The decision-making process for board management is one of the most important, complex processes of governance. Boards have to decide on the type of risk they will important source accept and how much knowledge is required to manage the risk. They must also determine the best methods to communicate with one another and determine what they will do to make their decisions.
Effective boards avoid binary choices and spend a lot of time pondering the myriad of options and challenging assumptions. They make sure that their decisions are recorded in a way that allows them to assess and review the effectiveness.
Leigh Weiss: For high-consequence decisions, also known as black elephant decisions, the most important aspect is to involve diverse groups of people in the formulation of the ultimate binary issue and in the debate surrounding it. Weiss suggests having outside experts assist the board in understanding the complexities and implications of the decisions. And it involves the board actively engaging in the debate, rather than simply letting management make a pre-baked decision and then allow the board to vote on it.
To ensure that the right person makes a decision, it is beneficial to have a list of which committees, executive directors or the entire board must make specific types of decisions. This is especially useful when the board is considering an option that could have significant consequences for the future of the business. Boards should also decide the kind of voting process (simple majority, supermajority, or unanimous) to use for specific decisions.
