5 minute read 14 Sep 2020
Young woman using a digital tablet outside in the city at night

How to strive for defensible board actions in the COVID-19 era

Authors
Juliet Andrews

Partner, People Advisory Services, Ernst & Young LLP

Leader in solving complex workforce challenges. Inspired by the future of work. Mother to three teenagers. Greatest skill is managing time.

Sarah Ogilvie

Senior Manager, People Advisory Services, Ernst & Young LLC

Using organizational psychology to enhance working lives. Single mum to two colorful kids. Board member.

Jenelle McMaster

EY Oceania Markets Leader

Transformation leader. Change ambassador. Passionate supporter of women in business. Lover of yoga and dance. Former army reservist. Mother of two. Metaphorical juggler.

5 minute read 14 Sep 2020

Boards need to ramp up decision-making rigor at a time when considerations of stakeholder impact have never been broader.

In brief
  • Rigorous decision-making requires a nuanced discussion by directors who are aware of their own biases and subjectivity.
  • Personal values have a role to play, especially when boards are making decisions with ethical considerations.
  • Boards need a new vocabulary to comment constructively on the social dynamics of their decision-making.

Boards once considered it their primary goal to seek financial returns for shareholders; now organizations are being held accountable to a broader concept of value. Today’s board decisions will be seen in the context of their long-term consequences for a much wider ecosystem of stakeholders, including the community and the broader economy.

According to a senior board director and EY research participant “We once had a strong focus on shareholders being the owners. The world of the Royal Commission into misconduct in the financial services sector conducted by the Commissioner, the Honourable Kenneth Hayne, has caused boared to think more broadly about the interest of customers, staff and community. It’s difficult to balance right when it comes to pricing decisions or mortgage rate changes.”

In light of this new interpretation of fiduciary duty – and mindful of recent misconduct scandals – boards need confidence in their ability to make decisions that are rigorous (i.e., decisions that are balanced, thorough and evidence-based) and ethical (i.e., decisions that take into account multiple perspectives and closely consider potential consequences). Previous standards have focused on objectivity and defensibility. But do these notions hold up when it comes to ethical decisions?

1. Does objectivity lead to ethical decisions? 

Surely, the moment that boards ask, “Should we?” rather than “Could we?” opinions based on values, purpose, community expectations and other more subjective considerations are likely to become part of the decision-making.

2. Is defensibility a good lens?

When decisions need to be defensible, they need facts and evidence. This often leads to a reliance on tangible (measurable, and likely financial) rather than intangible (ethical) decision inputs because they are easier to defend.

Directors say they are aware of the need for greater breadth of input in board decision-making. They are increasingly seeking to educate themselves, not just about appropriate governance structures and processes, but also about the questions they should be asking and the way they should be contributing to board discussions.

 

Complete objectivity is not possible

Although directors recognize that subjectivity, in theory, influences the functions of the board, this remains significantly unacknowledged in practice. EY research found that most directors acknowledge their decisions are largely subjective. All but one of the directors we interviewed stated that biases play a significant role in board decision-making. Yet most believe objectivity reigns, convinced, on balance, that decisions made were objective more often than not – especially in the more weighty and ethical decisions, such as those relating to minimizing negative impacts on staff or communities.

Directors hold a broad spectrum of views on the merits of objectivity and subjectivity, as illustrated by these two apparently conflicting opinions:

  1. “The best ethical decisions are the ones that are more subjective. In most cases, there’s not a full suite of objective data. Any data needs to be nuanced by history, influenced by social forces and the zeitgeist of the moment.”
  2. “It is vital that good reliable data is available to take away the subjectivity that could lead the board down a sub-optimal path.”

Do these two directors really disagree? We believe they may simply be getting lost in unnecessary semantics. Subjectivity and objectivity are unhelpful terms, which are value-laden and gendered in their description. In the context of the boardroom, objectivity is considered inherently “good” while subjectivity is “flawed.”

Yet, arguably, so-called “evidence-based” decision-making is, of course, awash with subjectivity. Selecting which facts to draw on, which ones are given more focus and how criteria are weighted all include elements of subjective judgment. Even the algorithms that bring boards data insights can be infused by the biases of those who program them. Rather than getting caught up in these issues, boards need to embrace the idea that directors will bring their personal values and passions into the boardroom – and this isn’t necessarily a bad thing. 

Boards need to embrace the idea that directors will bring their personal values and passions into the boardroom – and this isn’t necessarily a bad thing. 

Personal values are important

It’s tempting for boards to turn to the finances to inform decisions because “you can’t argue with the numbers.” Just because we can’t measure personal values, that doesn’t mean we should discount them. When information is easily quantifiable, people find it easier and faster to process. We are also more likely to pay attention to familiar topics and spend less time discussing issues we know less about or are harder to grasp.

Yet, issues that are difficult to quantify and may require unfamiliar conversations are where the board’s judgment is needed most. In cases where acting ethically may include admitting liability or setting a precedent, it’s appropriate for directors to weigh in with opinions couched in terms of community and organizational values – even if they are not couched in the measurable, familiar language of financials or risk. But, to give these conversations the rigor and evidence base they need, boards should be discussing why these values are important to inform the decision and give directors time to consider their role in the decision.

Overcoming the aura of hubris

Because of a board’s standing and purpose, directors may hold the board up as a bastion of expert and fair decision-making. Demonstrably, this may not always be the case. Directors need to be open to this possibility and be aware of the “role demand effect.” This is the notion that because board decision-making is supposed to be more objective than any other, directors feel obliged to suppress their personal opinions or devalue or steer away from commentary on social dynamics.

Rarely do we hear of directors disclosing or asking each other about their personal values or potential biases. Yet, understanding the context for people’s views is critical to assess whether to give their opinions credence. Boards should be mindful that those least confident about traversing this area are likely to rigidly dismiss attempts to incorporate the personal values of individual directors into a discussion.

Developing robust, representative views

Directors interviewed in our research consider the role of the Chair to be critical in ensuring each board member contributes and the quality of decisions is enhanced. But it’s not sufficient to rely on the Chair to steer boards toward a robust and balanced opinion. Many boards need to change their modus operandi by:

1. Preparing to have value-laden discussions

Sophisticated boards are now preparing to have more conversations around personal values. Discussions where directors find it challenging to categorically say “yes” or “no” need to be lifted up out of the technical. This is not just about considering the board’s range of perspectives but considering them equally, which requires directors to be conversant in having value-laden discussions. This means improving directors’ self-awareness by practicing having these conversations so they are comfortable expressing and owning values.

2. Developing trust

Without trust, directors will continue having polite but superficial conversations where personal views go unchallenged. Directors should be aware of the ethical stances, preferred decision-making styles and roles around the table – their own and those of other people. Once directors acknowledge and understand these contributing factors, the board will be better equipped to make rapid decisions under stress.

3. Recognize personal subjectivity and bias

Even highly experienced directors may be unable to moderate the role that bias and stereotyping play in their decision-making. Acting to reduce decision-making bias requires self-awareness and openness to admitting to the role that subjectivity plays. Our interviews highlighted a range of self-awareness and preparedness to admit to extensive subjectivity in decision-making at board level.

4. Talk about the elephants in the room

Boardrooms are full of unspoken thoughts that could be usefully aired to improve decision-making rigor. Directors in our interviews noted that the strength with which a view is expressed in the boardroom can be disproportionate (both over-expression and under-expression) to the individual’s knowledge of a certain subject. They are also aware of the influence of “decision-making baggage” – a director’s willingness to stand their ground can be influenced by their previous success or failure at championing certain positions. Boards should be comfortable calling out these and other potential influences, including whether a director’s perceived political views or other positions are coloring their stance on the issues under discussions.

5. Draw from multiple sources beyond confirmation data

The increased availability of data is assisting decision-making. Most boards understand the importance of drawing on multiple sources of data and calibrating opinions from a diversity of voices. However, people suffer from confirmation bias – the instinct to stop looking as soon as someone or something supports our argument. Best practice requires that when our opinion is confirmed, we seek out at least two additional sources of data, perspective or experience. Boards must also remain conscious of the interpersonal relations that can impact and even impair decisions, regardless of the quality of supporting information.

Board diversity alone does not guarantee a board will be effective in making informed, ethical decisions. Directors must also employ good decision-making techniques that take account of personal biases and group dynamics that can work to negatively impact the quality of group decision-making.

Ultimately, it is the rigor in the process of inquiry that matters.1 To improve, boards should practice having the different, more nuanced and emotionally intelligent conversations needed to fulfill the broad fiduciary obligations that companies are facing in these unprecedented times. 

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Summary

In this article, we unpack the latest thinking and findings from recent EY research into boardroom decision-making integrity. We recommend boards practice having conversations that include considerations of community expectations, purpose, long-term value and subjective measures of ethics and integrity to support robust decisions that will withstand public scrutiny.

About this article

Authors
Juliet Andrews

Partner, People Advisory Services, Ernst & Young LLP

Leader in solving complex workforce challenges. Inspired by the future of work. Mother to three teenagers. Greatest skill is managing time.

Sarah Ogilvie

Senior Manager, People Advisory Services, Ernst & Young LLC

Using organizational psychology to enhance working lives. Single mum to two colorful kids. Board member.

Jenelle McMaster

EY Oceania Markets Leader

Transformation leader. Change ambassador. Passionate supporter of women in business. Lover of yoga and dance. Former army reservist. Mother of two. Metaphorical juggler.