Boards, who are among the key decision makers in companies, are responsible for developing strategic vision and direction for the companies they serve. Every decision they make can have profound impacts on the organization, its employees, and its investors. A visionary board should oversee management’s decision-making capability and improve its own approaches to making decisions.
Be Aware of Barriers on Decision-making
A visionary board should be aware of decision biases and their impacts on the decision-making process. Cognitive biases and innate mental shortcuts have a serious impact on the decision-making capability. This article introduces eight decision biases, including hidden profiles, representativeness, confirmation bias, anchor, groupthink, overconfidence bias, WYSIATI (what you see is all there is), analysis paralysis. To be aware of these biases, the board should consider implications and ask necessary questions, such as:
- Is there pressure toward groupthink?
- Do we collect all information and are there any blind spots?, and
- Are decisions overly influenced by initial, anchoring information?, etc.
Making A Forward-Looking Decision
A visionary board tends to make its decisions based on a rational prediction and focus on relevant information. A board for a company is like a captain of a ship, which usually makes strategic plans and guides the company at a high level. It’s hard for the board to oversee every execution and performance of management. Thus, focusing on high quality and less voluminous information to predict trends in the market is significantly important for a visionary board. The visionary board should:
- Focus on the fundamental and relevant drivers of value by data analysis tools.
- Bring experts and other related parties from outside of companies and have a broader discussion.
- Insist on usable information and leave enough leading time to allow to correct mistakes in the future.
- Keep skepticism on the context and structure of receiving information.
Create the Right Conditions for Forward-looking Decision-making
A visionary board should implement to create an appropriate environment for the decision-making process. KPMG addressed this issue by giving four suggestions.
- It should launch a discussion with management timely and empower management to deep dive into following the discussion on practical issues.
- Broadening the discussion can help the board to collect enough information and get a full picture.
- The board should consider experts’ opinions critically and test expertise and inquire further.
- The board can eliminate biases by including opposite views, using clean sheet assessment, identifying potential risks and biased assumptions, and correcting the strategies timely.
A visionary board should make an agenda to evaluate the effectiveness of the decision-making process and decisions. The board can assess the accountability of the board and its individual members, review the decision-making process and outcomes periodically, and communicate the improvement process with investors to build trustiness.
To improve the decision-making capability, the boards should be aware of potential decision biases and mitigate them to a tolerance level. A looking-forward decision is made by a visionary board who focuses on quality and relevant information by data analysis. The board also should create the right conditions for decision-making by closely working with management, critical thinking expertise of external experts, and using techniques to eliminate biases. Finally, the board also need to review and evaluate the decision-making process and its outcome periodically for updating the decision-making capability continuously.