Have you ever left a meeting wondering whether a decision was taken? Maybe you have taken part in a discussion and afterwards struggled to understand what was actually decided? Or perhaps you have listened to someone explaining a decision, thinking: “that is not how I perceived it”.
Making a decision is the process of accumulating information, which is interpreted based on knowledge, previous experiences and sometimes even bias or personal gain. The power of a single decision can be immeasurable, and yet there is a likelihood of the process leading up to it, is affected by subjective elements. In addition, subsequent sequence of events may distort the perception of the decision taken.
The ability and skill to make adequate decisions is what organizations pay their board members and CEOs for having. However, not all decisions within an organization are taken by these individuals. In addition, the decisions taken by them are not seldom dependent on a chain of previous decisions. As no chain is stronger than its weakest link, any defective or distorted decision down the line may have severe impact on the final outcome. It is an embedded perception that anyone profiting from being the ultimate decision-maker, shall also bear the consequences of failure. Hence, decision-makers would benefit, both personally and professionally, from strengthening the decision-chain of their organizations.
This is where sustaining a well-integrated and well-functioning internal governance plays an essential part. By adopting internal rules establishing an appropriate and transparent organizational structure with functions and areas of responsibility, including mandates, limits and reporting lines, the board of directors/CEO can establish a process where decision-making powers are trickled down the organization in a controlled way. By incorporating the following key-elements in the internal governance, the risk of decision-making being affected by unsolicited subjective elements will be reduced resulting in a strengthened decision-chain and enhanced quality of the decisions taken:
Preparation – Information and recommendations from relevant stakeholders shall be compiled and analyzed, resulting in options for the decision-maker to choose from.
Identifying conflicts of interest – In general, only a condensed part of the available information and analysis reach the final decision-maker, why it is of utmost importance that the prepared material is objective and reliable. To avoid information being filtered or conclusions withheld, conflicts of interest must be identified already in the preparatory phase.
When required – It must be clear to everyone involved when a decision is required and expected.
Who shall decide – It must be clear to each individual or decision-making body, which decisions they are required to take, and which to either delegate or escalate. Decisions taken by an individual holding a function must be based on a legal or delegated mandate.
How – For a decision-making body, such as the board or a committee, the rules for quorum must be adhered to. For ad hoc decisions taken in the everyday business, there are no formal rules, which makes the other parts of the process even more important.
When taken – It is advisable to have an agenda stipulating the decision to be taken at that specific meeting. Decisions taken ad hoc should be avoided as they, in general, are subject to less preparation and formal requirements and thereby more difficult to quality assure. In these cases the decision-maker must be very clear when communicating that a decision has been taken. Otherwise participants taking part in the preparatory phase, such as a discussion, leading up to the decision may not realize that a decision was taken.
What – The content of a decision must be clear. A decision taken during a discussion where different views and opinions are displayed may be subject to interpretation, resulting in diverse perceptions of what was eventually decided. Such risk is mitigated by a sum up subsequent to the decision.
Documentation – Documenting a decision has several benefits. It clarifies that a decision has been taken, what has been decided and by whom. The major benefit being the what, as the requirement to put the decision in writing requires it to be crisp and clear. A decision taken during a meeting shall be documented in the minutes. In other situations, an e-mail or other means of confirmation may be sufficient.
Communication – Once a decision is taken, it is important to appoint the person responsible for communicating the decision in a clear and exact way, striving to ensure a common understanding of what is to be executed.
Follow-up of the decision – A decision must be carried through. Hence, responsibility for the implementation or fulfilment of a decision, preferably within a stipulated time-frame, must be allocated.
Accountability – Consequences are required for decision-makers exceeding their authority or taking decisions contrary to instructions. Equally important, however sometimes more complicated, is to pin-point lack of necessary and required decisions.
Follow-up of the process – It is paramount that the decision-making process is known and adhered to by everyone, from senior management to grass root level, hence assessment of the process on a regular basis is recommended to detect any mal-function or need for information, training or corrective measures.
To summarize, an organization strengthens its decision-chain and enables the organization to take the best possible decisions at all times by having a well-integrated and well-functioning internal governance entailing: clear roles and responsibilities; mandates and limits; instructions for identifying conflict of interests; requirements for well-prepared information provided in due time; requirements for documenting decisions; and consequences for exceeding authority, decisions contrary to instructions or for lack of necessary decisions. Such internal governance will ensure that decisions are: taken when needed; taken by the relevant decision-making body/person; based on correct information; communicated clear and exact; and implemented. The strengthened process will reduce the risks of: biased decisions; misunderstandings and mis-interpretations; decisions taken by persons not having the required knowledge, experience or mandate; and decision not being implemented correctly, or not taken at all.
Hence, the fine art of decision making for board of directors and CEOs is to focus on strengthening the decision-making process within the organization by reducing the occurrence and impact of unsolicited subjective elements. It is not rocket science, but a well-integrated and well-functioning internal governance is required to succeed.
Written by Liselott Hinder