Our Board of Directors is made up of experienced and talented people who know how to ask the tough questions, are capable of constructive discussions, and are passionate about steering the company in the right direction. That should ultimately lead to timely and wise decisions…right?
Not always. As experienced directors know, even boards with top talent and the best intentions can fall prey to biases, entrenched thinking, and internal dynamics that prevent effective decision-making. . “Problematic group dynamics affect all kinds of teams,” Paul DeNicola, principal at PwC's Governance Insights Center, told the assembled audience. CBM's recent Board of Directors Summit. “Boards are no exception.”
In a session that delves into the common pitfalls plaguing boards, DeNicola and colleague Katie Hall, director of the PwC Governance Insights Center, provide solutions and actionable solutions for directors looking to improve board performance. proposed a strategy.
Four pitfalls that undermine board decision-making
DeNicola and Hall highlighted four major behavioral traps that boards often encounter.
1. Threat rigidity: Hall described this threat as “the tendency for groups to become less flexible as external pressures increase.” More simply, when a crisis occurs, such as a cyber breach, a letter from a shareholder activist, or a reputational issue, board members may instinctively fall back into old patterns rather than adapting to new circumstances. There is. “Imagine you're driving and it starts pouring rain. Do you pull over or keep going at the same speed?” He says boards in crisis should figuratively “keep going.” He pointed out that there were many cases where the government missed opportunities to correct course. This response leads to suboptimal decision-making because boards are too narrowly focused on traditional policies and fail to consider innovative solutions. “In certain environments, even directors who are creative and independent by their nature may be reluctant to challenge the status quo,” DeNicola says.
2. Escalation of commitment: This is the tendency to double down on past decisions even when new evidence suggests a change in direction is needed. “I've always been fascinated by the phrase 'stick to your guns,'” DeNicola said. “If a soldier was at a particular strategic point of importance, he was ordered to keep fighting, whether he could win the battle or not.” This attitude may be laudable in battle, but it fails in the boardroom. This often results in stubbornly pursuing a project that has already been done. “Ask yourself the following questions: 'Hold on' to a failing project long past the point where you know you should have changed course or could have abandoned it. Have you ever spent the effort and money to do so?”
3. Underestimating collective intelligence: While boards are typically comprised of seasoned individuals with impressive resumes, their strength lies in their collective intelligence. All too often, boards overlook this point in favor of a few powerful voices. “The collective board is and should be wiser than any individual,” Hall said. But without systematic turnover and a focus on harnessing diverse perspectives, boards risk missing out on this benefit.
4. Lack of psychological safety: De Nicola defined psychological safety as a group's ability to take risks, express ideas, and admit mistakes without fear of negative consequences. However, in a survey of more than 700 directors conducted by PwC, more than half admitted they were uncomfortable expressing opposing opinions at board meetings. “Being an effective board member depends on your ability to express your opinion, even if it is unpopular,” he stressed. Lack of this safety in the boardroom stifles important conversations and leaves potential problems unresolved.
Strategies to improve board decision making
Recognizing these pitfalls is only the first step. Mr. DeNicola and Mr. Hall provided a set of practical strategies that board members can implement to improve decision-making and foster a healthier board environment.
• Encourage fresh voices first. To counter the threat of rigidity, consider allowing new directors to speak first in the discussion. This helps prevent authority bias, where senior or more vocal members set the tone and can silence different viewpoints. “When the first voice in the room is a long-tenured director, board chair, or even committee chair, that first voice comes with an authority bias,” DeNicola said.
• Mandate alternative scenarios. The board should request discussion of alternative courses of action before making a decision. “That seems obvious, right? But we should require a discussion of alternatives to avoid moving to the most obvious and most comfortable decision,” DeNicola said. Using the devil's advocate approach, you can ensure that all angles are considered and that the board does not choose the option it is most comfortable with.
• Openness of the model to change. DeNicola said boards need to “change the paradigm of course correction” when it comes to overcoming commitment escalation, noting that sometimes course correction is just the right way forward. did. And boards that demonstrate flexibility can create an atmosphere that encourages similar behavior from management.
• Focus on behavioral fit during recruitment. To foster collective intelligence, Hall suggested changing the way boards evaluate potential directors. “Behavior conformity is just as important as what's written on paper,” she noted. By including behavioral questions in interviews and assessing how candidates interact in real-world scenarios, boards can build more cohesive and effective teams.
• Prioritize psychological safety. Boards must consciously foster an environment where dissent is not only allowed but encouraged. Mr. DeNicola recommended that the Chair pay particular attention to how new directors are integrated and that they feel comfortable voicing their views. “It’s important to make sure everyone feels heard from day one,” he said. This allows for richer discussions and more robust decision-making.
Ultimately, boards that embrace diverse perspectives, adapt to changing circumstances, and create a space where all voices are heard will be better equipped to address today's most complex challenges. Masu. When boards recognize the importance of dynamics and take intentional steps to improve them, they transform from a collection of talented individuals into a strong, unified team. This can make a huge difference in today's ever-changing business environment.
