5. Board decision-making Flashcards
Which CEO competency was ranked as the most important by other directors?
Decisiveness
*maybe speed and conviction is more important than quality
Recent approach to decision-making process
Evidence-based practice
Define evidence-based practice
The conscientious, explicit and judicious use of the best available evidence from multiple sources to increase the likelihood of a favourable outcome
4 sources as defined by evidence-based practice
- Professional expertise
- Internal organisational data
- Research evidence
- Local context (major stakeholders and their values and concerns)
Evidence-based practice’s six-step process through which to make decisions (6 As)
Asking: translating practical issue into answerable question
Acquiring: systematically searching for and retrieving the evidence
Appraising: critically judging the trustworthiness and relevance of the evidence
Aggregating: weighing and pulling together the evidence
Applying: incorporating evidence into the decision-making process
Assessing: evaluating the outcome of the decision taken
Oliver Manet, researcher, concluded in his article on boardroom bias: (4)
- Boardroom bias is inevitable and frequently underestimated
- Bias plays a significant role in board decision-making
- Bias particularly undermines the perceived benefits of independent directors
- Governance regulation needs to emphasise effects of bias and mandate use of de-biasing procedures
9 of the most well-known types of bias
Goupthink
Confirmation bias
Anchoring effect
Hindsight bias
Availability bias
Loss aversion
Sunk cost fallacy
Framing effect
Metacognitive bias
What is groupthink (bias)?
Overriding desire for consensus and unanimity, leading to suppression of internal dissent and consequent inadequate evaluation
What is confirmation bias?
Tendency to interpret information consistent with out prior beliefs
What is the anchoring effect (bias)?
Tendency to rely too heavily on one trait or piece of information (often first piece provided to us)
What is hindsight bias?
Tendency to see past events as more predictable than they were, causing us to view future events as more predictable than they are
What is availability bias?
Tendency to make decisions influence by events or experiences that come to mind or are easily accessible
What is loss aversion (bias)?
Tendency to prefer avoiding losses than to acquiring gains
What is the sunk cost fallacy (bias)?
Tendency not to accept our decisions are wrong and therefore to lost further
What is the framing effect (bias)?
Tendency to draw different conclusions from same information presented in different ways
What is metacognitive bias?
Tendency to believe we are immune to bias
Kahneman, Lovallo and Sibony - 12 question/checks checklist to quality control decision-making process (mitigate bias) can be broken down into which three categories?
Questions/checks decision-makers should ask themselves
Questions/checks they should use to challenge those propose a course of action
Questions/checks to evaluate the proposal
Kahneman, Lovallo and Sibony - 3 questions/checks decision-makers should ask themselves
Check for self-interested biases
Check for the affect heuristic (emotional decision)
Check for groupthink
Kahneman, Lovallo and Sibony - 6 questions/checks that should be asked to challenge those proposing a course of action
Check for salience bias (bias towards more prominent or visible items)
Check for confirmation bias
Check for availability bias
Check for anchoring bias
Check for the halo effect (ie. is team assuming a person, org or approach will be just as successful in one area as another)
Check for sunk cost fallacy, endowment effect
Kahneman, Lovallo and Sibony - 3 questions/checks to ask to evaluate the proposal
Check for overconfidence, optimistic biases
Check for disaster neglect (ignoring consequences or worst-case outcome)
Check for loss aversion (overly cautious)
What is one prominent decision-making tool?
The WRAP framework
What does WRAP of WRAP framework stand for?
Widen your options
Reality-test your assumptions (to fight confirmation bias)
Attain some distance before deciding (10/10/10 rule)
Prepare to be wrong (by planning for that possibility)
What is the 10/10/10 rule
- How will we feel about it 10 minutes from now?
- How about 10 months from now?
- How about 10 years from now?
4 factors that influence team decision-making
Board structure - size, frequency of meetings
Board diversity - mainly behavioural diversity (outputs)
Board leadership culture
Board stakeholder conversations - which groups have been included
