Boardroom Basics: Making the Decision

For the final post in our Boardroom Basics series, we will explore how a defined decision-making process ensures that directors not only make thoughtful decisions, but also meet their fiduciary duties. Following our previous post on defining the decision, this post addresses the second part of the decision-making process: execution.

There are six critical steps during the execution phase of the decision-making process, which are highlighted below.

Once the decision is defined, determine if you have enough information to form a solid opinion. Outline what you need to know beforehand, and ask for additional information, or clarity, as needed. Exercise the same amount of effort and care as if managing your own finances.

Decide if the provided information is based on facts or opinions. This will initiate either an intuitive (informal) or deliberative (formal) decision-making approach, both of which require a delicate balance between the quality, transparency, and timeliness of each individual decision.

Once the various permissible* solutions have been identified, assign a probability of success to each possible result. Incorporate both quantitative and qualitative factors in your probabilities, and avoid overreliance on projections or forecasts. Accept that your decisions may sacrifice short-term profit for longer-term gain. (*Pay careful attention to SEC guidelines, and be prepared to abandon any solution which proves to be legally or ethically dubious.)

Define the solution’s success. By creating a list of important metrics and a weighted matrix for their measurement, you should be able to objectively determine the success of the solution. Perform the same analysis when defining the failure of a solution, and make both matrices readily available for quick comparison.

After a decision has been made and implemented, create a frequent vehicle for collecting feedback. Within this feedback loop, identify key metrics of success (i.e., sales) and failure (i.e., product defects) and prepare to course-correct as needed. Avoid the temptation to continue along with a misguided decision, as this can lead to disastrous outcomes. Instead, remain flexible as the results of the decisions evolve, and be confident that you used sound judgement during the decision-making process.

Finally, ensure that the entire decision-making process has been documented through meeting minutes and board reports. This will ensure that new board members will understand both the process and reasoning behind previous decisions, and the board can accurately defend their decisions, if necessary.

Directors and management teams face decisions each day that may impact their companies, shareholders, and their own reputations. A vetted and documented decision-making process allows them to evaluate and minimize associated risk and ensure their duty of care.