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(originally published by Booz & Company)


The “Third Team” Approach to Board Effectiveness

However, “to simply say that having high levels of [leader–member exchange] is sufficient for high performance would be misleading,” the authors write. Their broader study is examining a number of other factors — team effectiveness, knowledge gathering, and the use of intellectual capital — that also seem to play a role in how boards affect organizational performance through the third-team approach.

That said, two questions in the survey pinpointed key elements in information flow and team behavior that were consistently evident in high-performing organizations. Crucially, the elements described in both questions were required to be in play simultaneously to help produce high performance.

The first question asked both executives and directors if they had enough confidence in their team that they would defend the decisions of members who were absent. Essentially, the question “describes the level of confidence, loyalty and professional respect that [third-team] members have in the decision capability of the other members,” according to the authors. From this perspective, loyalty is seen as a public display of support, and professional respect and confidence in other team members go hand in hand.

The second question asked those surveyed to characterize their working relationship with other members of their team. This question was meant to reveal the general level of affection between individuals, which can manifest itself through unsolicited support or expressions of empathy. High-performing third teams in the study displayed significant levels of social integration, a measure of team cooperation and cohesiveness. Previous studies have linked return on investment and sales growth to social integration.

The identification and examination of information exchange in third teams “has shed a glimmer of light on what is often described as the ‘black box’ of governance and how it impacts organisational performance,” the authors conclude. “The results show that across sectors, NFP and corporate, [and across] all participants including chairpersons, directors and executive team members, and across different industry types including banking, construction, insurance, brewing, telecommunications, sport and social services, the elements of confidence, trust, respect, loyalty and obligation…are consistent within the [third teams] of high-performing organisations” and are inconsistent at lesser-performing companies that either don’t utilize third teams or employ them ineffectively.

Bottom Line:
A so-called third team, comprising both board members and executives at the top of an organization’s structure, can facilitate the kind of information flow and interpersonal respect that results in better firm performance.

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