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Board Management Decision Making

The process of making decisions for board management is one of governance’s most complex and critical processes. Boards need to make decisions regarding the kind of risk that they will take on, and the level of expertise needed to manage it. They also have to decide on the best method for communicating and make decisions.

Effective boards steer clear of binary decision making and invest significant time in the multiplication of options, as well as challenging assumptions. They also ensure that their decisions are recorded in a way that enables them to review and evaluate the effectiveness of their decisions.

Leigh Weiss: For high-consequence or what I call black elephant decisions, the most crucial element is to involve many different people in the formulation of the ultimate binary decision and in the discussion that surrounds it. Weiss says this involves having experts on hand to help the board better understand the ramifications and complex nature of the decisions. It also involves the board actively engaging in the debate, rather than simply letting management make a pre-baked decision, and then allowing the board to vote on it.

To ensure that the right person is in charge of making a decision, it is helpful to have a matrix identifying which committees, executive directors and/or the board as a whole should make specific decisions. This is especially useful when the board has to weigh an issue that could have significant implications for the future of the business. Boards must also decide on the voting method to use (supermajority or simple majority, or unanimous) for specific decisions.

April 29, 2024

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