The process of making decisions for board management is among governance’s most complicated and crucial processes. Boards must determine what kind of risk they’re willing to take and the level of expertise required to manage that risk. They must also decide the most effective ways to communicate with one another and determine what they will do to make their decisions.
Effective boards avoid binary choices and spend significant time on the many options available and challenging assumptions. They also ensure that their decisions are recorded in a manner that allows them to assess and review the effectiveness.
Leigh Weiss says that for high-consequence decisions or what I call black elephants, it is crucial to include a diverse group in framing the most fundamental binary question and in the discussions surrounding it. Weiss suggests bringing in experts to help the board better understand the ramifications and complex nature of the decisions. And it involves the board actively engaging in the debate rather than letting management make a pre-baked decision and then let the board vote on it.
To ensure that the right person is in charge of making a decision, it is helpful to establish a chart that identifies which executive directors, committees or the entire board must make specific decisions. This can be particularly useful when the board is contemplating an important and significant decision that could impact the future of the business. Boards should also decide the type of voting procedure (simple majority, supermajority or unanimous) to apply for specific decisions.