Preview Q and A with Robert Kay

  • Date:01 Apr 2014
  • Type:Company Director Magazine
Zilla Efrat asks Dr Robert Kay, a consultant and academic, about some of the factors that can dampen boardroom decision-making.


Company Director (CD):
What common boardroom behaviours tend to inhibit effective decision-making by directors and why?

Robert Kay (RK): We must be careful not to generalise about decision-making in a board context. Every board is different. Each is in a different industry or sector with different challenges to address. This will have an influence on what backgrounds its directors have, their experience and, as a result, the biases they are likely to have.

A critical factor here is risk appetite. For example, public sector organisations are more risk averse than private sector companies for a range of reasons. In some cases, the risk aversion is productive and appropriate and in others, it is not.

Our research shows that people tend to select their professions in a way that naturally aligns with their risk appetite. When you translate this finding into a board context, it is easy to see how different industries and sectors will tend to adopt subtly different patterns of decision-making as a result of the board’s professional makeup.

Another critical factor is the length of tenure of directors and the CEO. If the board has a revolving door of personnel and thus lacks stability, personal bias could play a greater role as there is likely to be less trust between directors.

Longer and more stable tenures  give time for recurring patterns of decision-making in the group to emerge. Is this good or bad? Again it is dangerous to generalise as this could go both ways. A stable group with a stable pattern of decision-making could be very productive and not display groupthink. Equally, stable groups can fall into a more consensus-based mode. The chairman’s role is important here in terms of how much he or she supports or limits the diversity of views in the conversation.

CD: Would a switch from deductive to more intuitive decision- making improve outcomes?

RK: The reality is you need to be both deductive and intuitive. The trick is knowing when which is more appropriate. Management schools tend, although not always intentionally, towards more deductive models in their teaching. It is often easier to build an argument following deductive logic because the argument can be substantiated from existing information. It feels more certain. Intuition, in a group context, feels more risky because often you cannot explain why you think a particular decision is the right one. If you trust the person, you might go along with his or her intuition. If you don’t, then you will want to see more evidence and sometimes it is simply not available.

The important thing is to maintain a balance. Intuition can often provide the pointer to the right information from which a deductive approach can be adopted. Deductive reasoning by itself can often be quite limiting and the board can become hostage to assumptions it made early in the decision-making process.

But while individuals may be comfortable operating in this way themselves, the board as a group, makes decisions differently. People temper their own decision-making approach to the group’s dynamics. Thus, to understand board decision-making, we need to consider the micro-level (or individual director) factors and the macro-level (group and organisational) factors affecting the decision that emerges. The literature tends to focus on one or the other, but you need to deal   with both.

CD: How can boards deal with the differences between knowns and unknown unknowns?

RK: Distinguishing between these different types of contexts is where issues such as bias and groupthink start to have a material effect. What these distinctions are really talking about is different levels of uncertainty.

Uncertainty is always relative to the knowledge and experience of the person or group trying to deal with it. A relatively simple problem, for example, could be quite uncertain for a group with no prior experience of it and vice versa.

Depending on the context, stress levels, novelty of the problem and so on, the group will naturally try to make the problem fit what it already knows. This can often lead to a misconstrual of the level of uncertainty, particularly when it comes to innovations and growth opportunities. As a result, things that were assumed to be certain or “known” can turn out to be quite uncertain and riddled with unknown unknowns.

Also, management approaches to dealing with different levels of uncertainty differ. A misconstrual of the nature of a problem can lead to inappropriate strategies to deal with it. Our research has shown that most CEOs have a single preferred approach to innovation and apply that approach regardless of the level of uncertainty in the idea.

It is worthwhile to think through uncertainty in a systematic way, questioning what is actually understood with certainty and what is not. Often the key source of uncertainty relates to the views or actions of external stakeholders. Have all of these been considered? Most mainstream management approaches assume reasonably high levels of certainty, which is fine if the problem is “known”, but until the stakeholder uncertainty is removed it needs to be treated differently.

Don’t miss out!!
Dr Robert Kay will be speaking at this year’s Company Directors Conference, Directorship: 14 Igniting the Growth Agenda. It will be held on Hamilton Island from 21-24 May 2014. For more information, visit www.ignitingthegrowthagenda.com.au