Audit Committee Bulletin: January 2014

The dangers of groupthink

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Groupthink: A mode of thinking where pressure for unanimity overwhelms motivation to appraise the alternative courses of action realistically.

With the campaign for boardroom diversity enjoying a headwind across the globe, awareness of the danger of groupthink has grown exponentially. Yet it has the power to influence boards and audit committees.

One reason groupthink takes hold is because it’s a largely unconscious dynamic. Without conflict around ideas, participants feel comfortable and can readily agree on a solution. All sides feel validated — and remain unaware of the impending danger.

“Diversity is a powerful way to avoid groupthink, as people’s minds won’t be programmed to think in the same way.” – Peter Matthews, Chair of Global Learning at EY

Minimizing groupthink

Board and audit committees can minimize the possibility of groupthink. The chair has a critical role in boosting interaction between board members and in setting the tone for board deliberations.

EY Assurance professional Josh K. Jones says: “In the most effective audit committees, we have observed a variety of methods to encourage the mutual sharing of views. That includes the leader taking the time to create that environment, being proactive and asking for different perspectives from people who might not always get their views heard.”

Boardroom effectiveness reviews can also prove useful in understanding the board’s approach and style and can bring an independent outside perspective.

A diverse board and committee can be crucial.

“Diversity is a powerful way to avoid groupthink, as people’s minds won’t be programmed to think in the same way,” says Peter Matthews, Chair of Global Learning at EY.

“The idea of having a board that has people of the same educational background, the same career experiences, the same sex, the same ethnic background, means that you won’t get the variety of experiences that enable the best decision to be made.”

Non-executive directors, an increasingly valuable source of diverse talent, can provide senior expertise to review and challenge decisions — a role that is only improved by their informed detachment.

However, companies should take care not to negate these potential advantages by only hiring experienced, familiar non-executive directors. Rather than rely solely on their own networks and recommendations to recruit, firms may need to advertise openly to overcome assumptions about where talent can, or should, be found.