Board Decision Making Help you to better understand the biases in decision making

Improving Board Decision Making in private and public. Help you to better understand the biases that may impede your own decision making processes as a board member and in evaluating board opportunities

1. Professor Victoria Husted Medvec Kellogg School of Management Board Decision Making

2. The Role of the Director Oversight not management Focus on: Corporate Strategy CEO Performance and Succession Planning Fiduciary Responsibility Decision making is key to these activities A director’s key activity is making decisions in a group context filled with uncertainty

3. Goals for this Session Highlight the biases that plaque groups making decisions Discuss strategies you can use to tap the expertise of everyone on the board and improve the decisions made by the board Help you to better understand the biases that may impede your own decision making processes as a board member and in evaluating board opportunities Equip you with strategies to overcome these biases

4. Confirmation Bias We tend to seek out confirming evidence for our hypotheses In a Board Room, this bias is very prevalent. The board book sent in advance could be considered the “confirmation digest.” In order to improve board decision making, we need to gather disconfirming information.

5. Avoiding the Confirmation Trap Seek disconfirming information. Structure the meeting agenda to allow for more discussion around key decisions – put critical decisions early in the meeting. Use private collection of information to gather disconfirming information, gain the minority opinion, tap individual expertise, and avoid the common information effect. Use private collection of information to uncover the magnitude of people’s preferences.

6. Tactics for Improving Board Decisions Seek disconfirming information. Structure the meeting agenda to allow for more discussion around key decisions – put critical decisions early in the meeting. Use private collection of information to gather disconfirming information, gain the minority opinion, tap individual expertise, and avoid the common information effect. Use private collection of information to uncover the magnitude of people’s preferences.

7. Avoiding the Confirmation Trap in Evaluating Board Opportunities Due your own due diligence Meet with the CEO and CFO Meet with the Chairman and other directors Review board minutes, annual report, and analyst’s reports Remember that it is very difficult to get onto a board for a public company but it is even harder to get off

8. Your List of Questions