Behavioural biases underpin a lot of what we think, see and do.
Boards, of course, are just groups of people, and as an entity, are vulnerable to the same weaknesses as individuals. Working as a group may in fact make board members more, not less, susceptible to the dangers of groupthink and other behavioural biases.
As a recent article by the Financial Conduct Authority pointed out that:
Some of the behavioural biases we are susceptible to are amplified and altered when we work as part of an organisation, which can lead to costly mistakes.
Here, we explore some of these biases, and ways that boards can mitigate them to make better decisions.
Exploring some common behavioural biases
So, what are the sorts of biases that can derail good board decisions?
The FCA article – published under its ‘Insight’ umbrella, which shares the Authority’s opinion and analysis – identifies a number of common biases:
- The availability heuristic – a tendency to think that what comes to mind most easily is true.
- Over-optimism; the article points out that around 80% of drivers consider themselves to be above average for driving safety– statistically impossible.
And, contrary to many people’s expectations, being part of a group doesn’t dilute poor thinking. Instead, it can ‘amplify these errors, resulting in poor decisions, and costly mistakes’.
This can be the result of groupthink, a widely-recognised problem which sees a range of behavioural biases and social pressures lead us to follow the views and beliefs of others. As the article points out:
‘Effective organisational decision-making is not about agreement. It requires employees to challenge one another, share views even if they are contrary to the group’s, and to point out risks and potential errors’.
We’ve looked before at how social processes can undermine your board’s decisions, and at some of the techniques – like situational intelligence – that can help board members counteract this.
Analytical and critical thinking has been identified as one of the most important qualities in a board member. This can be derailed by groupthink and other behavioural biases.
Having a diverse range of people and perspectives in your boardroom has long been recognised as a positive – with the female brain singled out as the secret weapon of the best boards. But as the article points out, ‘diverse teams don’t necessarily lead to diverse voices’.
How to tackle and overcome behavioural biases
Although these biases and conventions can be pervasive, there are steps that boards can take to become more aware of them – and as a result, reduce their impact.
- All board members should be actively encouraged to share their views to ensure a range of viewpoints are considered.
- Challenge should be encouraged (read more on the amount of debate you really want on your board).
- The chair should resist the temptation to share their opinion first. This can give an ‘anchor’ for others to latch onto, and therefore overly-influence the conversation. We have more tips on best practice chairing here.
- Consider carrying out a ‘pre mortem’ on any decisions you take. This assumes the proposed approach is already in place, and has failed – and sets out to identify why. It can be a useful exercise in moving away from ‘default’ decisions, and in avoiding groupthink.
- Think about whether ‘red teaming’ might help you. This term has its origins in IT – where organisations like Microsoft employ teams of hackers whose purpose is to try and attack their systems. It’s now being adopted across business, with teams set up specifically to challenge a project or accepted approach.
- Encourage your board to make realistic projections on the cost and time involved in projects. Over-confidence – another behavioural bias – can lead to drastic under-estimation when it comes to project spend (the article cites the example of London’s Olympic Stadium, originally costed at £280m but eventually coming in at over £700m).
- If everyone in the room is to be encouraged to speak up, they need to be given the necessary information to give informed input. Make sure your board members are getting the information they need in the way they prefer to receive it.
Overcome behavioural biases to build a better functioning board
There are clearly a number of inherent biases that can disrupt the best-intentioned boards. Hopefully this blog has given some insights as to how they can be mitigated or overcome.
If you want to read more about ways that board processes can be optimised, you can download our free case study. It examines the steps financial firm the Carey Group took to improve the effectiveness of its board packs and efficiency of its board. You can download a copy of the case study here.
Nothing in this document should be treated as an authoritative statement of the law. Action should not be taken as a result of this document alone. We make no warranty and accept no responsibility for consequences arising from relying on this document.