Board Blind Spots: 12 Cognitive Biases that can Hamper Corporate Performance
By: Christos Tsolkas
Tags: Cognitive Bias, Decision Making, Judgement, Hierarchy, Board Of Directors

Part III

Photo by Denys Nevozhai on Unsplash

Organizations exist to amass and coordinate/deploy resources. They are structured to make the best strategic decisions accordingly. Organizational hierarchy is meant to help that decision-making process. The higher up the ranking, the more decision-making power the individual usually has. This dynamic creates corporate dangers that the Board should watch out for and help monitor and prevent.

Continuing from the previous article…

Let’s look at three.

7. Authority Bias

Most of us are wired, to some degree, to associate rank with expertise, knowledge, experience, and even wisdom. We give authority figures a certain amount of deference and respect accordingly. When it comes to opinions, observations, predictions, analyses, and decisions, this means that we tend to afford those higher-ups with better insights, more accurate assessments, and purer understanding.

There’s nothing wrong leaning on those who have more experience, broader perspective, accomplishments, and well-honed skills. They’ve likely risen through the ranks for excellent reasons. But problems arise when that authority figure is given a “blank check” for their expertise, and their opinion gets counted for more than it is worth.

Authority bias can be dangerous when the authority figure is far removed from the issue or information. For example, a CEO at the HQ may have a less relevant understanding of the factory worker’s challenges, salesforce or call center workers, or ten or more organizational layers below. Making decisions based on that limited understanding could lead to disastrous results.

Remedies

a. Many of the best organizations flip that decision-making around with what’s called the Inverted Pyramid. In this case, decision-making is pushed to the flat edge of the pyramid as much as possible, while executives are there to provide guidance, ask the right questions, and “learn.”

b. Omit hierarchy and organize days in the field or the shop floor or the incoming complaints department to get an immediate sense of the reality unfiltered, “naked.” It can be done by the CEO and, or the Board Members.

c. Albeit intricate, another technique I have used several times to overcome this type of bias with great results, is called “Skip-One-Level.” It involves a series of consecutive meetings between the Director and minus two levels below, skipping the manager directly responsible for any given group. Properly handled, it usually ends up with great, relatively unbiased discovery.

Infographic created by the author

8. Self-Serving Bias

Information is gold for decision-making. Yet, there is a risk in over-estimating the organization’s ability to assess the value of data. We tend to see what we want to see and make decisions accordingly.

For example, perhaps the organization is assessing its sales or revenue numbers for the quarter. Unfortunately, the direction is more ambiguous than clear. So how do you interpret it? The tendency is to use that information to reinforce or support the decisions you “want” to make, which may not reflect actual reality.

Another danger is taking more responsibility for success than failure or ascribing more responsibility for failure than success to another group. So, if your group hits its numbers, you tend to believe that’s because of something you did. But if your group misses its numbers, that’s because of something that happened to you.

In contrast, when a rival department gets good marks, it’s easy to say that’s because they got a lucky break or circumstances influenced those results.

This sort of bias can lead to a lot of confused thinking, which the Board must do its best to weed out or avoid.

Remedies

a. Decouple decision-making from its outputs. Evaluate thoroughly the former and reward it accordingly. Study the misfit between poor outcomes stemming from the right decisions and correct.

b. Peer coaching can also diminish the self-serving bias, assuming sound listening capability.

9. The Dunning-Kreuger Effect

The best leaders I know, recognize that they are not experts or the most skilled people. They strive to be the least qualified or least expert in a given situation by surrounding themselves with the best. Other leaders, however, tend to believe they are knowledgeable, skilled, or informed merely because they are successful.

As a result, a CEO or SVP might assume superior knowledge or understanding even though their particular experience is irrelevant, technical, and said to stand on “Mount Stupid.” This can lead them to discount, or de-value others’ opinions or views, or they do not feel driven to seek alternative perspectives. Donald Trump is a representative example of such grandiose (mis)behavior.

On the other hand, experts understand the complexity or nuances of a particular set of facts or situations. The way to real expertise passes from humility and realization of inadequacies, and devaluation of their current own knowledge or capacity.

An enlightening example comes from the famous quote of the great Greek philosopher Socrates “I know that I know nothing.”

Bottom line, it is not an unusual case for wrong people making the wrong decisions.

Curated by the author

Remedies

a. Boards can bridge this overconfidence -” macho” type of gap with appreciative inquiry technique (strength-based coaching)

b. The “devil’s advocate” role from the Chairman or any other Board Member is a method of disclosing data inadequacies and refocus the discussions on facts rather than opinions

Sounding Board

As you can see from these three examples, there are many traps around biases associated with hierarchy and success. A Board can do much good in an organization by instilling a culture, structure, and workflow processes that support more accurate assessment, better information flow, and better decision making.

Stay tuned for the last set of cognitive biases next week to help the Board avoid blind spots.

CTdec20

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Christos Tsolkas is an Independent Business Advisor, Entrepreneur, and Author of the new book, The Gift of Crisis: How Leaders Use Purpose to Renew their Lives, Change their Organizations, and Save the World.

He has spent more than 25 years in positions of significant responsibility (general management, sales & marketing) with multinationals in the fast-moving consumer goods sector, leading senior teams to achieve high performance and change. His educational background in chemical engineering & business, and he is dedicated to continuous learning.