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Social Processes that Undermine Board Decision-Making

The recent report by the International Monetary Fund’s (IMF) Independent Evaluation Office suggests that the IMF’s top team made a number of serious misjudgements during the Greek financial crisis resulting from poor governance and a lack of accountability and transparency. Following closely on the heels of the publication of Sir John Chilcot’s Iraq Inquiry report, this suggests that even august institutions like the IMF, supposedly run by intelligent and technically respected people, rode roughshod over due process; showed a lack of analytical depth in addressing complex problems and indulged in poor decision-making practices (e.g. there was no open discussion on the pros and cons of available options for the restructuring of Greek debt).
Most board members would like to believe that their governance and board dynamics enable them to make rational and logical decisions. This is not, however, always the case: like most teams, boards are subject to social processes that undermine their effectiveness as a decision-making body. So what are the social psychological processes that contribute to this and how can they be ameliorated? This short paper identifies three such processes and proposes ways in which their pervasive influence can be counteracted.

Social loafing

It is a scientific fact that, under most circumstances, team members will reduce their performance as a function of an increase in group size. Thus, team productivity does not equate to potential productivity and the reasons for this are twofold. Firstly, team members will reduce their effort where their own contribution is not specifically identifiable and thus freeride on the efforts of others (motivation loss); and second, that team members may not all pull in the same direction or synchronise their efforts at the right time (co-ordination losses). This is termed ‘social loafing’ and has clear implications for the size of boards with research suggesting that the optimal number of board members is between seven and nine. In short, enough board members to ensure that the board’s tasks are achieved but not large enough to impact performance negatively by enabling social loafing.
For Chairmen, the antidote to this is to ensure that board members have a clear sense of individual as well as collective responsibility and role; that their work is viewed as indispensable to the board; and that their outputs are visible enough to be subject to evaluation by other board members. Furthermore, the establishment of clear goals that both encourage and reward effective decision-making and execution must be established and supported by the Chair.

Group polarisation

There is a widely held belief that groups will make more cautious and moderate judgements than individuals. This is only partly true; in reality teams will tend to polarise towards the more prevailing or favoured view. Thus, board members who are initially disposed towards risk-taking will favour a more risky approach than the average might imply. Similarly, board members who are initially disposed towards caution will favour more cautious decision-making. This is important because it suggests that shifts in board decision-making are frequently steered more by faulty group processes rather than the output of logical and rational decision-making. One cause of this behaviour is that team members overly care about both social comparison and reputational effect and adjust their views to the dominant position of the group, thus skewing the board towards more extreme decisions than might be predicted from the average of board members’ individual judgements.
One antidote to this is to encourage board members to write down their own thoughts and arguments independently in advance of group discussion, identifying in each case the arguments both ‘for’ and ‘against’ rather than indulge in less structured discussions that provide a fertile ground for the conditions of group polarisation to flourish.

Groupthink

‘Gentlemen, I take it we are all in complete agreement on the decision here… then I propose that we postpone further discussion of this matter until our next meeting to give ourselves time to develop disagreement and perhaps gain some understanding of what the decision is all about’.
This statement attributed to Alfred Sloan, a former Chairman of General Motors, was in response to a consensus of his board that had been achieved too rapidly and is one of the symptoms of Groupthink. This is an extreme form of group polarisation and is a psychological drive for conformity where a reliance on consensual validation replaces individual board member’s critical thinking. Thus, the Chair and fellow board members play up to each other re-enforcing consensus at the expense of critical and divergent thinking that might undermine the unanimity of the group. The ultimate outcome is a decision agreed by all board members but some way removed from the rational data gathering, analysis, challenge and debate that characterises more effective decision-making processes. Even a cursory look at the decision making for many around the Brexit vote will reveal many of these phenomena at play.
The primary symptoms of Groupthink are threefold. Firstly, a collective overestimation of the board’s abilities founded on illusions of invulnerability and an irrational belief in the inherent morality of the group; second, closed-mindedness that delivers inaccurate collective rationalisations and stereotypes of out-groups (e.g. competitors); and finally, pressures toward conformity that result in self-censorship; an illusion of unanimity; direct pressure on dissenters and self-appointed mind-guards whose role it is to ensure no disruption to the consensus of the group.
Boards are particularly susceptible to Groupthink if their members come from the same background. This places a premium on diversity of board members. How much more effective might the decision-making have been at the Royal Bank of Scotland during the banking crisis had it contained a more diverse team than the seventeen men (and most of those middle-aged dyed-in-the-wool bankers) and single woman that comprised the main board?
Antidotes to Groupthink include encouraging the Chair to assign the role of critical evaluator to each board member and exhorting them to give a full airing to objections and doubts. The Chairman should remain impartial rather than state preferences at the outset of debate and should set up independent evaluation groups to work on the same policy question working under a different leader. The members of the policy groups should meet occasionally to compare progress and debate and agree on differences. One or more impartial experts should be invited to each meeting to challenge the views of the members. At least one board member should be assigned the role of devil’s advocate (to question assumptions and plans prior to decision-making) and finally, the Chairman should ensure that a sizeable chunk of board time is assigned to assess warning signs from competitors and work with the board to model alternative scenarios of their intentions.

Conclusion

Group cohesiveness does not necessarily lead to faulty social processes. The optimal functioning in decision-making tasks is likely at moderate levels of cohesiveness. It must be part of the Chair’s role to create a climate that encourages enough cohesiveness to ensure the true benefits of team working are realised, but not so cohesive that it provides a fertile ground for the more unhelpful social processes to take root.
A critical first step is to evaluate how the Board is functioning at the moment and where the pitfalls or snafus lie. This is best done independently lest it replicate any issues in its own construction! A board that over indulges in Groupthink for example is likely to reach conformed conclusions about its own efficacy. An independent assessment of the specific competencies of the individual board members and of how the board communicates and makes decisions as individuals and as a group will ensure alignment with the strategic objectives of the Board and help ensure due consideration is given to diversity and complementarity.

Selected references

Hewstone, M. Stroebe, W. Codol, J-P and Stephenson, G. (2008). Introduction to Social Psychology, Oxford: Basic Blackwell
IEO report (2016) The IMF and the crises in Greece, Ireland and Portugal. Retrieved from http://www.ieo-imf.org/ieo/pages/CompletedEvaluation267.aspx
Janis, I. (1982). Groupthink. Boston: Houghton Mifflin
West, M (2004). Effective teamwork. Leicester: BPS Blackwell

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