How company directors and boards can ask better questions
Bob Semple is a member of the Governance Advisory Council at The Corporate Governance Institute. He has over 40 years of experience in risk management, corporate governance and related areas for various organisations in the public and private sectors across all industries. Here he explores how company directors and boards can make better decisions. (You can download the full guide below).
Company directors and boards must expect their share of tough decisions
In this guide, ‘Exercising better independent judgement’, Bob Semple says boards and their directors should expect their fair share of tough decisions; and asks can boards improve the quality of those decisions?
“In conducting reviews of board effectiveness, I often find that the answer to this question is ‘Yes’,” says Bob.
In the US, for example, there is ‘The Business Judgement Rule’, which says, ‘Boards are presumed to act in “good faith”—that is, within the fiduciary standards of loyalty, prudence, and care directors owe to stakeholders.’
Boards and their directors should take care to have a structured approach to exercising independent judgement.
The structured approach is one of the reasons Sir Andrew Likierman, Professor of Management Practice at London Business School, identified six key elements that board members, as directors, should consider in exercising independent judgement:
1. What I take in
2. Who and what I trust
3. What I know
4. What I feel and believe
5. How I make the choice
6. How I act on the decision
How company directors and boards can make informed and deliberate decisions
How can you, as a director, make your choice deliberately? You can:
- Support an environment where diverse views are encouraged, and dissent is seen as safe
- Check for the way options have been framed, including those which might have been excluded from consideration
- Appreciate the implications of trade-offs in the choice, including timing, consequences and feasibility
- Be aware of the need for any consultation on the choice with relevant stakeholders and other interested parties
- Understand risk and uncertainty and how to mitigate them
- Take account of context – objectives, precedence, relevant comparisons, legal requirements and ethical issues
- The Harvard Business Review (HBR) reports that the highest performing teams have one thing in common: psychological safety (described as “moderate risk-taking, speaking your mind, creativity, and sticking your neck out without fear of having it cut off”).
The ability to declare – and explore – a contrarian perspective is precious. “Boards should be encouraged to adopt the phrase ‘This might sound stupid but. . .’ as a way of asking the questions everyone else wants to but is too afraid,” says Bob.