Humans can make “thinking” errors that can greatly impact business outcomes. Self-aware board members should be cognisant of their own biases and put in place systems and processes to ensure the organisation is not derailed by biases and a lack of an evidence based decision making process.
A fundamental component of governance excellence is that the board collectively and board members individually always act in the best interests of the organisation at all times. Whilst individuals come to the board table with a diverse range of experiences, knowledge, perspectives and even representing specific agendas and markets, those “biases” have to be corralled and channelled into what’s best for the organisation. An effective way to support this approach is to apply an evidence based decision making process to the “modus operandi” of the board.
Here are a two ways to apply this principle:
- Develop a standard business case framework that must be applied to every decision that requires investment over an agreed $ amount; this framework would include research and supporting documents required, a financial scenario planning model, a risk assessment (and one that relates to the current organisation’s risk profile and plan) and a capacity and capability assessment ( i.e. can we do what is required with existing resources and people?); and
- Apply a “stress test” to options for consideration and positions taken or recommended – remove the optimism bias from the assessment process; sometimes we want something to work so much that we ignore obvious and critical aspects that would otherwise deter the organisation from taking a particular course of action.
Sometimes it is very difficult to remove our personal “bias” from the decision-making process of the board, however as good governors, we have no choice. By adopting an evidence based decision making policy and procedure, we can introduce a process that obliges all those who are charged with the responsibility of making decisions are required to follow a pre-determined methodology and that the fundamental component of the methodology is supporting evidence. Whilst it will not remove the individual bias that board members have, it will provide a framework for good governance and that is something we should all be working towards over the term of our individual tenure.