How do Boards make decisions?

Too often, we see Boards merely rubber stamping the decisions brought to them by management.  

The 21st century boardroom should be a place for robust debate, where challenge is welcomed, support is offered, diversity of thought is openly shared and teamwork is proactively developed. Diversity of skills, experience, perspectives and thinking styles are important drivers of a Board’s effectiveness, helping to avoid the groupthink that can be seen in more homogenous Boards.

Increasingly, we’re being asked by clients to help their Boards develop a framework that helps them structure the decision making process to optimise its effectiveness. 

Here are our top tips for making Board decisions:
  1. Ensure there is real listening to key stakeholders and expert advisers.
  2. Allocate enough time in Board meetings for real debate, to ensure all Board members have had an opportunity to listen and contribute to decisions.
  3. Be alert to potential sources of bias in the decision making process, including conflicts of interest, unconscious bias, and the Einstellung effect (our natural predisposition to approach problem solving in a particular way, based on our previous experiences, even if a better way exists).
  4. Be alert to the potential for one or two particularly strong personalities in the boardroom to dominate the debate.  Ensure everyone’s view is heard and considered.
  5. Some Boards allocate informal roles to different Board members (eg) devil’s advocate, to ensure sufficient challenge during decision making.  Some methods you may want to try to avoid groupthink are brainstorming, Six Thinking Hats, Disney Planning Method, and the Delphi Technique.
  6. Ensure the Board is provided with a clearly structured paper, with a really focussed Cover Sheet providing the key information.  One example is Sample Board Report Format – Item for Decision.  Directors’ duties are formally set out in sections 171–177 of the Companies Act 2006.  They include:  to promote the success of the company – with regard to:
    • The likely consequences of any decision in the long term
    • The interests of the company’s employees
    • The need to foster the company’s business relationships with suppliers, customers and others
    • The impact of the company’s operations on the community and the environment
    • The desirability of the company maintaining a reputation for high standards of business conduct
    • The need to act fairly as between the members of the company

Whether you are a company or not, many of those criteria will be relevant to Board decision making, and may be included in the structure of the paper for decision.  Consideration also needs to be given to the level of risk being taken, to ensure it is within the agreed risk appetite.

  1. Ensure the minutes clearly set out the decision made, and include the factors considered, advice taken, and reasons for the decision.  Consider including reference to the criteria listed in 6 above.
  2. After key decisions have been made and implemented, review the decision making process, and ensure learning is captured and applied next time key decisions are being made.

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