Our principles for a new boardroom operating model
In our last article (The Hidden World of Shortcuts), we introduced heuristics - an evolutionary adaptation that operates in the cognitive and social neural networks in our brains to allow rapid information processing under conditions of stress and complexity.
These heuristics are practical strategies for solving problems quickly by using mental shortcuts to reach decisions that may not be perfect but which, we feel, are good enough given the context.
In this second and final article in the series, we explore further the associated benefits and costs of heuristics, and discuss new ways of working that will help improve the quality of boardroom decisions and the longer-term outcomes that flow from them.
Despite a wealth of advances, such as agile management, decision-making processes at, and below, board level have not adapted sufficiently to address the breathtaking acceleration in business complexity, uncertainty and pace of change.
The challenges continue to grow
Business managers worldwide report growing levels of frustration with the uneven quality of decision-making outcomes, broken decision-making processes and the slow pace of deliberations. Despite a wealth of advances, such as agile management, decision-making processes at, and below, board level have not adapted sufficiently to address the breathtaking acceleration in business complexity, uncertainty and pace of change.
In 2012, Harvard Professor John Kotter wrote “We can’t keep up with the pace of change, let alone get ahead of it. At the same time, the stakes—financial, social, environmental, political—are rising.” This statement is even more true today.
Kotter’s solution was “a second operating system, devoted to the design and implementation of strategy, that uses an agile, network-like structure and a very different set of processes. The new operating system continually assesses the business, the industry, and the organization, and reacts with greater agility, speed, and creativity than the existing one.”
Yet, even though many organisations have adopted at least some agile principles – either by design or reactively – this approach has only partly delivered, as is evident by the frustrations expressed by business managers. A key unseen factor for this trend sits, not at the macro level espoused by Kotter, but at the micro level buried in the minutiae of how decisions are made. If, as we advocate, boards and the organisations they lead need to evolve how things are done at the micro decision level, then there are also significant implications for the structural processes that support them.
Later in this article, we introduce a principles-based approach for a completely new, far-reaching operating model at and below board level. But first we delve deeper into the weaknesses in current constructs underpinning agile management.
The board operating as a neural network
We previously described heuristics as a process of automation, using mental approximations to help us to make decisions involving complex information quickly under pressure. Both cognitive and social heuristics are part of the brain’s evolution; shaped by nature, experience and culture.
Just like the brain, the board is required to handle a huge amount of complex information. During debates, individual and group heuristics activate well-worn and efficient neural pathways. They draw from the experience in the room, and even reward decision-making with euphoric feelings.
As with organisations as a whole, it is important that boardroom systems and the board’s relational processes evolve to become more like neural networks.
Kotter’s ’second operating system’ shares many characteristics with the brain’s supervisory attentional system. These map functionally to the tasks of an organisation’s board and executive teams: setting intentions for long-term strategy and short-term priorities, monitoring ongoing activity through decision-making and supervisory tasks, and responding promptly when things go wrong or when conditions change.
Therefore, as with organisations as a whole, it is important that boardroom systems and the board’s relational processes evolve to become more like neural networks. This entails adopting systems for alternative decision strategies that are specific to, and appropriate for, the complex and uncertain challenges they face.
The benefits and costs of cognitive heuristics
Heuristics as a decision strategy has served humankind well throughout our history. They have enabled us to survive, master, build and exploit. However, the physical architecture within our brains is ill-suited to most of the complex problems boards now face. Consequently, heuristics can reinforce narrow, rigid ways of thinking that inhibit true cognitive diversity and inclusive thinking.
In our last article, we explained the very tangible impact pace has on the quality of decision-making, with very mixed and often suboptimal outcomes. Yet studies show that the greater stress we feel to get something done quickly - inherent in current agile management processes - the more we rely on heuristics in our decision-making.
Those decisions where heuristics can be trusted with more confidence involve day-to day issues where greater certainty exists. More specifically, the following essentials should be present when employing heuristics to avoid loading decisions with hidden risk:
the most relevant factors are known
the complexity is manageable
the potential outcomes are not significant and
a fast decision is imperative.
In other circumstances, particularly those involving strategic or tactical decisions, it is advisable to engineer a new, principles-based framework where alternative decision strategies are employed to counter the effects of heuristics. We discuss these principles later in this article.
The benefits and costs of social heuristics
Our social brain has a highly tuned network dedicated to making inferences about others’ beliefs, desires and intentions that draws on our past experiences and cultural norms.
When social heuristics are working well, they help to make a quick assessment of ‘good fit’ and likely adherence to boardroom culture and etiquette. This promotes feelings of psychological safety, and facilitates the smooth communication and social cohesion needed in the boardroom.
However, the hidden cost of social heuristics is the exclusion of those who do not fit the tribe, and result in a diminution in the quality of decisions by constraining the very diversity that is needed to bring innovative new thinking to the table.
The illustrations below provide a visual representation of how heuristics can create different types of board environments.
Boards drawing members from highly similar cognitive and social pools may be easier to manage, but have reduced leverage and limited performance potential (Illustration A).
In contrast, boards drawing members from more diverse cognitive pools (Illustration B) increase the potential for leverage and enhanced performance. However, this requires support from a new kind of culture – one developed with neural network characteristics - to maintain the functionality and equilibrium that are so vital in the boardroom.
Psychological safety is a key mediator to harness the benefits of cognitive diversity and to mitigate the limiting impact of outdated social heuristics. Accordingly, social cohesion needs to be expertly designed into the team.
A new boardroom framework
The principles described below can help to uncover and mitigate the riskier shortcuts the brain takes in high stakes, high pressure decision-making. They also tap into the best modes of thinking which benefit both boardroom decision-making and supervisory activities.
It is advisable to engineer a new, principles-based framework where alternative decision strategies are employed to counter the effects of heuristics.
Principle 1 – Clear the decks
In human performance terms, boards are capable of making no more than two or three really important decisions successfully in any typical meeting. The starting point therefore is to clear the meeting agenda of all but the most strategic decisions, and of as many supervisory tasks as comfort levels permit. These steps then allow space for the board to focus on the key decisions. By delegating all other decisions, organisational agility is improved, but greater care is needed as to how they are reported back to the board.
With the NEDs’ psychological safety in mind, clearing meetings of the supervisory burden does not mean doing less supervision. On the contrary, it means doing it smarter through enhanced supervision techniques. These include replacing static reporting data – such those found in typical periodic management accounts - with longer trend analytics based on intelligent metrics that clearly and quickly illuminate potential inflexion points. Presenting information in this way triggers the kind of thinking that leads directors to ask the right questions at the right time more often.
One practical step is to replace the CFO’s periodic report to the board with a live online briefing delivered at least two days prior to the meeting. Such a measure allows each NED’s subconscious mind to process the information in a less pressured and more spacious way, augmenting the quality and depth of challenges later brought to the meeting.
Having cleared the decks, space is created to dive deeper into key decisions - a process that is supported in the brain by an explicit awareness of intentions.
Principle 2 – Set the compass
Intentions set the scene for all that follows. Much has been written recently about the importance of corporate purpose. The dramatic effects of intention on decision outcomes are, however, rarely recognised. Because intention drives how our minds filter and prioritise information during the decision-making process, noticeably better outcomes are possible merely by framing the intention differently.
A board’s intention is best served by a clear and consensual picture of the organisation’s ultimate destination. This is not the organisation’s strategy. Strategy is merely an organisation’s chosen route towards its destination. Without a clear and shared picture of destination however, an organisation cannot be truly agile and its strategy risks appearing incoherent.
Taking time to renew and refresh intentions also provides a layer of transparency around the drivers and motivations behind decisions. Ensuring all group members are aligned on the same journey increases group cohesion and psychological safety. This then makes fostering diversity easier, and promotes flexible thinking within a safe operating environment.
A wider aperture around what we are doing now additionally includes explicit consideration of why and how. Asking why encourages the longer-term thinking around broader impacts. These considerations are important when countering the overly narrow, short-term attentional focus inherent to heuristic thinking.
Principle 3 - Support the captain
We know that brains think best when they feel safe, and offer their best thinking when they know their thinking style is valued and accommodated.
As the captain of the ship, the technical and relational demands on chairs are now greater than ever. The need to hold a dual focus across a variety of domains, combined with harnessing and fostering cognitive and social diversity, require a board leader with enhanced awareness and mode switching skills.
These key new skills for chairs to master include:
creating psychological safety in increasingly diverse groups
actively harnessing and amplifying diverse perspectives by promoting boardroom dynamics that mirror the functionality of neural networks
developing a non-blaming and non-shaming language to support awareness of hidden processes, both cognitive and social, and
dexterity when illuminating and proactively managing heuristics.
The chair’s ability to spot cognitive red flags during debates – those which indicate narrow versus expansive thinking - is essential. This entails being alert to phases such as “it’s a bit like…” or “in my experience…”, which indicate an individual’s default supervisory attentional system has activated heuristics. Extension questions such as “How is it different to...?” or “What other contextual factors are a play?” serve to widen the aperture of inquiry and activate creative thinking.
Principle 4 - Employ an alternative decision strategy
By integrating alternative decision-making techniques within the board’s processes, the risks associated with heuristics can be minimised and the most productive thinking in the room can be garnered.
A well-designed alternative decision method will actively engage:
both logical (left brain) and intuitive (right brain) thinking modalities
live emotional processes which, if not intelligently harnessed and channelled, will adversely impact the quality of longer-term outcomes, and
cognitive and social diversity through explicit intentions and debates guided in a psychologically safe way.
As with any systemic change programme, these processes are embedded more successfully where they are supported by the right intentions, a clear operating framework – in this case designed around the four principles we describe above - and expert training, particularly for chairs.
The principles can help to uncover and mitigate the riskier shortcuts the brain takes in high stakes, high pressure decision-making. They also tap into the best modes of thinking which benefit both boardroom decision-making and supervisory activities.
We are on this journey together
We welcome readers’ feedback on the important issues raised in this and our previous article. If you are interested in engaging in the future board debate, we invite you to join our webinar covering the topics discussed in our articles at 8:30 am on 10 December 2020.
Originally published in the December 2020 issue of Governance and Compliance magazine, www.govcompmag.com.
Dr Tamara Russell MSc PhD DClinPsy FRSA and Neil Tsappis LLM FCG FRSA are directors of demyst board sciences