Even great decision-makers can be biased. We are also all prisoners of our past — the experiences we have had and the judgements we have made previously.
Making great decisions is therefore also about guarding against these biases, protecting the decision process with “safeguards”.
There are four types of safeguard.
Here’s an outline of how they work, using former Royal Bank of Scotland CEO Sir Fred Goodwin and the destructive ABN Amro bid as an example of where to challenge bias.
- Data and analysis. RBS’s due diligence focused on examining the state of the company to be acquired — not the state of the markets in which it competed. More
time spent analysing the effect of a deepening crisis might have been helpful. - Debate and challenge. Sir Fred had a reputation as a bit of a bully — his Monday morning meetings were known as Monday morning “beatings”. He would have benefited from an individual or group taking on the role of devil’s advocate. Unfortunately, he was such a strong character that there were few if any candidates to play that role.
- Governance. The chairman, Sir Tom McKillop, was not an experienced banker. He claims to have had 18 board meetings to discuss the deal, but the board would’ve been too reliant on Sir Fred’s word with an inexperienced head. Sir Tom could’ve set up a sub-committee of the board specifically charged with challenging the strategy or hired consultants who reported directly to the board. He could have asked for an anonymous survey of senior RBS management, particularly those likely to be charged with integration responsibilities.
- Monitoring. If the other safeguards seem insufficient, greater effort can be devoted to monitoring the outcome of the decision so as to be ready to reverse a bad decision. While this is helpful for some decisions — for example, the rollout of a new retail format — it is ineffective in an acquisition. Once the deal is done, no amount of regret will save the day.
In the event, while RBS did plenty of analysis, canvassed shareholder opinion and had board meetings, they weren’t aimed at spotting and counterbalancing possible biases.
Of course, adding safeguards does not guarantee that you avoid a flawed decision. But, Sir Fred and Sir Tom could have spent more time anticipating their blind spots and designing a process to protect them from making a mistake that has destroyed a great bank.
