We have developed this guide to help Trustees overcome cognitive biases
Cognitive biases are a normal part of everyday life. Unfortunately they can hinder good decision making. Trustees can play an important role in providing a cross check to management's thinking. The effectiveness of the oversight is further enhanced when Trustees are aware of their own biases.
Steps to overcoming cognitive biases
Professor Jennifer Jordan (2017) specialises in understanding cognitive biases. We have presented below her recommendations for overcoming these.
1. Work on your self-awareness
i. Ask for feedback from those around you that you trust. Maintaining a conversation with others on the topic helps you reflect as well as providing an additional but friendly level of accountability.
ii. Try to understand your personality and decision making better. There is no one right way to do this, however completing questionnaires on the topic may be helpful.
iii. Consider using independent advisors to help you review your decision making process. Having an independent set of eyes can help you move beyond your existing social and Boardroom norms. This is a common step taken by many corporate governance experts
2. Deliberately seek disconfirmation to your standard thinking
Alfred Sloan is credited with saying "If we are all in agreement on the decision - then I propose we postpone further discussion of this matter until our next meeting to give ourselves time to develop disagreement and perhaps gain some understanding of what the decision is all about".
As the quote suggests, if a group has reached a conclusion too easily and too quickly it may well be subject to group-think.
Clearly we don't want all our meetings to be drawn out with unnecessary debate, however a simpler way of achieving a similar goal is to openly seek out what views are in opposition to our standard thinking.
3. Commit to avoiding a harmful 'norm'
Commitment equals consistency. Psychologists have long understood that if you commit verbally, or even better, in writing to an idea or a goal you are more likely to honour that goal. This technique can be used to change an existing practice or 'norm'.
An example most Trustees would be familiar with is the intense pressure to reduce risk during a financial crisis. Unfortunately this can be a harmful 'norm' when markets recover. To benefit from a consistent implementation of a strategy, the mantra "We will not buy high or sell low" would be established well before a market crisis (in the knowledge that investment volatility is normal) and reiterated around the Boardroom as required.
In the next Element we deal with balancing rigour and complexity. Finding that balance is a big part of developing a good Trustee culture which in turn not only fosters useful social (Boardroom) norms, but can help keep regulators happy too.