Cognition and cognitive dissonance in the boardroom is getting much more air time.
It is perhaps tangential to the dominant diversity debate, yet the Financial Reporting Council (FRC) notes: "The boardroom should be a place for robust debate where challenge, support, diversity of thought and teamwork are essential features.
"Diversity of skills, background and personal strengths is an important driver of a board's effectiveness, creating different perspectives among directors, and breaking down a tendency towards'group think'."
How true but is it really?
From a culture perspective, the idea of a NED 'afterlife' was alluring to me; a means to step back from a previous role, to pass on experience, devoid of ongoing conflicts and commercial pressures of the industry.
As one wise friend noted to me: "Intellectually, I can absolutely see the argument for keeping the two separate - you finish one, and start up the next."
Partly it's a time factor. We all have finite mental and emotional capacity. Poor decisions or anxiety can be symptoms of imbalances in our work life. Quality of critical thinking needs balance and sufficient time to prepare, analyse, challenge and reflect.
The FRC notes the time constraints for NEDs: "It is vital that non-executive directors have sufficient time available to discharge their responsibilities effectively. It is advisable for non-executive directors to assess the demands of their portfolios and other commitments carefully before accepting new appointments."
Critical thinking is essential to reducing group-think, which FRC notes: "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 conflicts of interest, emotional attachments, unconscious bias and inappropriate reliance on previous experience and decisions."
The FRC sets out "risk factors for poor decision-making" that I have observed as symptoms of model immutability and 'group-think' and include:
• 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 reluctance to involve non-executive directors, or a tendency to bring matters to the board for sign-off rather than debate
• Complacent or intransigent attitudes
• 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
Jeffrey A. Sonnenfeld's piece in the Harvard Business Review, 'What Makes Great Boards Great', notes the importance of the social dimension (over structure) within boards, as it relates to 'group-think'.
He states: "So if following good governance regulatory recipes doesn't produce good boards, what does? The key isn't structural, it's social.
"The most involved, diligent, value-adding boards may or may not follow every recommendation in the good-governance handbook. What distinguishes exemplary boards is that they are robust, effective social systems."
Going from good to great, Willis Towers Watson's Thinking Ahead Institute paper on investment committees, is likewise supportive. For example, 'distance' may help committee members challenge models and propose off-model views.
Beyond Sonnenfeld, this report also suggests that post-lockdown, that governance committees should perpetuate a cycle of physical and virtual meetings. All very new fund order.
This is not to say independents should presume to agree with other NEDs or disagree with executives. It is the discussion, dissent and breadth of view that we (and your chair) should covet.
JB Beckett is an iNED and author of #newfundorder