BOARD COMPOSITION AND CULTURE CAN HELP REDUCE DECISION RISK
The strategic, financial, operational, legal and reputational risks that companies face continue to increase, and new risks are emerging every day. Businesses face competitive business disruption, executive misconduct and business continuity challenges, and they are threatened by geopolitical risk and natural disasters. Given the scale of the challenges companies are facing, a greater focus on decision making can make a difference and, as discussed in this article, boardroom composition and related board culture is an important enabler of sound decision making.
In a global survey of senior executives, reported in the June 2017 McKinsey Quarterly, 72 percent of respondents said that bad strategic decisions were either about as frequent as, or more frequent than, good decisions in their own organisations. A 2010 McKinsey study of executive decision making found a strong correlation between top quartile decision-making processes and business results. The study found that while quantity and detail of analysis were important, the decision-making process mattered more than analysis, by a factor of six. As the study’s authors wrote, “Superb analysis is useless unless the decision process gives it a fair hearing”.
The tougher and more significant the issue, the more likely it is to be a topic of discussion and decision in the boardroom. In collaboration with KPMG’s Board Leadership Center, we recently issued a report on this topic – ‘Decision-Making in the Visionary Boardroom’. One of the key findings of this report was the importance of a diverse, thoughtfully-constructed board as a necessary foundation to quality decision making.
Jul-Sep 2018 Issue