Governance

Governance, culture and power distance

May 4, 2017

The new corporate governance code leaves no room for doubt: governance and culture are inseparably linked. 

It is both the task of management and the Board of Directors to create a culture of transparency and accountability. There are few who would now dispute the importance of this. Various different surveys show that numerous recent financial sector derailments, both among housing cooperatives and in the construction sector, are partly the result of a closed culture with little room for contradiction. The question then arises: what makes it so difficult to obtain a transparent culture and what can one do about it? Power distance is one of the factors.

As a professor of comparative culture studies in organizations, organizational psychologist Geert Hofstede has developed a model that differentiates culture into six dimensions. One of those is the degree of power distance. Power distance is deduced from the relative evaluation of social inequality and hierarchy. Latin American, Arabic and Asian countries score high. On the other hand, the Netherlands and Sweden score low.

In his bestseller Outliers, scientific journalist Malcolm Gladwell argues that there are more fatal airplane crashes among Asian airline companies than among European ones. Pilot training and experience is excellent on both continents and both the Europeans and the Asians have a young and properly maintained fleet. The most important explanation Gladwell can find is power distance. He describes in detail a fatal crash with an airplane belonging to the Korean airline company Asiana Airlines. The black box report showed that the copilot had indeed repeatedly pointed out the dangerous situation to the pilot, his boss, but remained silent when the pilot responded to this negatively. The power distance among European airlines is smaller. A copilot will be more likely to contradict his boss and the pilot will be more inclined to listen. 
The degree of power distance not only differs between national cultures, but also between and inside organizations. In the latter case we are referring to the relative evaluation of inequality and hierarchy within the organization.

If I ask boards of directors how they view their own accessibility, then they usually answer that the door is wide open. Sometimes that is also true. Take for instance Ben Verwaaijen, CEO of British Telecom, who explicitly invited his staff to email him about their hopes and concerns. He only switched off the light in the evening once he had answered all his employee's emails. His behavior will have decreased the power distance. 

According to research by the late ‘power professor’ Mauk Mulder, Verwaaijnen's behavior is contra-instinctive: he demonstrated that those with less power want to decrease the power distance, while on the other hand the more powerful want to increase it. Both tendencies are understandable. If someone lower down in the hierarchy is able to decrease the power distance, then he will gain influence. The person at the helm will however have more scope with increased power distance. I often notice that directors tend to judge the extent to which power distance exists as being smaller than it really is: if one admits to having more power than is appropriate, one is at risk of losing it. The less powerful will however tend to estimate a large power distance, in order to increase the urgency of leveling out. These are understandable survival mechanisms from both perspectives.

Management and supervisors would be well advised to hold transparent discussions on power distance both with each other and within the organization. Both bodies are at the top of the tree, so there is a significant chance that they will estimate a smaller degree of power distance than would the majority of other employees. Neither is it about removing power distance altogether. Power distance is helpful, because it demarcates responsibilities and promotes efficiency. It is however important that a joint effort is made to ascertain how power distance is experienced. It is subsequently sensible to establish the extent to which the existing power distance requires change in order to arrive at a more open culture. The management and Board of Directors play a crucial role herein.

 
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