Governance by Design managing director Sonya Beyers is participating in the world-recognised INSEAD International Directors Programme, Module 1 of which includes a section on decision-making in the boardroom.
Here, she shares some key takeaways in regards to decision-making for directors as individuals and boards as a whole, from the session she attended in Singapore.
As directors, decision-making is at the end of the day, our primary task. Whether it’s with respect to setting strategy or hiring a CEO, we are ultimately in the boardroom to make decisions.
To be able to make the best possible decisions we can, we should of course be prepared, having read the Board papers, researched the latest issues in our organisation’s industry, and be aware of our responsibilities and duties.
However to be excellent decision-makers – to be leaders who help guide an organisation to its best performance and to fulfill its mission – we need to be aware of the very human traits we all have and how they may impede us in our leadership quest.
Excellence in directorship is not simply dotting i’s and crossing t’s. It’s also understanding human behaviour, in-particular, how our innate cognitive biases not only affect our personal thinking but also impact on boardroom discussions.
Understanding cognitive bias in decision-making
Everyone has cognitive biases and assumptions based on their life experience, and these can interfere with sound decision-making if we don’t actively work to identify and become aware of both our own and also those of fellow directors.
There are two significant times in which we can actively do this:
- when evaluating results; and
- during discussions at the Board table.
Learning to do both with an open-mind unimpeded by biased reactions can lead to better decisions.
When considering if a decision was successful, directors should look beyond the results to ensure that a fear of failure isn’t driving a culture that lacks innovation.
Evaluating risk will naturally trigger cognitive responses to the idea of failure, and human nature is to be more risk-adverse as a protection mechanism. Decision-making from this mindset will still give the organisation a result, but it can also stifle innovation that may lead to a better result.
Innovative ideas will require new approaches, new investment, and doing something untested or not before trialled, and directors may automatically resist such ideas based on their assumptions and biases.
This same idea applies when evaluating management: if Boards focus on assessing results rather than the quality of the decision, this too may drive a culture that doesn’t foster innovation and focus on the short term only.
Overcoming bias in discussions
Often biases and assumptions will show themselves during board discussions, most clearly when there is a lack of consensus or difficulty investigating new ideas.
To avoid or overcome resistant or closed thinking, we can use nudges to challenge biases.
For example, if a director is particularly resistant to an idea, one way to move someone forward is to ask: “What would have to be true for you to support this option?”
It’s one thing to recognise a fellow director may be working from a place of assumption but it can be more challenging to recognise it in ourselves, let alone change it.
One way to recognise a potential assumption or bias in your own thinking is if another director makes a contribution and it does not fit with what you were expecting, do you see it as confrontational?
We can learn to look beyond this type of thinking and investigate ideas more so, keeping an open mind to what may be independent challenge that can lead to better decisions.
Also, it is important to be mindful of directors who hold themselves out as an ‘expert’ as there is a risk a director with this mindset will assume they know all there is to know, rather than approaching their role with an open mind.
As a Board, we should consider that we sit in a room with four glass windows and we need to look outside the room to make sense of what is going on outside. We can’t take a partial view, and we need to recognise assumptions and biases may cloud our view, stopping us from seeing the whole picture.
For a Board, a collective group of very smart people, to be successful, each individual director needs to be looking out a slightly different window in order to find a different solution that leads to effective decisions.
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