Australian boards have taken steps to reduce decision-making bias, principally through diversity initiatives. But gender and skills diversity may not be enough if too many directors have the same decision-making style and thinking processes.
That is the view of Juliet Bourke, a leading thinker on human capital. Bourke heads Deloitte Australia’s Diversity and Inclusion practice, co-leads its Leadership practice and wrote the popular business book, Which Two Heads are Better than One? She is also a TEDx presenter.
“Demographic, skill and experience diversity are important for boards,” Bourke says. “So too is diversity in the way problems are solved by directors. High-performing boards consider the perspective of directors, how they arrive at decisions and the mix of decision-making styles.”
Decision-making bias is an insidious board threat. Every director, consciously or subconsciously, brings cognitive biases to the boardroom.
Confirmation bias, for example, occurs when directors seek evidence that confirms their beliefs and discount evidence that goes against their view.
Selection bias occurs when directors base decisions on too small a sample. For example, a director of a retailer receives bad service at one of its stores, so assumes customer service is a problem across the company. Anchoring bias affects directors who rely too heavily on a piece of information and jump to decisions based on first impressions.
Bourke says having a mix of directors with different problem-solving approaches helps to mitigate these and other biases. Her research points to the reduction of errors by up to 30 per cent and the likelihood of innovation by 20 per cent.
Here is an edited extract of Bourke’s interview with the Governance Leadership Centre:
GLC: Juliet, is decision-making bias in boardrooms becoming a bigger governance issue?
Juliet Bourke: AICD has put this issue on the table and I’ve noticed more interest in the topic from current and aspiring directors. I hear a lot more talk about “diversity of thinking” in Australia than in other countries. And that is going to set us up for success because the volume of information coming at directors is increasing and pressure to make the right decision is intensifying. Effective directors worry about personal biases as well as the potential for group think. We are seeing progress in this area but it remains an emerging governance topic.
GLC: Does combatting decision-making bias deserve higher priority in boardrooms?
JB: Board decision-making processes, board composition and board leadership have never been more important. We are on the cusp of an era of unprecedented change. Our future looks very different from the past because of globalisation, political unrest, digital disruption, automation and other trends that are unparalled in history. Boards, collectively, will face more complexity and be required to make bolder decisions. Perhaps one of the biggest biases is status-quo bias – the bias to default to the current state.
GLC: Australian boards have increased diversity through board composition. Is that enough to reduce decision-making bias?
JB: In some ways, demographic and skills diversity have become proxies for diversity of thought on boards, and they can be weak proxies. Boards can have a mix of male and female directors, and lots of different skills, and still suffer from decision-making bias. This could have too many directors who approach decisions through the same problem-solving framework. The phrase: “great minds think alike” is flawed. We need to work with people who bring very different perspectives to an issue.
When too many board directors think similarly, it creates a voting bloc. That tends to shut down people with differing approaches and can lead to group think and poor-quality decisions.
GLC: What is an example of decision-making bias in boardrooms?
JB: I found that there are six different ways that people approach problem solving, and while all are equally important, individuals tend to be better at one or two approaches. These six mental frameworks canvas: outcomes, options, people, process, evidence and risk.
Many directors of larger organisations tend to be former CEOs. Often, their decision-making approach has a strong bias to solution problems by focussing on defining the outcomes to be achieved and the options to get there. They want results and the fastest way to get there. That’s not surprising given market pressure for short-term earnings. Some CEOs who are now independent directors may not consider decisions enough from a people, process, evidence or risk perspective.
In a practical sense, directors can get tired and make decisions that are consistent with the status quo, or make or no decision. They don’t speak on an issue for fear of being seen to be out of their depth, or they hope that another director understands the issue at hand.
Diversity of thinking can help create productive friction in the group, leading people to ask questions from different angles. The tension is this: some directors don’t see this friction as valuable. They prefer cohesion. And they might assume that their way of solving a problem is the best way. A more inclusive board director understands their strengths and weaknesses, and seeks to supplement their way of solving a problem with the approaches used by others. That is what collective intelligence means.
GLC: So, the challenge for boardrooms is to have a mix of these decision-making approaches?
JB: Correct. If the board is heavily focused on options and outcomes, it’s important there are other directors who approach decision-making through a people lens. For example, how will this decision affect our customers, staff and stakeholders? How will it affect our organisation’s standing in the community?
Another director’s decision-making style might revolve around evidence: they objectively look at data before making decisions and rely less on intuition. Another thinks deeply about process: can the outcome be implemented on time and budget? Another is focused on risks and what can go wrong if the decision is made?
GLC: Can directors move between decision-making styles as needed?
JB: Possibly, but it’s more likely that each director will lean on just one or two approaches to problem solving. I haven’t yet many anyone who is equally proficient at all six approaches (although I have met people who think they are!). That’s fine; if having a strong outcomes and options decision-making style led to a successful career as a CEO, why change?
Also, it’s very hard to change a style that a director has favoured for decades. The aim is to have directors with decision-making styles that complement each other. That’s what I mean by collective intelligence: seeing an issue from six different perspectives, with each one equally well explored.
GLC: Are you suggesting that chairmen need to make more formal efforts on decision-making diversity in their board composition strategy?
JB: To a point. I see decision-making approaches as another layer of diversity, perhaps a deeper level of diversity sitting underneath demographic and skills diversity. But that doesn’t mean boards need directors who fit every style of decision-making.
The key is understanding how different directors approach decision-making, if one or two styles are too dominant, and how that bias is being addressed. It’s obvious that if boards overweight defining outcomes and underweight attention to risk, it will create a bias in the final decision. If a chair recognises that potential, then they can mitigate it through supplementary thinking.
GLC: How important is the Chair’s role in decision-making approaches
JB: It’s critical. A good Chair understands how different directors approach decisions and uses that to drive effective discussions. For example, a Chair might encourage the opinion of a director who makes decisions through a strong evidence lens, as a counterbalance to the view of another director who focuses on options. The Chair draws on different decision-making approaches as needed to challenge assumptions and tests decisions and the process behind them.
GLC: Your model seems to fit with a growing push for companies to have a conversation with communities, not only shareholders. Do you expect more boards to think about the impact on a broader group of stakeholders in their decision-making?
JB: I do. We are starting to the see the return of a people-orientation focus in boardroom decision-making as more directors think about the wider impact of their decisions on the community, not only the needs of shareholders. Growth in big data and analytics tools will see growth in directors who take a strong evidence-based approach to decisions.
GLC: Juliet, you have researched, worked with and led top teams for many years. What are the traits of high-performing teams?
JB: There are three foundations. The first is diversity: top teams have different skills, experience and perspectives. Second, high-performing teams are highly collaborative and open. The third is inclusive leadership: having a leader who sets the tone, anticipates and manages conflict, and helps people do their best work. Groups with these characteristics can be improve the quality of decision making by 20 per cent.
Which Two Heads are Better than One? is available through AICD’s Book Store.