5. Board decision-making Flashcards
(37 cards)
Which CEO competency was ranked as the most important by other directors?
Decisiveness
*maybe speed and conviction is more important than quality
Recent approach to decision-making process
Evidence-based practice
Define evidence-based practice
The conscientious, explicit and judicious use of the best available evidence from multiple sources to increase the likelihood of a favourable outcome
4 sources as defined by evidence-based practice
- Professional expertise
- Internal organisational data
- Research evidence
- Local context (major stakeholders and their values and concerns)
Evidence-based practice’s six-step process through which to make decisions (6 As)
Asking: translating practical issue into answerable question
Acquiring: systematically searching for and retrieving the evidence
Appraising: critically judging the trustworthiness and relevance of the evidence
Aggregating: weighing and pulling together the evidence
Applying: incorporating evidence into the decision-making process
Assessing: evaluating the outcome of the decision taken
Oliver Manet, researcher, concluded in his article on boardroom bias: (4)
- Boardroom bias is inevitable and frequently underestimated
- Bias plays a significant role in board decision-making
- Bias particularly undermines the perceived benefits of independent directors
- Governance regulation needs to emphasise effects of bias and mandate use of de-biasing procedures
How does bias arise? - answer and then two additional points
Bias arises as a result of ‘system one thinking’, which is fast, emotional, low effort, automatic and unconscious.
We are hardwired to make system one decisions in everyday life as it is more efficient to do so than system two decisions
The mental shortcuts that system one thinking uses involve what have been termed ‘cognitive bias’.
12 of the most well-known types of bias
Goupthink
Confirmation bias
Anchoring effect
Hindsight bias
Availability bias
Loss aversion
Sunk cost fallacy
Framing effect
Metacognitive bias
Salience bias
Halo effect
Affect heuristic
What is groupthink (bias)?
Overriding desire for consensus and unanimity, leading to suppression of internal dissent and consequent inadequate evaluation
What is confirmation bias?
Tendency to interpret information consistent with out prior beliefs
What is the anchoring effect (bias)?
Tendency to rely too heavily on one trait or piece of information (often first piece provided to us)
What is hindsight bias?
Tendency to see past events as more predictable than they were, causing us to view future events as more predictable than they are
What is availability bias?
Tendency for decision-making to be influenced by events or experiences that come to mind or are easily accessible
What is loss aversion (bias)?
Tendency to prefer avoiding losses than to acquiring gains
What is the sunk cost fallacy (bias)?
Tendency not to accept our decisions are wrong and therefore to lose further
What is the framing effect (bias)?
Tendency to draw different conclusions from same information presented in different ways
What is metacognitive bias?
Tendency to believe we are immune to bias
What is salience bias?
Bias towards more prominent or visible items
What is the halo effect?
Assuming a person, org or approach will be just as successful in one area as another
What is the affect heuristic?
Is the decision emotionally fuelled
Kahneman, Lovallo and Sibony - 12 question/checks checklist to quality control decision-making process (mitigate bias) can be broken down into which three categories?
Questions/checks decision-makers should ask themselves
Questions/checks they should use to challenge those proposing a course of action
Questions/checks to evaluate the proposal
Kahneman, Lovallo and Sibony - 3 questions/checks decision-makers should ask themselves
Check for self-interested biases
Check for the affect heuristic
Check for groupthink
Kahneman, Lovallo and Sibony - 6 questions/checks that should be asked to challenge those proposing a course of action
Check for salience bias
Check for confirmation bias
Check for availability bias
Check for anchoring bias
Check for the halo effect
Check for sunk cost fallacy, endowment effect
Kahneman, Lovallo and Sibony - 3 questions/checks to ask to evaluate the proposal
Check for overconfidence, optimistic biases
Check for disaster neglect (ignoring consequences or worst-case outcome)
Check for loss aversion (overly cautious)
