By
Nickson Ongaki
& George Macharia
(The Centre For Corporate Governance, Nairobi,
Kenya.)
Here we have developed seventeen
strategies, seven for directors as individuals and ten for Boards as a whole,
that can help you and your Board make better decisions.
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A. INDIVIDUAL
DIRECTORS “Everyone thinks of changing the world, but no one thinks of
changing himself” – Tolstoy
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1. Be clear on your roles and responsibilities as
a director: Clarity on your
roles and responsibilities as a director means that you are less likely to
waste time on issues or areas that are not your responsibility, allowing you to
focus on the truly important issues that must be dealt with in the boardroom.
More
importantly, the responsibilities of a director are a solid starting place for
good decision-making as they provide a crystal-clear framework in which you as
a director must operate. They also provide a lens through which to view
decisions once they are in the later stages of finalisation.
For
example, as a director you are bound by law to act in the organisation’s best
interests. In order to improve decision-making, you should be constantly
framing decisions through this lens. It is easy to get caught up in the details
or hubbub of making a decision and miss the most basic elements such as whether
the decision will lead to an outcome that is actually in the organisation’s
best interests. On the surface, it may often seem that a decision will be in
the organisation’s best interests, however, if the wrong frame of reference is
used it could be that the decision is aligned in the short term but not in the
long term or vice versa.
2. Acknowledge your biases and work to balance
them: As human beings, we have a wide
range of biases, both known and unknown. Directors must work to ferret out
their biases, acknowledge them and to compensate for them when making
decisions. However, do not forget that when you are trying to take bias out of
decision-making, you need to be cautious not to take instinct, courage, and gut
out as well. These do form important parts of decision-making.
3. Understand that you are dealing with
uncertainty: When making
strategic decisions, you should realise that when you are discussing risk you
are dealing with uncertainty and ambiguity. In the boardroom, we often focus on
risk as being something that can be clearly identified, the likelihood
calculated or assigned a high or low ranking and therefore mitigated. The
underlying assumption here is that we can accurately predict the future
outcomes and associated probabilities of a particular event or course of
action. Research and history has repeatedly shown that as humans we are
notoriously terrible at predicting the future. One of the key reasons for this is
because we underestimate or fail to account for the effects of uncertainty.
This is equally true we when are attempting to identify and codify risks. We
often like to believe that we can see all the outcomes and that we are certain
about these, but certainty is an illusion. As Ben Franklin famously said “In
this world nothing can be said to be certain, except death and taxes.”
The
ISO 31000 (2009) developed by a panel of over 30 international experts defines
risk as the ‘effect of uncertainty on objectives’. Risk is an intentional
interaction with uncertainty and needs to be treated accordingly.
There
are essentially three types of situations in which we all make decisions:
i.
Outcomes are known
(Certainty)
ii.
Outcomes are
unknown, but probabilities are known (Risk)
iii.
Outcomes are unknown
and probabilities are unknown. (Uncertainty)
We
would like the world to operate like #i, we typically think we are making
decisions in #ii, but we are often actually making decisions in #iii.
“Risk
applies when probabilities are known, as they are at gambling tables, or for
insurance companies that have vast amounts of data on individual risks.
Uncertainty prevails when even those probabilities are unknown, as they are for
virtually all real-life decisions.”
Although
they often discuss risk, it is more common that Boards are actually dealing
with uncertainty – where outcomes cannot be accurately predicted and the
probabilities of those outcomes occurring are difficult or even impossible to
predict. Uncertainty arises due to the complex and chaotic nature of the
environment in which non-profit organisations operate. Recognising that you may
be discussing uncertainty rather than risk around your Board table is important
as there is a distinct difference between the two and they both require
different thinking and approaches.
Successful
navigation of uncertainty requires that directors take a much bigger picture
approach. Directors who are generalists, as opposed to specialists, are more
suited to dealing with the bigger picture, uncertainty and ambiguity.
Generalists tend to focus on connecting dots rather than working on developing
them. They look at issues through multiple lenses and are therefore able to
draw a signal from the noise where others cannot. Conversely, specialists – who
often have very deep knowledge of a particular area of expertise – are talented
at diving deep into a very specific and well defined issue and calculating the
outcomes and associated probabilities, which is a behaviour more suited to
dealing with risk than uncertainty.
4. Reframe:
Flip the situation or issue around in order to reframe it. For example, what if
you were on the Board of a competing organisation, how might you respond to
your organisation making a certain decision? Or what might the outcome be if
you decided to do the opposite? Alternatively, frame the problem as if you were
an outside consultant brought in to provide advice to your Board on the issue.
This can help you to look at decisions from another perspective and therefore
enable you to cultivate more valuable insights about an issue that your Board
is grappling with.
5. Be mindful:
Mindfulness
is often viewed as an abstract practice; however, it is becoming widely used by
the directors and executives of some of the largest corporations on the planet
due to its many tangible benefits. “Mindfulness means paying attention in a
particular way; On purpose, in the present moment, and nonjudgmentally.”
Mindfulness is working to be more aware of the present moment and the
situation. There is much written on mindfulness and its links to
decision-making. Some quick research will provide further information on this,
but at its core, mindfulness can help you to work toward being more
present-state aware when considering complex Board issues. Present state
awareness is where you are more able to recognise what is driving you at the
moment you take action or make a decision. An example of present-state
awareness is being aware of whether you are exhibiting a negative behavior
(e.g. being a “control freak”) in the moment you are making the decision.
Unless you are mindful and present-state aware you may not realise you are
exhibiting negative behavior until well after you have started to do so. By
that point, particularly with Board decisions and discussions during the
decision-making process, the damage is already done.
6. Use a decision-making process and framework: Research from McKinsey highlights that while
analysis is important in decision-making, the process used matters more than
analysis by a factor of six. Implementing a decision-making framework to
improve the process you and your Board use to make decisions can lead to better
quality decisions and outcomes for your organisation. There are several
decision-making frameworks available, however, a straightforward one to use as
a starting point is the WRAP framework that Chip & Dan Heath outline in
their book Decisive.
7. Practice strategic decision-making every day: These techniques can be used on more than just Board-specific
problems. Use them to get a better handle on the smaller decisions you make
every day at work or at home. As they say, practice makes perfect and
practicing these methods outside the boardroom will make you better at using
them when it comes to the big issues, wicked problems and critical decisions
you need to make about your organisation’s future.
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B.
THE WHOLE BOARD
“If everyone is moving forward together, then
success takes care of itself.” - Henry Ford
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1. Build diversity: Much of the focus when discussing Board
diversity has been on tangible factors, such as increasing the number of women
or young people on Boards. While these are both important, a key advantage of
embracing diversity in the boardroom can be the Board’s increased diversity in
thinking and the benefit of different ways of thinking that the contribution of
people from different backgrounds can provide. These additional advantages of
diversity can inadvertently be ignored when the focus is solely on areas like
gender or age. Diverse thinking and different perspectives on topics, or even
life, will bring more robust thinking to your boardroom and bolster good
decision-making.
2. Cultivate trusted Board advisors: Cultivating trusted advisors can be a powerful
way to ensure that all sides of an issue or decision are explored. Trusted
advisors are people who have the courage to provide honest feedback, and who
you, or are willing to play devil’s advocate and ask the really hard questions,
even if the issue or discussion may be uncomfortable. This requires a
reasonable level of confidence as well as comfort with confrontation, but it
again brings diversity of thought and different perspectives that will
ultimately strengthen the decision-making process.
3. Leverage sub-committees and external advisors: Sub-committees and external advisors are a key
asset to Boards as they can provide another set of eyes through which to view a
set of issues. Sometimes we can get stuck in our own heads, and even the most
diverse Boards are certainly susceptible to groupthink or the influence of a
particular person or group that holds power or status. Utilizing a third party,
whether a consultant or is someone who sits on a sub-committee and not on the
main Board, can help resolve these problems. This third party is less likely to
be immersed in the emotion or details of an issue and can therefore potentially
avoid the blinders that someone who has grappled with it might have.
4. Improve reporting to the Board: The way information flows to your Board and the
method of its presentation to directors can have a significant impact on the
way that information is perceived, understood and processed, and ultimately the
final decisions. The personal traits of directors may even be an influencing
factor here. For example, a director who is very detail-oriented and likes to
wade through the minutiae of reports is likely to prefer different reporting
mechanisms from someone who is more interested in the big picture and prefers
broad overviews.
Due
to a variety of factors, such as personal preference and time constraints,
there is a trend toward directors being presented information in a more
succinct dashBoard style. As a director, something key to remember about the Board
reports you are presented with is that just as you have your own biases, the
person preparing them will have biases in their perception of the related
issues and associated risks of a particular decision. When reading these
reports, it is worthwhile keeping in the back of your mind that these biases
may have influenced the preparation of the report and you should be on the
lookout for them.
5. Adopt a structured test-and-learn approach: Working to uncover your Board’s underlying
decision-making process is a valuable exercise. Look at how often decisions are
made and revisited, who is accountable, what inputs are considered, and the
level of process and analysis used. Making a concerted effort to figure out the
structure within which the Board makes decisions and then documenting it in a
decision-making blueprint will help to improve the process over time.
Once
you have a blueprint documented you can then test variations or changes to the
process to see if it helps the Board make decisions more effectively. Creating
a blueprint that lays out how your Board makes decisions – both big and small –
provides a rigorous approach to decision-making. As the Board refines new
approaches to the way it makes decisions, your decision-making blueprint should
be updated.
6. Document and track your decisions over time: Once you have a decision-making blueprint, it is
important to also track how the quality of the decisions the Board make are
improving over time. Every decision the Board makes should be documented on a Board
decision register. The most basic decision register will show the decision and
when it was made. A more robust and sophisticated register will also record who
was involved in making the decision, the potential expected outcomes of the
decision, the potential impacts of those outcomes, associated risk rating and
likelihood of that outcome. Over a period of time, the register will provide
information about where you are making decisions that are effective. The Board’s
perception of risk levels can be tracked as well as accuracy of predictions.
What many Boards are likely to find is that the risks of certain outcomes were
in fact different from what was anticipated and that predictions about what
might happen in the future were not as accurate as believed. This awareness can
be fed back into the Board’s decision-making process when making decisions in
the future.
7. Continuous reviews over the annual review: Research by HBR7 shows that organisations that
abandon the old methods of planning, where there is a single annual review of decisions,
were able to make twice the number of strategic decisions each year. Regularly
reviewing your decision-making processes, decision-making blueprint and
decisions register on a quarterly basis can help increase the number of
strategic decisions you can make.
8. Risk-averse or opportunity: A Board can easily become risk-obsessed, and too
often directors define risk as something you avoid rather than as something you
take. Taking risks is a key part of making strategic decisions. Risks are often
the reasons that something is an opportunity for your organisation. Growth and
development cannot come from constantly playing it safe.
9. Make tough people choices: You do need to make hard calls about the people
who are sitting around the boardroom table. You might be struggling with a
director who never seems to make time to contribute, someone who is getting
long in the tooth, a director who does not realise the organisation has moved
beyond their level of skill, or maybe the Board is too homogeneous and lacks
the diversity of thought required in today’s environment. Whatever the reason,
you need to ensure that the right people are around the Board table in order to
make the decisions that will ensure a bright future for your organisation.
10. Be decisive: Directors and Boards can be held back in their
decision-making because of indecisiveness. The world in which we operate today
moves faster and is more volatile, uncertain, complex and ambiguous (VUCA) than
ever before. Decisiveness is imperative in a VUCA world as some of the most
damaging decisions are missed opportunities. Being decisive is about being
timely. Nine times out of ten, making an imperfect decision at the right time
will trump making the perfect decision at the wrong time. Decisions do have a
shelf life so ensure you put a time frame on them. The decisiveness of a Board
is influenced by the types of people who sit around the table. Certain
personalities are more likely be hesitant in their decision-making. Do not make
the mistake of waiting too long to make a decision and letting opportunities
pass you by.
