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Optimizing board decision-making

February 9, 2021 Leave a comment Go to comments

There’s an interesting article on the London Stock Exchange page: Optimizing board decision-making in the eye of a storm. It is written by an individual that advises boards and directors in the UK.

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Risk and audit professionals need to think about what their customers need and how that is changing in these dynamic and turbulent times. They should consider whether there is a need to change one or more of:

  • What they are addressing
  • When and how often it is being addressed
  • The time it takes to do that
  • How the results of their work are communicated, including the speed of that communication

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The author references a director who is on “an experienced board with battle-hardened veterans in both the ranks of the executive and non-executive directors.” Even so, “he indicated that the board and executive team seriously struggled with the enormity of the challenges facing the organisation”.

He continues:

While he indicated that the board were quite mature in terms of risk management and business continuity planning, the sheer scale of the Covid-19 crisis literally floored the board both in terms of the scale of business impact, the impact on their employees and currently how difficult it is to plan for the “new normal”. The scale of the crisis necessitated a number of major decisions to be made in a very compressed timeframe.

While the board may consider themselves “quite mature in terms of risk management”, that is questionable – but not a topic for today.

Here are some notable points with my comments:

  • While a board has many broad types of responsibilities, the fundamental responsibility of a board is to make major decisions. At a time of extreme crisis management, this acute responsibility comes to the fore and represents a fundamental test of a board of directors in terms of its calibre, decisiveness, effectiveness, judgement and performance.
    • Comment: I would argue that what is even more critical is the ability of the executive management team to make quality decisions at speed and communicate those decisions effectively.
    • In addition, there needs to be an agreement between the board and the executive team (including the CAE and CRO) on what will be shared with the board, how, and when.
    • The practitioner needs to be alert, communicate issues in this area, and offer constructive suggestions for improvement.

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  • The brutal reality of the Covid-19 crisis is that major decisions have had to be made and continue to be made by boards in compressed timeframes of days and in extreme cases hours that have very serious consequences for the organisation, its employees, its customers and shareholder/stakeholders. While in many cases, government and public health regulations dictated timeframes for major decisions, the reality is that in the vast majority of cases, boards are having to get used to extremely short review cycles for what are often complex choices with significant consequences for each option.
    • Comment: again, this applies to the management team as well. Do they have the capacity to make informed and intelligent decisions at speed?
    • Do they know when they have to make decisions?
    • Do they have the agility and flexibility to make decisions, or is there too much red tape?

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  • The quality of information is the life-blood of a board in terms of major decision making in normal times. At severe crisis management times like this, it is very challenging for the CEO and executive team to devote the usual time needed to develop comprehensive board packs when in some cases you may have just 24 hours before the next virtual board meeting. In these cases, I believe quality is more important than quantity in terms of helping the board understand the logic behind major proposals from the CEO and executive team. In some cases, while not ideal, CEOs and executive teams are heavily relying on gut instinct in terms of picking from what appears to be radically different options. In these cases, it is important to provide the NEDs with your “gut instincts” and assessment of the pros/cons of each major option.
    • Comment: in times like these, any ‘risk’ practitioner needs to ensure that any identification or assessment of what might happen (which could be adverse, risk, or favorable, opportunity) is performed at an appropriate frequency and speed.
    • Talk about ‘gut instinct’ brings up the issue of cognitive bias, as well as the fact that many decision-makers don’t know what information is available that would be of value, let alone what information can be made available.
    • One thought is to examine the agility of any IT function in providing decision-makers with the information they need, when they need it.

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  • It is vital that where needed, a board gets external expertise to help with a major decision. This might be an experienced existing advisor partner who understands the organisation and sector but also may be a truly independent sector expert who could provide a brutally cold objective assessment of the options that could ultimately improve the final decision-making process.
    • Comment: this is where the practitioner can help. I prefer management and the board to use internal resources like internal audit before even thinking of going outside to an organization that doesn’t have much of an understanding of the company and its operations.

The overall message is that the way in which the board and executive management teams have to operate to thrive in today’s environment is changing.

The members of the board, the management team, and both internal audit and risk practitioners need to ensure they can and have changed as well.

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I welcome your thoughts.

  1. February 9, 2021 at 3:57 PM

    Norman. As Grant Purdy and I describe in our book “Deciding”, ultimately all decisions are an attempt in the prevailing context to take advantage of opportunities to pursue the Purpose of the organisation. So the success of any decision will first and foremost depend on the Deciders (in this case, Board members) being clear as to these three considerations (Purpose, Opportunity, Context). Competent Deciders don’t need ‘practitioners’ or ‘advisers’ (let alone IA types) to get those right. They just need to discuss and articulate them out loud and confirm a common understanding. That then provides the background against which the normal decision-making process proceeds (we described the process as the ‘universal method of decision-making’ because whether consciously or not, its what we all do – whether competently or less competently).
    So the claim in the LSE article that “the fundamental responsibility of a board is to make major decisions” is …..err…..’fundamentally’ not correct. Rather, the fundamental responsibility is to ensure that the organisation is at all times pursuing and achieving its purpose in the prevailing context which may or may not require decisions to be made.
    Hence, first and foremost (as we explain in “Deciding”) this necessitates a clear and shared understanding of Purpose, of which the LSE article says nothing.
    As to the rapidity of decision-making in these times, there are two issues – again discussed at length in “Deciding” (refer section ‘Deciding under pressure’). One is that if the context changes (as it is frequently doing during the Pandemic but increasingly these days is close to the norm anyway) the vulnerability of an organisation will be a product not so much of the change, but of the extent to which the earlier decisions under which the organisation is operating, have contemplated the potential for (and detection of) change. The other is that vulnerability notwithstanding, the universal method is inherently suited and able to respond.
    So the challenge for the boards of LSE member organisations is not to adopt or rely on ‘risk management’ mumbo jumbo (which, we explain is a ‘millstone’ rather than a multiplier) but to just ensure the decision-making skills of their members are maintained match-fit at all times! The LSE would do its members a favour by advocating that all (actual and virtual) board rooms display a copy of the graphic of the universal method which appears in ‘Deciding’.

  2. February 10, 2021 at 1:22 AM

    The article provides an interesting insight into board decision making:
    There is no mention of using the wider management team and its expertise (you mention it Norman).
    The usual practice of decision making, set your objectives, evaluate the options, make a decision, decide on actions necessary and communicate these is mentioned, but only in relation to ‘gut instincts’. One primary objective of a board is to look ahead and therefore avoid the need for ‘gut instincts’.
    The general impression given is of a board running around like headless chickens looking for a consultant to make their decisions. This begs the question, ‘What exactly is the board paid for?’

  3. February 10, 2021 at 2:52 AM

    I tend to agree with Roger that boards sets frames and directions (purpose) and management teams operate within these to optimize performance. That however, does not address the issue of a need for faster decisions which right now are brought upon us by Covid 19, and next year will be something else (e.g. a disruption) or tangible consequences of climate change or then the 4th industrial revolution or any combination hereof. Sorry guys – get used to it.

    This means that the capability to make goo decisions fast is in increasing demand. No-one does that better than special force soldiers, and what do they do:
    – They set up scenarios (lot of them)
    – They plan
    – They train, and train, and train
    to make as sure as they can, that when reality hits them (and they are at risk of getting killed) whatever situation they face, it resembles something they have trained and know exactly how to address. So management teams:
    – Set up scenarios (or have your teams do this)
    – Plan around these
    – Discuss and address
    also in business.

    The above will be needed until some artificial intelligent system is demonstrated to make consistently better decisions, and the CEO can be replaced by a C3PO (intended pun defined by Jack Ma years ago).

  4. February 10, 2021 at 4:56 PM

    Hi Hans [this is a re-post as my first attempt went missing!]
    In our book ‘Deciding’ Grant Purdy and I explain that Purpose is the highest expression of the reason for an organisation’s existence. By contrast, the decisions of Boards of Directors (which are a subordinate entity within the organisation) involve pursuing that purpose in the current context by realising opportunities as they occur.
    We make the point however, that (as you highlight) the context in which decisions are made can and do change which is something that with varying degrees of success, deciders of all types (including Boards of Directors) contemplate as a part of making each decision. That’s because the question of whether an organisation will be vulnerable to future change will depend on the extent to which the possibility (and form) of change is taken into account in the decision (for example, by including monitoring and contingency arrangements as secondary elements of the decision. Vulnerability is thus more the consequence of the decision than it is of any change in context.
    As you note, Covid19 has been a reminder of just how quickly and extensively the context in which organisations operate can change. That said, however, the reality is that pandemic aside, change is increasingly a constant these days and we say a lot in our book about how Deciders can more consciously take this into account.
    As to the speed with which decisions may need to be made or changed, the example you give of the Special Forces is one which, in the section of our book titled ‘Deciding under pressure’ we also mention (also referencing some of the techniques that you describe). The important point of course is that the SF leader uses the same decision-making method (we call it the ‘universal’ method) as do directors or any other decider. Indeed, if you look at the reviews page of our website { https://sufficientcertainty.com/what-people-have-said-about-deciding/ } you will see a review by a former SF officer and now businessman who makes the following observation: “Even though [SF] decisions must sometimes be made almost instantly, only if the ‘Decider’ is skilfully applying the ‘universal’ method as described in Deciding will he or she have sufficient certainty about what at times, can be life and death outcomes. However, I have also found that the same applies to decision-making in the comparative tranquillity of the business world.”
    Cheers
    Roger

  5. February 13, 2021 at 12:36 PM

    great piece Noman… let us hope the board is comprised of fair and impartial members…. that they can objectively assess “facts” and consider apolitical solutions to the rising threats to the enterprise…. I use the USA’s Federal Government’s response to the COVID 19 pandemic as an example of an inability to form a mitigation response to a catastrophic risk event due to a compromised board and an inability to discern factual information

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