Leaders at the highest levels of an organization face difficult decisions almost daily. This decision-making becomes even more challenging in the boardroom, where (hopefully) experienced and educated minds come together to make difficult calls for their business or foundation.
We all like to think that we make clear-headed decisions based on fact. But this is only sometimes true. Even among highly qualified board members, decision-making bias is a persistent ailment that can lead boards to poor judgment or outcomes.
In this blog post, we discuss some common biases that affect decision-making within a board of directors and provide techniques for mitigating them.
Seven Common Biases
Confirmation Bias. Confirmation bias is our tendency to seek information confirming existing beliefs and ignore data contradicting those beliefs. This bias can lead decision-makers to make bad decisions because they only consider information supporting their views. Instead, board members should force themselves to analyze all available evidence even when the data doesn't make intuitive sense.
Groupthink. Groupthink is our tendency to conform to the group's consensus, even if that consensus is wrong. Groupthink is born of our desire to get along with others and not appear contrary or difficult. This bias can lead a board of directors to make bad decisions because it can lead them to rubber-stamp a judgment already made by others in the group rather than critically evaluate it.
Herd Mentality. Herd mentality is the tendency for people to follow the crowd. This bias can lead a board of directors to make bad decisions because they are influenced by what other boards of directors are doing. They may make this decision even in light of countervailing facts. A prime example here is the me-too layoff. When a company in the industry lays off employees, several other companies may feel it necessary to follow suit. After Twitter announced layoffs in late 2022, several other tech companies followed with their layoffs, even though internal data showed the companies anticipated growth in their markets.
Status Quo Bias. Status quo bias is the human tendency to prefer things to stay the same, even when the need for change becomes evident and it is clear to all a change would be beneficial. Because they may be reluctant to change existing policies or procedures, a board may demure and wait and avoid the needed timely change. The Board opts to "Kick the can down the road" rather than make a change, even if doing so would be in the company's best interests.
Sunk Cost Fallacy. We naturally tend to continue investing in something we have already invested in. To use a personal example, I keep repairing old cars, even when it is evident that the cheaper solution is to trade the vehicle in and get a new car. We don't like to admit it when we're wrong, so we double down on decisions regardless of whether or not it is wise to do so. Fallacious sunk cost logic can make a board of directors reluctant to cut their losses on a failing project or investment, even if it would be in the organization's best interests.
Availability Heuristic. The availability heuristic is the tendency to base decisions on readily available information rather than all of the data. This bias can lead a board of directors to make bad decisions because they may only consider information that is easily accessible rather than taking the time to find and view all relevant data.
Anchoring Effect. The anchoring effect is a tendency for people to rely heavily on the first piece of information they receive when making a decision. This bias can lead a board of directors to make bad decisions because they may anchor their decision-making process on an initial proposal or recommendation without considering other options.
How to Combat Biases
Check Your Personal Biases at the Board Room Door. Keeping in mind our worldviews and prejudices is the first step to combating bias. Our beliefs and perspectives shape how we see the world. Good decision-makers seek out information that contradicts their beliefs. This discipline can be tricky, as we are often more likely to pay attention to information supporting our beliefs. However, boards must expose themselves to diverse perspectives to get a more accurate picture. Finally, constantly questioning your (and your Board's) assumptions is essential. We often take for granted the things that we believe to be true. However, asking why you (or your Board) think something is true is vital! This approach can help you identify any false assumptions you may hold.
Make sure your Board is diverse. The more diverse your customer base and stakeholders, the more critical the diversity of your Board is. When there is diversity on a board, you will obtain more perspectives, which can lead to more informed decision-making. With diverse views, boards can avoid groupthink, where everyone agrees with the majority opinion without considering all options. Having dissenting opinions can also lead to a more robust discussion of the pros and cons of each option before making a final decision.
Encourage Debate. To avoid groupthink, board leadership must encourage open discussion. Too often, Boards discourage honest disagreement in the boardroom, even though this debate is healthy and can lead to better decisions. Board leadership should create an environment where people feel comfortable disagreeing with the majority. Additionally, leadership must clarify to board members that dissenting views are valued and considered seriously. Ensure that everyone has a chance to voice their opinion and that differing opinions receive equal weight. Try to neutralize those board members who tend to railroad discussions or suck all the oxygen out of the room.
Avoid creating pressure to conform. Another way to ensure robust decision-making is to prevent pressure to conform. Try not to force people into agreeing with the majority opinion. Instead, organize your board discussions to allow people to reach their conclusions after considering all the available information.
Be willing to change your mind. Once you've identified biases, you must be ready to change your mind. If you find the Board clinging to an opinion simply because it's what they've always believed, ask if any evidence contradicts it. Ensure you and your fellow board members are open to the possibility that you may have been wrong.
Examine the source of your information. Considering the basis of the original data that guided your previous decisions is always essential in light of new information. Before accepting either source as fact, ask whether the source is reputable. Is it objective? Does it have any hidden agendas?
Decision-making bias is inevitable, even among the most experienced board members. As we have seen, bias can lead to poor judgment and undesirable outcomes that harm a business or foundation. Board members should look for the seven types of decision-making bias discussed in this post: confirmation bias, groupthink, herd mentality, status quo bias, sunk cost fallacy, availability heuristics, and anchoring effect. By understanding the different cognitive biases and discussing them in the board room when they arise, boards of directors can mitigate their potential negative impacts on their decision-making. It is each board member's responsibility to recognize these biases, call them out when they see them, and actively avoid them so that they may make more informed decisions.