Foreword:

In seeking to explore opportunities for decision-making improvements in the Boardroom we reviewed existing literature and conducted primary research by interviewing Directors across a range of different organisations. Directors were specifically asked to focus on the potential issues regarding decision-making on Boards. Their observations about the potential problematic dynamics have been captured and are laid out in the following articles.

If the record of the world’s top-performing and most admired companies is anything to go by, the members of the board typically do a good job in challenging circumstances, taking responsibility for making tough decisions as they attempt to head off the many twists and turns in our increasingly volatile and uncertain world.

Yet, boardrooms may not always be the places of rapid, unbiased, and effective decision-making that they are often thought to be.

The influence of invisible forces

In fact, boardrooms often demonstrate the very reverse of these characteristics. Numerous invisible forces influence top-echelon decision-making, from negative stereotyping to both conscious and cognitive biases, as well as preconceptions drawn from the past success or failure of individual decision-making. 

Such decision-making 'baggage' can work to reinforce or enhance existing unwritten hierarchies, encourage the jostling for power and influence, or cement existing cliques, insofar that the trust and acceptance of new joiners is based on perceptions of experience or expertise. 

In many ways, boardrooms are the ultimate closed systems.

Decision-making can become rote, a response to invisible forces that quite literally serves to maintain the status quo.

Plotted over time, not only do decisions tend to repeat the rules that have bound those made previously, but they do so because they often arise from perceptions coloured by bias and loss of objectivity. 

Protecting decision-making

There are, however, factors that can protect board members against these invisible forces. Based on a global literature review and research conducted among board members in Australia, our research suggests these factors include a clear sense of organisational purpose, having greater self-awareness, a sense of psychological safety in the boardroom and actively keeping a check on the social dynamics around the table.

The benefits of these factors are self-evident: 

Ensure a clear and communal purpose, and factions can disappear, frictions loosen, and stalemates can be worked through.

Improve self-awareness and the baggage of bias and past decisions can be mitigated and overcome.

Foster an open environment that creates a sense of psychological safety and individuals will feel more empowered to speak up and challenge one another, regardless of their expertise, their history or perceived place in the hierarchy.

Encourage open communication and new voices will emerge, fresh perspectives develop, and trust will grow.

Under the crisis spotlight

Yet, if these factors are not well-developed, the board’s ability to make effective decisions can wilt when under the spotlight of a crisis – and the ongoing COVID-19 pandemic is just the latest disruption event to ‘stress-test’ the board’s ability to make effective decisions in a timely fashion. 

Crises are a catalyst for boards, exacerbating the incumbent invisible forces that pervade the top table and impede decision-making when timeliness is most critical.

Put too much stock into the decisions an individual has championed previously and any potential expertise or value they could offer may be either overinflated or subconsciously disavowed.

With almost one-in-four board members stating that their engagement is based on the previous success in supporting or championing decisions, our research highlights how such preconceptions only serve to inhibit the board’s ability to make good decisions.

Further, basing decisions on intuition, the weighted opinions of cliques and supposed experts, or on past experiences will not result in good decision-making.

But when boards practice careful deliberation and actively work to understand and account for problematic dynamics, research has shown that both immediate instincts and gradual intuitions positively evolve over time and tend to become more accurate and astute (Sharpley, Moss & Wilson, 2014).

Beyond the baggage

Decision-making in a crisis demands Tabula Rasa – an absence of preconceived ideas or predetermined goals. Entering the boardroom with a ‘clean slate’ can ensure all opinions are heard.

Even if someone lacks specific background expertise (named by 27% of board members as the number one factor influencing their active engagement in decision-making), the board needs to see that it is this very inexperience that could potentially provoke original thinking and reveal new avenues of investigation.

Effective communication is central to this. Boards must recognise and call out the invisible forces that inhibit decision-making directly.

Boards must recognise and call out the invisible forces that inhibit decision-making directly.

This means acknowledging that sometimes people want to confirm their expectations of others in the group rather than making their own interpretations or making comments that will challenge and be more constructive. It also means recognising the power struggles at play and enforcing a levelling of power.

When decisions need to be made, individuals must be able to trust each other and communicate clearly. They need to feel as if their voice counts. They need to feel confident in calling out inhibitors if present.

Embrace these tenets and the decisions that emerge from the boardroom will not only be more ethical, but much more effective.

With contributions from Rohan Connors (rohan.connors@au.ey.com)

Find out more about how decision-makers can enhance their skills to more effectively respond to crises with with EY’s Boardroom Decision-making Integrity Program, which helps participants understand the role they and others play in the dynamics that shape how decisions are made.

If you’re interested in getting involved with our research on boardroom decision-making processes, contact the leader of our Research House, Dr Sarah Ogilvie at sarah.ogilvie@au.ey.com

Despite working in the field of ethics, where I immerse myself in the grey areas of life, there are some topics on which I take a clear position, where I could even be accused of being black and white. One of these is tobacco. I have taken a very public stance in advocating for tobacco-free finance, more specifically asking for the divestment of tobacco stocks from investment portfolios.

I have been careful, however, to manage my professional reputation in relation to this area of my work. 

I refer to myself as an advocate, rather than an activist or campaigner. I talk of tobacco-free finance, rather than divestment as mentioning divestment can trigger concerns for a shrunken “investable universe”, a negative in the world of finance.

Depending on the audience, I will emphasise the health statistics, human rights issues, or prospective regulatory and legal risks. I mention my background as a lawyer and my time in an investment bank, all in the hope that people will consider me a credible voice and trust what I have to say. 

I rarely talk of the ethics of the matter, instead I most often focus on the financials, which might seem odd given my work-life focus on the ethics of business and finance. When I’m silent on ethics it’s mostly to manage a perception that to take an ethical position is naive and not financially astute, and so I compensate by presenting the financials and facts.

The problem with this is that sometimes it means the ethical points aren’t made at all when I’m just the person who should be making them.

Avoiding stereotyping to our detriment

It is not uncommon for people to do just this, to adjust themselves to their audience to avoid being put into a stereotype. In the world of academia, they refer to this phenomenon as a “stereotype threat” and the problem is it can affect our decision-making, for the worse.

In fact, it can make us underperform. This should be of concern to boards and directors as their performance is publicly reviewed and they concurrently respond to the drive for diversity and inclusion. 

Do people really feel they can say their piece without being judged or, more specifically, stereotyped? The fear of stereotyping can see the digital expert or the climate specialist stay silent on a topic on which they should otherwise contribute, and as a result the board and business misses out on their expertise and the decision-making of the group suffers. 

The stereotype threat can run across all areas of identity, from expertise to gender and cultural background. Women might adjust for what they consider to be “female thinking".

Understanding these influences on decision-making is particularly relevant as the spotlight is set on boards and they are held accountable for company performance, culture, and societal impact.

Decision-making in the group context

Individual behaviours are only one component of board decision-making, however - there is also the group dynamic at play. Peer-group pressure does not cease its hold when we graduate from school; it persists and is evident in the boardroom as well.

In the board context, it’s referred to as “peer influence” and it can have a profound effect on the quality of decision-making.

We know people adjust their behaviour based on what they perceive as the norm. We are driven by a desire to fit in, particularly when we are new to a group and have a heightened awareness of the ways in which we differ from others. But what risks does this pose in the board context?

It is up to individuals to counter the desire to fit in. Research indicates people in higher positions of power are better able to do this. They can ignore unethical social influences and are less likely to copy others’ unethical behaviour.

Therefore, within organisations and on boards, the most powerful people have a very important role in increasing effective and ethical decision-making. They need to use this influence, for good. 

Quality decisions

As we see boards having to publicly justify their decisions, with class actions rising and set to continue, it is the process of board decision-making that will come under the spotlight as much as the decisions made.

The way a decision is framed matters. Boards cannot hope to address cultural, societal, and ethical concerns if decisions are always framed as financial or risk based. Language matters as well. The language used should reflect the frames a business wants to encourage.

Boards cannot hope to address cultural, societal, and ethical concerns if decisions are always framed as financial or risk based.

For example, studies have found that focusing on money alone can trigger a “business frame” and an economic-oriented decision schema, thus reducing people’s compassion.

You can see how this could easily translate to a decision with a blind spot to community, the environment or even the customer. 

Therefore, it’s critical to proactively bring attention to the group dynamics at play in decision-making, and this will only grow in importance as businesses attempt to build trust and practice what they preach on diversity and inclusion. 

But how do you start? Despite the impetus to act fast and reach a consensus, especially in times of uncertainty, perhaps the simple, and possibly counterintuitive, answer is to ‘give it due time’.

By giving time to big decisions (when circumstances allow), you can increase the quality of decisions being made, while also respecting the individuals involved. 

Studies show that taking time to make decisions can reduce unethical behaviour and lessen our bias.

So rather than feeling pressured to respond, perhaps the better decision is actually to slow things down and take the time to ensure the right response.

With contributions from Hillel Nagel (hillel.nagel@au.ey.com)

Find out more about ethical decision-making in the boardroom with EY’s Boardroom Decision-making Integrity Program, which helps participants understand the role they and others play in the dynamics that shape how decisions are made.

If you’re interested in getting involved with our research on boardroom decision-making processes, contact the leader of our Research House, Dr Sarah Ogilvie at sarah.ogilvie@au.ey.com

During the pandemic, as organisations make tough choices in compressed timeframes, board chairs hold immense power to influence final decisions, even more than they recognise. How can chairs manage the power dynamics in their boardroom to temper bias, harness directors’ collective expertise and ensure critical decisions are made for the right reasons?

COVID-19 has put pressure on boards to make swift decisions made complicated by ethical dimensions. Some are delivering health-related decisions that will affect life and death on the frontline of the pandemic response. Other non-essential businesses are attempting to sustain their organisations while managing funds to retain and support their workforce.

In this environment, boards need behaviours, mindsets, and decision-making skills that will allow them to make visionary, creative and – importantly – effective, ethical decisions.

For chairs, some of whom hold the ultimate power on their board, the next 12 months will be a testing time. Yet, COVID-19 could be seen as a great leveller as like their employees, contractors, and customers, chairs have personal concerns for themselves and their loved ones. 

As they deal with their own anxieties about the pandemic, while making some of the most important and difficult decisions of their careers, how can chairs cut through boardroom politics and keep power dynamics under control to support, far-sighted decisions and yet still be swift and responsive? 

In practical terms, such action can take a variety of forms. Chairs need to manage their personal power; they need to ensure a disbursement of power in the boardroom and avoid the dominance of particular individuals; they must embrace diversity and inclusion in the boardroom to control the power dynamics and, finally, be flexible in accommodating shifting demands of decision-making.

Managing personal power

Through our primary research, board members highlighted that although their chairs are self-aware, they are still perceived to wield a disproportionate amount of power. Yet, much of this power will be given to the chair by the board members - even if the chair doesn’t speak up or try to derail, everyone knows who has the most power in the room.

Therefore, in the initial instance, chairs should acknowledge the implicit power and authority of their title – and look to reposition their role to better use its influence to ensure greater inclusion and more ethical decision-making. 

Chairs should acknowledge the implicit power and authority of their title

This may include speaking last to avoid being unduly influential. By listening first, summing up what they heard and speaking last, chairs can prevent themselves from derailing the decision-making process before it has begun.

Likewise, chairs should also understand the typical roles that can be present in the boardroom - such as the naysayer, optimist, innovator, challenger - and be conscious of these roles to better frame decisions and facilitate constructive discussions.

Doing so will encourage greater candidness around biases inherent in the boardroom.

Disbursement of power

Our research found a number of factors that contribute to a non-executive director’s willingness to influence decisions, including their background, personal style, relationships with other members of the board, decision-making baggage, and ability to read the room.

Therefore, chairs need to be aware of and watch out for the dominance of particular individuals, including themselves. 

Chair’s characteristics, such as gender, politics and background, can begin to influence the organisation, so it is vital chairs work to develop the self-awareness required to call out discussions that are being unduly influenced by boardroom power blocks, emotional judgment calls and decision-making history.

Controlling power dynamics

A powerful instrument for disbursing power is to increase diversity on the board. This approach can take time to implement. During this time, there are a variety of tactics that chairs can adopt including acknowledging previous decision-making conversations and their context to reset the playing field and mitigate bias towards stronger personalities. 

Further, chairs should be mindful of harnessing differentiated voices to enable an alignment on views. Chairs need to understand the different facets of each board member, not just the obvious characteristics they bring to the table and encourage individuals to speak even if they possess less direct technical expertise of the matter for discussion.

For chairs seeking to improve their effective decision-making capabilities, an understanding of the personalities, biases and power dynamics around their boardroom table is key.

This is particularly the case in times of rapid decision-making requirements (e.g. such as the current COVID-19 pandemic) when timeframes condense, and conditions can exacerbate existing issues.

With contributions from Mathew Ronald (mathew.ronald@au.ey.com)

Find out more about how Chairs can use their position to enhance the decision-making capabilities of others with EY’s Boardroom Decision-making Integrity Program, which helps participants understand the role they and others play in the dynamics that shape how decisions are made.

If you’re interested in getting involved with our research on boardroom decision-making processes, contact the leader of our Research House, Dr Sarah Ogilvie at sarah.ogilvie@au.ey.com