At Corporate Board Member‘s recent Boardroom Summit, members of PwC’s Governance Insights team share the four most common biases that can derail healthy board culture. Key takeaways.
1. Authority Bias
“What we’re seeing happen here is a bit of too much deference in favor of one person or multiple people on the board,” said Leah Malone, director of PwC’s Governance Insights Center. “Maybe the same director has the final word on a subject or opinions aren’t voiced in the full boardroom.” This can surface in a number of ways:
• Overreliance on SMEs. “Whenever a certain topic comes up, everyone turns to the person who is the legal expert or industry expert… but there’s a fine line between hearing what certain SMEs have to say and being overly deferential to that one director at the expense of that fulsome discussion.”
• Vocal veterans. “This happens with a long-serving director or when the founder serves on the board, when there’s a bit of authority deference in favor of that person.”
• Dominant personality. “The director who has the loudest voice, the most commanding presence, eats up all the oxygen in the room.”
2. Status Quo
“Change can be scary, and many people resist it,” said Paul DeNicola, principal at PwC. “There’s the phrase that everyone’s heard: ‘If it’s not broke, don’t fix it.’ Boards tend to prefer an established set of norms and value what’s familiar. But sticking to the status quo can lead to underinvesting in long-term projects and R&D that don’t necessarily lead to immediate returns.” He shared two main areas of status quo biases:
• Living in the past. “This kind of board advocates for a consistent strategy despite changes in the environment or circumstances that make that strategy no longer make sense. We see it in boards that are reluctant to support entering new markets or lines of business or getting rid of businesses that maybe no longer make sense. We’ve also seen it in boards that downplay the importance of emerging trends, like ESG, perhaps dismissing them based on a company size or sector.”
• Stagnant work practices. “You might see this with nom-gov committees that are avoiding a longer-term approach to board succession. You also see it in boards that don’t rotate leadership positions periodically. Finally, in board materials that have looked similar for a number of years and they’re not taking a fresh approach to that.”
“Boards can only be effective if they come to consensus, but there are more and less desirable ways to do that,” said DeNicola. “While consensus is important, some boards may be too inclined to seek harmony to maintain collegiality. This can lead to groupthink, a mentality where dissenting views are not welcome. “It’s fairly common. According to the research, 43 percent of directors say they have a difficult time voicing a dissenting view. It’s magnified when boards don’t have access to the right materials early enough or when management glosses over key topics.” Some signs of groupthink include:
• Excessive agenda management: overly scripted agendas.
• One-way communication between management and the board with little time for discussion.
• There’s a push to come to a consensus quickly.
• The directors who may be willing to question the prevailing view are criticized, ignored, marginalized or asked not to stand for re-election.
4. Confirmation Bias
“This is the idea that we overvalue evidence that confirms our own beliefs,” said Malone. “So you have an idea, you see a bunch of data and you kind of cherrypick the data that confirms your own view. In boardrooms we see this play out when directors seem to have made up their minds before the discussion even takes place.” She shared some of the common culprits:
• Glossing over uncertainties “as a way of kind of reinforcing confirmation bias, not really wanting to dwell on the difficult areas of the discussion.”
• Lack of diversity on boards. “This isn’t always the type of diversity that we talk about all the time. It could be that many of the directors have similar professional backgrounds or educational backgrounds. This can really enforce confirmation bias.”
• Looking for easygoing. “Boards looking for a new member sometimes wind up selecting someone who won’t rock the boat—but we need to recognize that practice of challenging of the way that boardrooms proceed and do their work can be beneficial.”