Beyond bad luck there’s also a number of reasons why bad decisions happen. Here’s the five most common reasons why I think good directors make bad decisions.
In life, chance plays an incredible role. I often reflect on a successful career and think, if just one or two things hadn’t happened, things might have turned out quite differently. None of us can avoid the role of chance in our life and in our decisions.
But beyond bad luck there’s also a number of reasons why bad decisions happen. Here’s the five most common reasons why I think good directors make bad decisions.
1. Bad decisions happen when directors don’t do their due diligence
Everything about a decision-making process can be right, but if you’re starting from a false premise, the outcome will always be wrong. Sometimes that’s just bad luck, but you can reduce the likelihood by researching and seeking good advice.
If a board makes the wrong decision, that doesn’t make them liable. What makes them liable is if they don’t make the decision in a rigorous and professional way. The onus is on them to be well-informed, and to make sure they have the right information.
Directors have to challenge assumptions carefully and objectively. For example, considering who the advisors were, how much experience they had, and whether they had any vested interest or bias. Understanding the scope of the decision is vital to avoiding a bad one.
2. Bad decisions happen when directors don’t learn the lessons of the past
Retrospect is a powerful tool, after all. When a poor decision has been made, you often hear, “Gee, with hindsight we would have done something very differently.” But directors need to think beyond hindsight. They’re told: fail early, fail often; but they need to also remember to learn always.
Boards need to be able to dissect and analyse the decisions that seem obvious in hindsight, and ask what they missed. What went wrong? Were there chances to see what was coming? Were there possibilities we didn’t consider?
That doesn’t mean they could have known that at the time, but maybe it means they’ll know next time.
3. Bad decisions happen when directors don’t think about their thinking
We all need to remember that sometimes people and boards do just get it wrong.
We can all give examples of situations where we’ve said, “what were they thinking?” It’s easy to imagine a decision should have been easy or obvious. But directors should also question honestly, “might I have also fallen into the same traps?”
I think it’s very important for directors to reflect on their personal thought processes. How do we respond to criticism or praise? Do we get more engaged by complex matters or by what’s new and shiny? You need to think about your natural biases, and be conscious of these in any decision making process.
4. Bad decisions happen when directors are uncomfortable in the minority
Sometimes, directors might be alone in their view, and that’s a lonely and isolating place to be. Boards are group decision makers, and it’s natural to want to feel like a member of that group. But sometimes, making the best decision means acting against the group mentality, and that’s not easy.
Sometimes directors make poor decisions simply because they didn’t feel comfortable speaking out.
5. Bad decisions happen when a chairman fails to promote a healthy decision making environment
The chairman’s role is critically important. He or she needs to step back from the detailed argument and participation in the discussion. As chair, you are conducting the orchestra. As chairman, your job is to ask: what are the most important things for the board to address?
In the heat of the debate, it can be difficult for directors to think objectively about their decision making process. The chairman must promote debate, make sure everyone is heard and bring coherence to the discussion. A good chair helps directors make good decisions by making sure the board follows a great decision making process, every time.
Directors can’t make perfect decisions, but we can tilt the odds in our favour
The future is hard to predict. But directors can give themselves a better chance to make good decisions. With the right evidence, self-reflection, and openness to future learning, they can make sure they bring their right perspective to decision making.
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Russell Yardley / About Author
Russell is a professional company director. His board experience includes Chairman ASX listed Tesserent, board member ASX listed Powerhouse Ventures, Wunderman Bienalto, the Victorian Government Purchasing Board and the Alannah and Madeline Foundation. He is an experienced director, entrepreneur and innovator, with expertise in technology, strategic & business planning and an extensive knowledge of government.
Russell was appointed a Fellow of the Australian Institute of Company Directors in 2012. His expertise has been recognised by SmartCompany as one of Australia's 12 Most Influential People in Tech and as an Honorary Member of the Australian Computer Society.