Bias in the boardroom: Good or bad?
Of the many biases humans are prey to – such as anchoring bias, loss-aversion bias, status quo bias, and recency bias – confirmation bias can be most evident in the boardroom. But...
Brain Circuits
What’s wrong with your board?
Three common ‘traps’ impact boards across the world in private and publicly listed businesses alike. Here’s how to identify which trap is standing between you and success in the boardroom.
Checklist: What behavior is the board exhibiting?
- Members show unwavering loyalty to the CEO.
- Members engage in groupthink, find consensus easily, and frequently arrive at unanimous decisions.
- Members are too controlling and fail to perform their coaching and advisory roles.
- Members are ruled by emotion, with decisions driven by the charismatic leader’s ability to shape others’ opinions.
- One or more directors repeatedly block decision-making.
- Directors label one another outside the boardroom, claiming they belong to different sub-groups with different beliefs, habits, and ways of working.
What trap have we fallen into?
1. The happy trap
The first two scenarios are examples of the happy board trap. The first, the deluded board, buys into positive management projections of the take-off or turnaround that never happens. Reassured by upbeat reports based on aggressive accounting and rosy projections, it ignores credible warnings of heightened risk and distracts itself with minor decisions. The second scenario is the empathetic board. This comprises members who, having little knowledge of the firm’s industry, emotionally identify or empathize uncritically with the CEO.
2. The dominated trap
Scenarios 3 and 4 typify the dominated board. Scenario 3, the autocratic board, is dominated by its chair, CEO, or owner. Ruled by intellect and fear, and mastered by the autocrat’s fast thinking on topics they are familiar with, they become overly controlling and neglect their other chief responsibilities. Scenario 4 typifies the guru board. This is ruled by emotion and charisma, with decisions driven by the guru’s perspective and their ability to take everyone along with them.
3. The gridlocked trap
Scenarios 5 and 6 describe a gridlocked board. Here, decisions cannot be made due to deep-rooted divisions and rival power bases. Again, two types can be discerned. Scenario 5 reflects an objective conflict over genuine differences between members regarding the strategic direction of the business. Scenario 6 arises due to cultural conflict. In both scenarios, when there is no willingness to compromise, divisions can become prolonged and intractable.
Escaping the trap
1. Happy boards
… need workshops to put proper evaluation, process, and committee structure in place to ensure that members fulfil their monitoring and supervising roles.
2. Boards with a dominant leader
… need more forceful intervention. The challenge is to get the dominant leader to accept that they are dominating and agree to play a different role. This requires all stakeholders to confront the leader with the reality of the situation.
3. Gridlocked boards
Here, the substantive issues should be separated from the personal as early as possible. In well-facilitated discussions, participants can identify the personal issues, which may be thwarted ambition, frustration, etc., and separate them from strategic issues. Once gridlocked boards become dysfunctional, the only way out is often a radical change in the board’s composition, if not the firm’s ownership structure.
Key takeaway
Every board must ask tough questions of leaders. The ideal board culture allows members to drive long-term value and growth while holding management accountable.
Authors
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