Archive for the ‘Boards’ Category

In a murder trial, to prove that a defendant was guilty the prosecution must establish that:

  • The victim was killed;
  • The defendant unlawfully caused the death of the victim; and
  • The defendant did so with “malice aforethought.”

These are known as the elements of the crime.   Elements have been defined for many legal actions.  They are the major things which all must be proved in order to establish the prosecution’s (or plaintiff’s) case.

We can by analogy think of the elements of a major business decision.   In a board context, where typically management will recommend an option for the board to approve or reject,  these are the major things that management must establish to the board’s satisfaction.  The recommended option must be:

  1. Strategically sound;
  2. Financially sound;
  3. Operationally sound;
  4. Prudentially sound (i.e., acceptable from a risk perspective)
  5. Ethically sound; and
  6. Legally sound.

These are the minimal conditions; a decision satisfying these conditions would be reasonable or defensible.  It may not be the best decision.  For that, an additional element point must be established:

  • The option is on balance better than any other relevant option across elements 1-6.

These elements are often not independent matters.  For example, what counts as financially sound will depend on the organisation’s strategy (and ultimately of course on its purpose).

Each element must in turn be established by argumentation, governed by standard principles of clarity and rigor.

Associated with each element are a series of critical questions. Addressing the critical questions generates supporting arguments or objections.   For example, critical questions for strategic soundness might include:

  • Is there a wider corporate strategy pertaining to this type of decision?
  • If so does the proposed option align with that strategy?
  • If there is no wider strategy, or no alignment, is this option nevertheless strategically defensible?

The elements listed above are generic, suiting a typical major business decision.  However, just as different crimes have their distinctive sets of elements, so particular categories of business decision would have tailored sets of elements.

The “elements of the case” approach can be used in a variety of ways.  It can for example guide the development and structure of the board paper and presentation in which the recommendation is advanced.  Or, it might be used within the board meeting to structure attention and discussion.


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The central responsibility, for Boards and for individual Directors, is to make good decisions.  What can Directors do to improve their decision making ability?

First, it is important to understand that decision making is a complex cognitive skill.  It is not an innate talent that some people were granted at birth.  Nor is it something that simply builds up with lots of experience – though experience is certainly relevant.

Rather, decision making is a cultivated skill, or in other words a domain of acquired expertise.   So the question becomes – how can Directors acquire more of this expertise, particularly with regard to the specific kinds of decision challenges that come before Boards?

We can look to contemporary cognitive science for some insights here.  A sub-field of cognitive science addresses the problem of expertise.   Scientists in this area are basically asking “How do people get really good at something?”

The dominant answer that has emerged over the past few decades is not really all that surprising.  To get really good, you need to do lots of good practice.   To be the best, you need to do the most, best quality practice.  The main reason Tiger Woods has been the top golfer is that he practised more, and more effectively, than anyone else.

For Directors, this means that to enhance your decision expertise, you need lots of practice making Board-type decisions.   Note that it is quality practice you need, not necessarily experience.   A Sunday golfer can accumulate lots of experience over the years, but their game never really improves because they are not working “on” their game.   In fact, lots of experience can make it harder to improve skills, because it can entrench bad habits.

This is where Julie Garland Mclellan’s “Director’s Dilemma” newsletter, and her new book Dilemmas Dilemmas, are so valuable.   They present lots of realistic case studies of decision problems of the kind that Directors regularly confront.  They give lots of opportunities for Directors to work on their game.

However, simply working through the case studies – and reading the “model answers” provided – may not be enough.   What really matters is how you practice.  And here the key insight is the obvious point that if you’re not in some way changing the way you do things, then your expertise will not improve.   To really get the benefit of working through case studies, you need to be expanding and refining your skill set.

Directors’ decision challenges, as illustrated in Dilemmas Dilemmas, are typically complex deliberative problems.  That is, they involve clarifying the problem, recognising a range of options and perhaps suboptions,  understanding the advantages and disadvantages of those options, and weighing up them up.   The core skill is disentangling and evaluating a complex set of issues and arguments.  How can a Director come to do this better?

One approach is to exploit the visual.  We know, in general, that when confronted with complexity, the human mind performs better with suitable visualisations.  A simple example: to understand how all the streets, train lines, etc., in a modern city are laid out, we use diagrams such as the maps found in a road atlas or, these days, the displays on GPS devices.

What is true for roads is even more true for deliberative decisions, which are abstract and indefinitely complex.   The human mind can cope more easily when the options, pros and cons, arguments and detailed evidence are laid out in a visually attractive, easily scannable form.   And the process of laying out the problem in this form can help introduce clarity and rigour.   The overall result is better understanding of the problem, better evaluation of the options, and, on average, better choices being made.

This approach to decision making has been pioneered by Austhink, who have developed a software tool (bCisive) to support the process.

Austhink has teamed up with Julie Garland Mclellan to offer workshops combining her Board expertise and case studies with Austhink’s methods and tools.  The workshops are intended primarily for “emerging” Directors – those who have recently become Directors, or hope to become Directors, or hope to take their directorial activity to a higher level.  Our ambition is that these workshops would be one of the most effective things that Directors – at any level of experience or expertise – could do to enhance their decision making expertise.   And if individual Directors can improve their game, Board decision making in general should also improve.

More information about the workshops.

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Two recent publications have important implications for how Boards make decisions.  One is an academic treatise on how information is shared in teams.  A Board is a kind of team, working together to (among other things) make major decisions.  The practice of having a team make the big decisions is based on the idea that teams will, generally, make better decisions than individuals.  This is founded in turn on various assumptions:

  • Good decision making depends in part on taking into proper account relevant information;
  • Teams collectively possess more relevant information than individuals; and
  • Teams share and make use of that information in their deliberations.

    The authors of Information Sharing and Team Performance: A Meta-Analysis focused on this third issue.  They did a comprehensive review of existing studies on how teams share information, making a number of interesting findings.  If we extrapolate those findings to Boards, we can infer:

    • That sharing of information in Board meetings will indeed improve Board decisions.
    • However, Boards will generally not share information as effectively as they could.
    • In particular, Boards will tend to spend their time talking about what everybody already knows, rather than sharing important information that only a few people know.
    • In fact, the more there is a need for information sharing, the less information sharing will actually happen.
    • The more time the Board spends talk, the more they just rehearse what they already know.
    • Boards will share better if they think they are solving some kind of factual issue as opposed to making a judgement requiring consensus.
    • Boards share information better if they use a structured discussion process, rather than just indulging in the usual kind of spontaneous conversation.

    In short, there should be scope for Boards to improve their decisions by changing the way they conduct their discussions so as to promote better sharing of critical information.

    As it happens, a recent piece from McKinsey makes much the same point.  In “Using the crisis to create better boards” in the October 2009 issue of McKinsey Quarterly, the authors zero in on information sharing using structured techniques:

    “Chairmen can expose their boards to new sources of information – such as new performance benchmarks, new customer demands, or new financial perspectives – in many ways.  One involves tapping into the rich experience of nonexecutive and executive directors who also hold external appointments.  Each board member can be asked to share one fresh idea as part of a discussion about the company’s future…”

    The idea of going around the table asking everyone to contribute an idea is hardly very profound or original, and it is curious that leading management consultants, in the pages of the journal of one of the top shelf consulting firms, would be encouraging Boards of top organizations to make use of such a simple technique.   The fact that such a suggestion is seriously being made actually suggests that the issue of poor information sharing, discussed in abstract terms in the academic meta-analysis, is in fact a very real problem at the highest levels.

    Later in their piece, the authors get a little more specific about some of the information that needs to be shared and how to do it:

    Chairmen ought to help their boards…by requesting that all significant proposals come with a “red team” report presenting contrary arguments…the chairman would merely request that the board hear arguments for and against any important proposal.  The CEO would therefore have to think deeply before submitting the proposal, undecided board members could insist on a fuller discussion, and a rival paradigm might see the light of day.

    This suggestion is very much in line with our proposal that organisations improve Board deliberations, and hence decision making, by adopting decision mapping.   Decision maps, by their nature, include “the arguments for and against any important proposal,” though they include such arguments in a wider framework encompassing the overall structure of the decision.

    The McKinsey authors seem to be suggesting – and we would agree – that Boards don’t need more information thrown at them, in the form of door-stopping Board reports or dense PowerPoints.  Rather, they should look to benefit by more effectively sharing with each other the critical information and insights which they may already have, and understanding what difference that information makes to the issue.

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    Julie Garland Mclellan has posted another of her Director’s Dilemmas.  This time I had the interesting task of coming up with one of the three “answers” or commentaries, and used decision mapping to derive my recommendations.   Here is the map:


    Click on the image or here to view the zoomable pdf file.

    Transcribing the map into prose yields the commentary:

    Donna’s immediate issue is whether to accept the request to take the Chair….

    Donna has three main options: accept the Chair, decline, or escape the issue by resigning. On moral grounds she should accept, given that she is the most appropriate person – the other Directors have chosen her – and it would satisfy her sense of responsibility to the majority of shareholders. Greater demands and stress would be offset by increased remuneration and status.

    Once Chair, she would have at least three courses of action with regard to the troublesome Director. First, she should try to convince the trustee to replace the Director. Her “awareness” that the trustee would not support replacement sounds vague and may be ill-founded. Removing the troublesome director would resolve the crisis unless the trustee appoints another ill-suited person.

    Failing that, second, Donna should attempt to manage the situation. One option is to try to moderate the Director’s behaviour. The previous Chair’s failure suggests this is unlikely to succeed; however a fresh approach may work better. Donna should bear in mind the “fundamental attribution bias”, whereby we exaggerate the extent to which other peoples’ behaviour is driven by supposed personality traits rather than contingent circumstances. Another option is to contain the misbehaviour by meeting with other Directors and senior management to establish strong Board processes and norms.

    In blocking the troublesome Director’s ambition to be Chair, the Directors were accepting the risk of his forcing an EGM. Perhaps the situation will only be resolved in this manner. Consequently Donna must, third, prepare for the EGM so as to try to ensure the best outcome for the company.

    How does my commentary compare with the two others, which were by people with considerably more board experience?

    • There was a large overlap in the range of options that were considered across the three commentaries.
    • Julie’s commentary tended to offer more detail and nuance with regard to a selection of options that we both considered.

    These observations suggest (very anecdotally of course) that a systematic approach to decision making can to go a fair way towards making up for lack of domain knowledge; and more generally that there is such a thing as relatively generic, domain-independent expertise in thinking for decision making.   Of course, the best decision maker would combine both generic expertise and detailed domain knowledge.

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    Now available: Enhancing Board Decisions with Decision Mapping (pdf)

    Boards can improve their effectiveness by refining their decision-making processes.  To this end we recommend adoption of decision mapping to assist individual Directors to appreciate the logical structure of Board decisions, thereby enabling them to participate more effectively in Boardroom debates.  Specifically, Management create decision maps as an integral part of preparing Board papers, and the maps are included in the materials provided to Directors.

    This is a compact (6 page) version of the full white paper, which is currently under revision.

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    It is well known that every issue of the Harvard Business Review includes a case study, an interesting business situation calling for a decision, with three expert commentaries.  The decision mapping methodology fits these case studies very well, as I illustrated in a previous post.

    Every month Julie Garland McLellan, an Australian consultant to company directors and Boards, provides a case study quite similar to the Harvard exemplars, though focused on challenges arising in the Board arena.  She says: “I advise Boards and Directors on complex and challenging issues which can be resolved in a variety of ways. Each way has different pros and cons for the individuals and companies concerned. Every month this newsletter considers three responses to a real issue. Which response would you choose?”  (My emphasis.)

    The current Director’s Dilemma describes a situation in which the Chairman is behaving indiscretely, and a director, Ashleigh, is concerned about this.  But what should be done?  The three commentaries, one by Julie herself, are rich in advice.  I took some time today to map it all out.   These maps (a) merge ideas from both the case itself and the three commentaries; and (b) don’t attempt to add any options or arguments of my own into the mix.


    Click here or on the image for a zoomable pdf version.

    Some observations:

    (1) The three commentaries provided advice in three different categories: things that should be done by the Board in general, things that the Board should do specifically with regard to the Chairman, and things that Ashleigh specifically should do.  In the maps I’ve separated these out.

    (2) Between them, the commentators make lots of suggestions.

    (3) Cursory inspection of the maps makes it obvious that the commentaries are long on advice and short on arguments.  The maps are dominated by yellow (options, i.e., “possible things that might be done”) and have very little green and red (pros and cons, reasons and objections, evidence).  In other words, the commentators suggest lots of things that may or should be done, but provide very little by way of  justification for any of these.  This is despite the case being prefaced by the remark that “Each way has different pros and cons…”

    (4) If the commentators are not providing much (if anything) by way of explicit grounds for accepting or rejecting any of the canvassed options, why would the reader be inclined or obliged to endorse any of them?   Implicitly, I think, the commentators expecting readers to do two things.  First, readers should fill in the missing arguments themselves, as much as they are able.  Second, the commentators are relying on their status as authorities.  It is as if they had said “Trust me on this; I’m a knowledgeable expert; this is what should happen.”

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    Geoff Williams and I have started circulating a draft version of a whitepaper Improving Board Deliberations: The Role of Decision Mapping.  

    We intend to release a final (“1.0”) version in about a month, and are keen to receive feedback, especially from folks with direct experience of board-level decision making.  

    Download (pdf)

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