People place a large amount of trust in their leaders- whether elected officials or corporate bosses. These leaders are trusted to make decisions which can have far-reaching consequences; whether for its country, company or organisation. Whilst leaders are deemed to be the best person for the job- with the necessary experience, understanding and competence, they are fallible. Mufid Sukkar, Group Chief Strategy Officer at Nest Investments points out some prime examples, and points towards avoiding failure.
Even leaders with a solid track record can end up making decisions that later prove to be deeply flawed if not downright disastrous.
Theresa May’s failed election gamble, Barclays’ ill-fated rescue in 2008 now being pored over by the Serious Fraud Office and the calling of the EU referendum resulting in the end of David Cameron’s political career are all examples of instances where a leader’s decisions did not exactly end up as hoped.
The benefit of hindsight allows us to see the problems very clearly but can bad decisions be prevented in the first instance? There are three key areas a Board of Directors can think about to ensure their CEOs make more considered judgments.
- Live your values, don’t just list them on your website or quote them in your literature. Every kind of organisation today has its mission statement and values. In theory, adherence to these values should prevent a lot of things going wrong, such as a leader taking a bad decision without sufficient consultation- as was, seemingly, the case with Barclays. Four former directors of the bank have now been charged with conspiracy to commit fraud by false representation in the June 2008 cash call – indicating that action was taken in the first instance by a small group of the leadership. It may not be possible to rule out the ‘rogue employee’ danger completely, but there is still much more that can be done to make sure values are properly considered on a day-to-day basis. For example, how often do you see a feasibility study or a business plan that actually considers company values when arriving at conclusions or defining a business direction? Indeed, how many boards include people who are there specifically to safeguard the ethical perspective of the business as it is articulated in their value system? One wonders, how many business schools actually have the value system as an evaluation criteria for business decisions.
- Overall benefit. Bad decisions are often defined by the reasoning behind them. A leader makes a parochial decision either for personal gain (financial or prestige), or to cover up past mistakes, it is unlikely to be in the greater good of the company. Hence, it is still a question of protecting a few people from the consequences of their actions. The test of a good decision is therefore simple: Am I comfortable with an impartial, reasonable third party looking at me as I make the decision? If the answer to this is ‘no’ then a leader must re-evaluate the reasoning behind making the decision, and act based upon a holistic and forward-looking view of where the decision may take their organisation.
- Fear the experienced leader. Leaders with a brilliant track record of success who are genuinely keen to do the right thing, can still make a bad decision. Academics highlight that this is often down to flawed pattern recognition i.e. thinking that their past experiences are sufficiently similar to current challenges to apply the same rules. This was perhaps, the logic of passionate ‘Remainer’ David Cameron in calling the EU referendum against the advice of trusted colleagues after he saw the results he wanted in the Scottish referendum and the 2015 election. To avoid this, leaders need to ensure they are properly challenged and get enough external ‘devil’s advocate’ perspectives to ensure they are hearing all sides of the argument, as opposed to the one they want to hear.
The bad-decisions of a leader can have serious consequences; financially, politically, and most definitely reputationally. By avoiding knee-jerk reactions and adapting to the situation at hand, leaders should be trusted to make rational and wise decisions. However, in order to truly be successful a leader should rely on the counsel of their team, as well as having an actively engaged board to have a 360 degree understanding of the situation at hand, thus avoiding a bad decision which could come at a steep price to the organisation they are supposed to be serving.