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Decision making processes - Coggle Diagram
Decision making processes
Well informed and high quality decision making is critical for board effectiveness
FRC Guidance suggests that many of the factors that lead to poor decision making are predictable and preventable and that boards can minimise the risk of poor decisions by investing time in the design of their decision making policies and processes
Ensuring that there is a formal schedule of matters reserved for its decision is an essential part of this process that will assist the board's planning and provide clarity over where the responsibility for decision making lies
FRC Guidance states that most complex decisions depend on judgement but the decisions of well intentioned and experienced leaders can in certain circumstances be distorted. Factors known to distort judgement are conflict of interest, emotional attachments, unconscious bias and inappropriate reliance on previous experience and decisions
FRC guidance also states that boards need to be aware of other factors that can limit effective decision making such as
A dominant personality or group of directors on the board, inhibiting contribution from others
Insufficient diversity of perspective on the board which can contribute to group think
Excess focus on risk mitigation or insufficient attention to risk
A compliance mindset and failure to treat risk as part of the decision making process
Insufficient knowledge and ability to test underlying assumptions
Failure to listen to and act upon concerns that are raised
Failure to recognise the consequences of running the business on the basis of self interest and other poor ethical standards
A lack of openness by management, a reluctant to involve NEDs or a tendency to bring matters to the board for sign off rather than debate
Complacent or instrasigent attitutdes
Inability to challenge effectively
Inadequate information or analysis
Poor quality papers
Lack of time for debate and truncated debate
Undue focus on short term time horizons
Insufficient notice
The Chair clearly has a critical role in ensuring that these factors do not impair the judgement of the board
FRC guidance suggests ways in which the chair can create conditions that support sound decision making. Eg some chairs favour a series of separate discussions for important decisions covering steps like
Concept
Proposal for discussion
Proposal for decision
FRC guidance suggests that for significant decisions boards may wish to consider extra steps such as
Describing in board papers the process that has been used to arrive at and challenge the proposal prior to presenting it to the board, thereby allowing directors not involved in the project to assess the appropriateness of the process before assessing the merits of the proposal itself
Where appropriate, putting in place additional safeguards to reduce the risk of distorted judgments eg by commissioning an independent repor, seeking advice from an expert, introducing a evil's advocate to provide challnege, establishing a specific sub committee and convening additional meetings
Ensuring that board minutes document the discussion that led to the decision including the issues raised and the reasons for the decision
FRC Guidance suggests that after a significant decision has been made and implemented, the board may find it useful to review the effectiveness of the decision making process and the merits of the decision itself, maybe as part of the board evaluation process