Boards and top management teams often try to gain consensus about important decisions. New research offers insights into when that’s the right course, when it isn’t — and how leaders can determine the best form of decision making for a given situation.
Management is fundamentally about making decisions. In organizations, key decisions are often made by groups — boards, senior management teams, finance committees and so on — rather than by single individuals. Thus, an important role of the person leading a decision-making team is to know how to combine multiple opinions — in effect, to become a decision manager. We have found that how a decision is made can significantly affect the outcome of that decision. Hence, the ideas discussed in this article are applicable to any setting in which one has to “decide how to decide.” For the sake of clarity, we illustrate these ideas in the context of boards of directors.
The board of directors is responsible for a company’s most important decisions. In turn, a key responsibility of the chairman is to lead the board so that, collectively, the board can make the best possible decisions for the company. The chairman guides the discussion among the board members and tries to get the most out of their expertise.
Imagine you are the chairman and that, after many hours of discussion about whether or not to acquire a competitor, three members strongly oppose the acquisition, while you, four board members and the CEO support it. You need the board to make a decision now, because if your company doesn’t buy this competitor soon, some other company is likely to do it. How would you combine the opinions of the nine board members to reach the best possible decision?
You have at least three choices.
- You could argue, “This is a make-or-break decision, so we will only pursue it if there’s unanimity.” There isn’t, so you don’t buy the competitor.
- You could argue, “It seems that we have discussed this thoroughly and have a clear majority, so that should be the decision.” With six out of nine board members in favor, you buy.
- You could attempt to delegate the decision to the CEO, arguing, “The CEO and his team have worked for months on this decision; they are the experts. We should not step into their job, so I suggest we trust them.” This, too, would lead to buying the company.