidently navigate the boardroom, improving
interactivity and the efficiency of the decision-making process. Intended
for directors and executives who are directly involved in the board’s ac-
tivities, as well as for leaders responsible for strategy implementation,
this book provides a behavioral compass for all those interacting with
the “black box.”
Sandra Guerra has more than 25 years of experience in the board of
directors and corporate governance. She was co-founder and chair of
the Brazilian Institute for Corporate Governance (IBGC) and board gov-
ernor of the International Corporate Governance Network (ICGN). She
holds a Master of Science degree in business.
“The Black Box of Governance is an important read for both corporate
directors and management, as well as for anyone who expects ‘good
governance’ in the boardroom. It provides an international context – the
issue is not restricted to one country, it’s global.”
Ira Millstein, corporate lawyer and senior partner
at Weil, Gotshal & Manges
“A very positive attribute of The Black Box of Governance is that,
a lthough based on research among the most renowned theorists, the
author presents us with an eminently practical book.”
Sergio Rial, Banco Santander’s CEO in Brazil and
member of Delta Airlines’ BoD
“… that’s what makes this such a compelling read. It artfully weaves to-
gether a panoramic review of all the leading academic research on board
governance with real-life stories told by real-life people, who speak can-
didly about the best and the worst of human nature in the high-stakes,
sometimes inglorious world that is the boardroom. Each and every one
of these stories rings true.”
Karina Litvack, non-executive board director at
Eni S.p.A and director at BSR (Business for Social
Responsibility) and the CFA Institute
The Black Box of
Governance
Boards of Directors Revealed
by Those Who Inhabit Them
Sandra Guerra
First published 2022
by Routledge
605 Third Avenue, New York, NY 10158
and by Routledge
2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2022 Sandra Guerra
The right of Sandra Guerra to be identified as author of this
work has been asserted by her in accordance with sections
77 and 78 of the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted
or reproduced or utilised in any form or by any electronic,
mechanical, or other means, now known or hereafter
invented, including photocopying and recording, or in any
information storage or retrieval system, without permission
in writing from the publishers.
Trademark notice: Product or corporate names may be
trademarks or registered trademarks, and are used only for
identification and explanation without intent to infringe.
Library of Congress Cataloging-in-Publication Data
Names: Guerra, Sandra, author.
Title: The black box of governance : boards of directors
revealed by those who inhabit them / Sandra Guerra.
Description: New York, NY : Routledge, 2022. |
Includes bibliographical references and index.
Subjects: LCSH: Boards of directors. | Boards of
directors—Brazil. | Corporate governance. | Corporate
governance—Brazil. | Organizational behavior. |
Organizational behavior—Brazil.
Classification: LCC HD2745 .G77 2022 (print) |
LCC HD2745 (ebook) | DDC 658.4/22—dc23
LC record available at https://lccn.loc.gov/2021007726
LC ebook record available at https://lccn.loc.gov/2021007727
ISBN: 978-1-032-05223-6 (hbk)
ISBN: 978-1-032-05224-3 (pbk)
ISBN: 978-1-003-19664-8 (ebk)
Typeset in Sabon
by codeMantra
For Bengt Hallqvist, who opened the doors of corporate
governance to me and, as a result, changed my life.

Contents
Foreword by Ira Millstein ix
Foreword by Sérgio Rial xi
Foreword by Karina Litvack xv
Acknowledgments xix
Introduction 1
PART I
The Black Box 11
1 The Decision-Making Machine 13
2 Alone, But Always Accompanied 33
3 Relations under Tension 64
4 The Chair of the Board, Too Often Misunderstood 98
5 What Keeps Board Members Awake at Night? 137
PART II
Thinking Outside the Box 171
6 The Myth of Corporate Rationality 173
7 The Behavioral Compass 222
Bibliography 289
List of Figures 299
List of Tables 301
List of Graphs 303
About the Author 305
Index 307

Foreword
Ira Millstein
The Black Box of Governance is an important read for both corporate
directors and management, as well as for anyone who expects “good
governance” in the boardroom. It provides an international context –
the issue is not restricted to one country, it’s global.
Sandra Guerra is uniquely qualified to author a comprehensive work
detailing what truly goes on in the boardroom as well as how to improve
board effectiveness. She has studied board behavior for more than two
decades – both as a director and as an advisor to boards. Ms. Guerra
was one of the founders and later Chair of the Brazilian Institute of
Corporate Governance. As the principal of Better Governance, she has
served as a valued advisor to boards of both public and private compa-
nies. In addition to surveying more than a hundred directors during the
preparation of The Black Box, she conducted numerous in-depth inter-
views. For this English edition, she incorporated the results of additional
research covering 340 directors serving on boards in 40 different coun-
tries. A well-known and deeply respected global expert on the topic, Ms.
Guerra has access to top thinkers and practitioners.
Most importantly, Ms. Guerra is an experienced board director her-
self. She has not just observed from the sidelines how boards function
(and misfunction) and directors behave (and misbehave). Her experience
in The “Black Box” itself, and her extensive interactions with other di-
rectors, board chairs and management, inform her extensive research
and provide a practitioner’s reality check.
The author’s suggestions for how to tackle challenges faced by direc-
tors are insightful and invaluable. But what makes The Black Box of
particular practical value, and unique in the field, are the behavioral
tools that Ms. Guerra provides to help boards navigate around the pit-
falls caused by cognitive limitations and individual and group biases.
The “caselet” approach, around which many of the challenges facing
modern boards are introduced, is a particularly effective means to illus-
trate how such tools can significantly improve board and company per-
formance. Setting the stage through caselets also allows all perspectives