• Author: Graeme Nahkies
  • Published: Apr 27, 2021
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Increasing attention is being paid to board composition issues like director diversity. However, the benefits of diversity will not be achieved until greater attention is paid to the importance of group dynamics.

What is particularly interesting about a recent article from the Harvard Law School Forum on Corporate Governance (Behavioural Psychology Might Explain What’s Holding Boards Back) is its attention to what might be called ‘social’ biases that may come out in a group setting. They are the kind of biases that influence, for example, which topics get traction in the boardroom and which get ignored. Also, whose views are listen to and whose are barely heard.

The authors, Maria Castañón Moats, Paul DeNicola and Leah Malone, identify four dynamics that commonly affect the boardroom:

  • deference to authority
  • groupthink
  • a preference for the status quo
  • confirmation bias

They describe a range of signs to help spot these issues and offer suggestions on initiatives to address them.

(Note that only a small sample of these is included in the following summary. Readers wishing to learn more about these issues should go to the original article.)

Authority bias

Where possible, board members are recruited for their skills, knowledge and experience. Some boards, however, rely too much on one director’s experience or opinion and are too readily influenced by that opinion, dismissing what others have to say or abdicating their individual and collective responsibility.

Another problem is a director acknowledged as an expert in one area who does not or cannot contribute much to other discussions.

This dynamic is not just about respecting experience and expertise, but about the distribution of power. Power within a board is just as likely to be about gender, length of tenure, or dominance of personality, etc. This leads to boards waiting for a lead from their most powerful members, or always letting them have the last word. Another sign of this dynamic is when less influential directors are reluctant to air their views in open session.

The tips to address this include soliciting views from each director in turn to ensure that all directors have a voice on an issue, and effective education in specialised areas so the board does not have to rely too much on one director’s expertise.

Groupthink

Boards cannot function when made up of factions with irreconcilable differences. Effectiveness is only possible if they can come to a consensus on key decisions. Reaching a consensus does not preclude a divergent thinking stage, but in a groupthink environment dissenting views are unwelcome at any point. Directors who wish to maintain good working relationships with colleagues quickly learn to avoid ‘making waves’.

Groupthink is also magnified when the board is not well educated on a topic or does not have timely access to the right information. Directors who might otherwise express an alternative view feel pressure to go along with the emergent group view.

Virtual meetings can increase the danger of groupthink, due to the lack of opportunities for informal communication. Directors may also be more easily distracted and less likely to push back.

Most board members crave acceptance by their colleagues. Directors who question the prevailing view are likely to be marginalised, criticised or, in the worst-case scenario, replaced.

The range of tips offered to minimise groupthink is perhaps the weakest part of this article. Apart from some kind of decisive intervention (e.g. a change of chair) most of the suggestions would be precluded in a groupthink environment.

Status quo bias

Boards often prefer a set of established norms and its members often value that which is familiar. They may overvalue what they know and be reluctant to pursue initiatives involving substantial change. Such change may bring too many risks and threaten individual relationships and perquisites. While most directors agree, for example, that diversity in the boardroom is beneficial, research suggests they do not support initiatives that would force them to change; they prefer to implement change slowly.

Boards are not the only protectors of the status quo. Entrenched management is also a significant contributor.

Individual members may be creative thinkers, but their boards may be reluctant to embrace new strategies and ideas. This may lead, for example, to under investing in long-term research and development.

A related problem is ‘sunk cost’ bias which occurs if a board feels it has devoted too much time and effort to an idea or topic to walk away from it—even if the business environment has shifted, or adverse issues have been uncovered.

Suggestions for tackling status quo bias include undertaking a ‘pre-mortem’ (how can we get it wrong) exercise or a ‘competitor perspective’ analysis (e.g. asking what your competitors might hope you would do).

Confirmation bias

Boards are not immune from the tendency we all have to subconsciously seek out and overvalue evidence that confirms our own beliefs and undervalue that which challenges them. Confirmation bias makes objective decision-making a challenge. It can lead to overconfidence in the outcome directors are hoping for. Negative assessments can also be overvalued.

One antidote is using director succession to introduce greater diversity of thought, but boards often seek out directors they feel can ‘fit in’—subconsciously looking for candidates who share the same viewpoints and will agree with them on key issues.

The authors’ tips for moderating confirmation bias revolve around the introduction of more divergent thinking.

Conclusion

The analysis in this article reinforces the need for boards to look beyond superficial board diversity to the kind of social biases that act as barriers to achieving diversity of thought.