Decision making at board level

Well-informed and high-quality decision-making is crucial for an effective board, but it doesn't happen by accident. Even the best-intentioned and most competent individuals can make flawed decisions if not guided by a well-structured process.

Many factors leading to poor decision-making are predictable and preventable. Boards can mitigate these risks by investing time in designing their decision-making policies and processes, including the contributions of committees.

Key Considerations

1. Role Clarity: Determine whether a matter is for board consideration or falls under management's responsibility. Assess whether it requires an immediate decision.
2. Judgement Distortion: Recognise that judgement, even from the most experienced leaders, can be distorted by conflicts of interest, emotional attachments, and inappropriate reliance on previous experiences.
3. Decision-Making Tools: Boards should be familiar with various decision-making tools, including creativity and innovation strategies, systems thinking, goal-setting, and progress monitoring. Whilst some tools are used directly by the board, others are employed during corporate retreats or by management in strategy development. The board's role is to ensure a structured approach to decision-making, avoiding a ‘seat of the pants’ methodology.
4. Learning from the Past: Regularly review past decisions, especially those with poor outcomes, to understand both the merits of the decisions and the processes that led to them. Understand the difference between ex post and ex ante to avoid hindsight bias.

Agenda Design

The agenda design is crucial and typically is managed by the chair in collaboration with the secretary. Key questions to consider include:

• Who initiates agenda items? What is the process for their submission and inclusion?
• Are vital matters being ignored?
• Does the order of items allow for appropriate discussion and maintain interest?
• Is "Any Other Business" being used to introduce unheralded matters without proper documentation and discussion?

Good Practice Guidelines for Agenda Items

Each item on an agenda should have a title, a purpose, a time allowance and a champion. Typical purposes include:

• Note: Information for directors, no action required.
• Approve: A formal proposal requiring approval.
• Discuss: An information paper requiring discussion but no immediate decision.
• Decide: A decision required, to be documented in the minutes.
• Review: Opportunity to review past decisions and identify learnings.

Roles and Responsibilities

Not all matters submitted to the board should be decided by the board. Criteria to suggest a matter is for board consideration include:

• Is it a policy decision?
• Does it affect long-term strategy?
• Has it been checked against ESG and other criteria?
• Could it impact other decisions?
• Would it set a precedent for future decisions?
• Can the objective be achieved by alternative means?
• Are there potential effects of making this decision?
• Is there sufficient information to support this decision?
• Does it need to be taken now, or would further thought or consultation be beneficial?
• Should it be taken at the management level?
• Should the board review the implementation of a past decision, whether by the board or by management?

Boards should be alert to information- and decision-creep and ensure their time is focused on matters that deserve their attention.

Crisis Situations

However, during crisis situations, some decisions become urgent and critical, necessitating direct board involvement even if they would typically fall under management's purview. Practical actions in these scenarios often demand swift, high-profile responses to mitigate risks and protect reputation.

Conclusion

By focusing on these elements boards can enhance their decision-making effectiveness, clarifying the boundaries between management actions and policy decisions, making effective use of time and ensuring they are prepared to meet the challenges of today's complex business environment.

Richard Winfield is the author of The New Directors Handbook, creator of The Essential Directorship and Strategic Company Secretary masterclasses and curator of the CPD 2.0 Professional programme, which provides a stream of governance alerts and management insights. He teaches corporate governance internationally to directors, boards and corporate secretaries and provides personal career coaching and assistance in preparing effective job applications, supported by comprehensive online assessments.

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