By Dr Debra L. Brown, President & CEO of Governance Solutions
There are seven common biases that could be sabotaging decision-making in your boardroom and causing you to make suboptimal decisions; decisions that are more subjective because they have been framed through bias and feelings, rather than influenced by facts.
1. PESSIMISM bias is when the probability of the harmful effects of negative future events get overestimated. This bias impacts the boardroom in many ways: risk aversion is top of the list. When a board acts as a wet blanket on the ideas and strategy of management, innovation is stifled. Cynicism and negativity suppress the CEO’s creativity, energy and courage and, by extension, the organisation’s. So, how do you recognise it? Over time, results drop off. Products and services become stale. Competitors sail past you. Your best people leave the organisation. Why? If you are getting emotionally beat up by pessimism, or your ideas aren’t being implemented, you will move on to an organisation that will empower, support and bring out the best in you.
2. OPTIMISM bias causes you to believe you are less likely to experience negative events. The key impact of optimism bias in the boardroom is excessive risk taking. Here’s one way to recognise it: you notice that negative outcomes are being glossed over, by the board, management, or both. Maybe the business case for a new material initiative discounts the evidence against it. Perhaps warning signs are being ignored, like falling sales in a product line; return on investment (ROI) is slowly creeping downward; other non-financial metrics are not meeting targets. Red flags are being ignored or explained away with optimistic promises that things will turn around. You may notice a track record of more failures than successes or results of new initiatives that are significantly less than initial projections
3. CONFORMITY bias means we match our attitudes, beliefs and behaviours to group norms. In boardrooms with this bias, everyone fits in; they conform. Politeness and conformity become a barrier to healthy, candid, necessary and constructive dialogue and debate. You may notice a strong preference for social interaction. Conversations seldom get uncomfortable. Dissenting views are rare or left unspoken. When contentious issues are raised, there are few hard questions. More time is spent on easy-to-discuss routine agenda items in comparison to the more challenging ones. Putting a process in place that will force structured, evidence-based decision-making will force the board to push through and overcome the negative aspects of this bias.
4. ANCHORING bias causes over-reliance on the first piece of information we get. In the boardroom, it could come from the initial rationale that your CEO builds his/her case on. When things start to go south, the board remains anchored in what first sold them on the idea. Regardless of facts to the contrary, they are anchored in their prior experience or understanding and are unwilling to challenge the initial assumptions or to contemplate change. If you see that money, time and energy continues to get poured into an initiative, product line or division, while at the same time results are off target and the reasons behind it don’t make sense, then you may just have an anchoring bias.
5. CONFIRMATION bias means that you will look for information and relationships that will confirm what you already think about something. In the boardroom, this bias is probably the one that most affects board and CEO succession. This is because you are looking to see what makes you comfortable and hear the messages that confirm what you already know and understand. If someone in an interview comes at a problem in a way that does not confirm what you are thinking, you may tune them out. Even the questions you ask may be framed in a way that will help confirm what is important to you. If you find you or your board are making snap judgements in board or CEO appointments and people aren’t working out as well as you might hope, this can be a sign of confirmation bias.
6. IN-GROUP bias happens when you favour one group over another. Anytime you have insiders and outsiders on the board you have in-group bias. Every board has this bias to some extent. You will recognise this bias when you see a small group of people making the big decisions or who have more influence on those decisions than other directors. Or, when there is a group who don’t feel their voices have been heard. Allowing this bias to live in your boardroom means that you are wasting valuable time and input from people who could otherwise add value to the board. They get discounted because they are not in the in-group. It’s not much different from our school days cliques. Board decision-making is weakened by this. It is less informed. The board is a collective and should act as one.
7. EGOCENTRIC bias is the tendency to rely too heavily on your own perspective and/or have a higher opinion of yourself than reality would dictate. Whenever you see someone in the boardroom claiming they are the only one who has THE answer, you could be in trouble. There are very few questions the board deals with where there even is THE answer. There are bad answers, OK answers, good answers, great answers and even phenomenal answers. The board needs to exercise business judgement based on the information it has, in the time it has available. You may not always find the phenomenal answers but overcoming egocentric bias will keep the board from accepting just OK answers and build them into better ones. ‘You’re wrong and I’m right’ is rarely helpful and reduces our thinking to binary ‘either/or’ choices. The significant, complex decisions we make in the boardroom require more of us than that. Boards must engage in multifaceted business decision-making. Our thinking can always be added to, nuanced, amended and improved upon. Egocentric bias is an impediment to that.
BIASES AREN’T ALL BAD!
Our brains develop biases to adapt to our environment. They help us to be nimble; to make quick decisions. If we are in a dangerous situation, we should be thankful we have biases to backstop us! Don’t let unconscious cognitive bias sabotage decision-making in your boardroom. The secret is to take steps to recognise our biases and make them work to our benefit rather than our detriment.
About the Author
Debra Brown is the founder, president and CEO of Governance Solutions Inc. Since founding GSI in 1991, Debra has developed it into a full-service firm providing governance consulting, research, training and tools. Additionally, Debra is the founder and a lead faculty member of The Professional Director Certification Program™, a world class, online director education and certification programme. Currently, Debra serves on major international boards and has worked in corporate governance in North America and as far afield as Malaysia, Bahrain and Guatemala.