The risks of “Groupthink” in Boards and Executive Management Teams

Governance Matters Associate Guy Hamilton looks at the risks of groupthink in Boards and Executive Management Teams…..

 

A definition: “The practice of thinking or making decisions as a group, resulting typically in unchallenged, poor-quality decision-making.

Groupthink is a phenomenon that occurs when the desire for group consensus overrides people’s common-sense wish to present alternatives, critique a position, or express an unpopular opinion. Here, the desire for group cohesion effectively drives out good decision-making and problem solving.”

“there’s always a danger of groupthink when two leaders are so alike”

I am increasingly interested in Groupthink and how it creates the real risk of sub-optimal decision making. Consider the numerous cases of corporates purchasing a “strategic asset” to “complement” their core business activities only to dispose of the same within 3-5 years as a “non-core asset”. It poses the obvious question of how a strategic imperative can become non-core so quickly assuming some quality analysis and planning was undertaken as a precursor to the original acquisition?

There is a close link between the likelihood of Groupthink and the lack of diversity on a Board or within an Executive Management Team. Simply, where there is a tendency to recruit key people based on “they understand the business” or “they will fit in well with the existing team” the risk of recruiting in our own likeness rises. If you genuinely want quality champion / challenger type discussions at a Board level then the recruitment of a more diverse set of skills, thought-processes and business outlooks is key. Yet the evidence suggests the default position errs more towards recruiting “people like us” rather than “will they add value by challenging our assumptions”.

Whilst diversity has become a corporate mantra how well is it being applied? Is it more a case of being politically correct rather than enhancing a business’s culture and strategy by embracing different opinions and viewpoints? Does a diversity policy (and its objectives) link back to a business’s market segments and target customers? Where a strong-minded CEO has been recruited do we seek to ensure those around him/her bring a healthy champion / challenge tone to business decisions or do we allow the CEO to recruit those most likely to agree with him/her?

To my mind, diversity is about positively embracing skills of others who bring and add new dimensions to our own thinking. A number of years ago I ran a business setting up premium wealth management branches in a new market. For this, the natural conclusion would have been to recruit experienced bankers with a branch management background. In fact we positively recruited 50% of our branch staff from hotels and airlines as they had the customer engagement skills which bankers often lack. Our customers noted and embraced the difference!

If you are looking to expand into Asia would it not make sense to recruit into the Executive Management Team people with a relevant ethnic background? Take this one step further; recent census data in Australia show how incredibly diverse our consumer market has become in terms of ethnic groups; the question might be whether the composition of our management team and boards reflect the socio-demographics of our customer base?

Technology is a key enabler of modern business models; do we recruit people into our top teams who understand how to leverage these capabilities whilst protecting a business from a growing range of Cyberthreats? Technology is rapidly enabling direct channel engagements with customers obviating traditional “assisted” processes; have we recruited people who understand multi-channel distribution strategies?

The list goes on and could well be very extensive. The key is to ensure recruitment briefs and related selection criteria have been developed after thinking through skills required and how those skills will enable a more adaptive approach to fast changing markets and not support “more of the same”. This starts with the composition of a Board.

How diverse is your Board and is your business at risk of “groupthink”?

Thanks for the wonderful insight Guy. I hope you enjoyed this blog.

Until next time,

Kate.

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