Framing Board Decisions for Success

[00:00:00] Intro: Welcome to Minutes by boardcycle, where in each episode, we pack the insights from one of Australia's boardroom leaders into just a few minutes.

[00:00:08] Intro: In today's podcast, Richard Conway talks to Christy Boyce, director of JB Hi-Fi, formerly a director of CSR, and former senior partner at Port Jackson Partners on how management teams can frame up decisions to their board to maximise success.

[00:00:26] Richard Conway: Hello and welcome to the Minutes podcast. I'm your host, Richard Conway, and today I'm thrilled to be joined by Christy Boyce.

[00:00:36] Richard Conway: Christy's the director of JB Hi-Fi, BAI Communications, and EMM Consulting, and the chair of the SCEGGS Darlinghurst Trust. Previously, Christy was a director of CSR, a senior partner of Port Jackson Partners, and a partner at McKinsey. Today, I'm quizzing Christy on how executive teams can frame up decisions to their board to maximise the chances of getting the right [00:01:00] decision, and to minimise that frustration that everyone feels when instead of getting an outcome, the management team just gets more homework.

[00:01:07] Richard Conway: So, Christy, welcome to the podcast.

[00:01:09] Christy Boyce: Thanks, Richard. Delighted to be here today.

Richard Conway: So, Christy, I wanted to ask you to imagine you're on the board of an organisation where the management team wants to make a transformative change of some type. And as a director, I wanted to ask you if you could outline what kind of process you'd expect management to have gone through before they come to the board, asking them to make a decision on something like that.

[00:01:35] Christy Boyce: So what I would want to see is they take quite an expansive approach to resolving the issue or determining what to do. I would want to understand that they had really thought about what would be the range of choices that they had in responding to the particular issue. So they'd articulated a set of options, and they'd interrogated those options.

[00:01:57] Christy Boyce: I don't want someone to just come with sort of a financial [00:02:00] model and says model says X, I want them to say, model says X is fine, but you know, what went into the model, what have we thought about? Have we thought about the full set of stakeholders? Have we thought about what all the things that sort of could change the answer?

[00:02:16] Christy Boyce: Can you sort of articulate the logic that sits behind the model, if there is a model? And can you, from a sort of qualitative sense, talk to me about how those different stakeholders or industry trends or potential discontinuities or whatever it is, come together in that environment.

[00:02:36] Christy Boyce: And in most cases, I'd want to see that they'd also taken into account uncertainty. So I'm not a big fan of point estimates. Because point estimates, unless it's something sort of very predictable, like cost out or something like that, the thing you can most be confident about is point estimate is wrong.

[00:02:56] Christy Boyce: So I want to see the range and if [00:03:00] there's some big uncertainties out there, I want to see how, you know, it's almost like scenario planning, like what are the different outcomes in the external environment and what would this decision look like in those different circumstances? I'm actually more interested in understanding that than the number that spat out of the model. Because if you haven't gone through that process, the number that is spat out of the model won't really make sense.

[00:03:23] Richard Conway: And in that, Christy, showing that you've thought about different options is fine, but there's a question about how likely or realistic an option has to be to spend time thinking about it? And do you, for example, present to the board the full gamut of options that you thought about or went through, or do you just present a small selection to demonstrate that you have gone through that process?

[00:03:48] Christy Boyce: I don't think the board needs to see everything you did. So it's more, you know, even just knowing we considered X number of options, you know, we considered X options and that one got struck out.

[00:03:59] Christy Boyce: The why [00:04:00] reason, which might be quite qualitative, but that was never going to make sense because there was too much regulatory risk or that was never going to make sense because there's a real risk to the customer base and disenfranchising them. I just want to sort of know at some level that those things were considered.

[00:04:15] Christy Boyce: I'm more interested in understanding why the option you've settled on is the right option. But I do want to have a sense, there were some other things that were considered and they were removed for whatever reason it happens to be. Yeah.

[00:04:28] Richard Conway: Yep. Absolutely. And so Christy, a consistent challenge that can come into management decision making is how easy it is for bias to come into the process, some level of, and I mean, sort of cognitive bias there rather than other types of bias.

[00:04:45] Richard Conway: To some extent, the reason for having an independent board or independent directors is to help eliminate that, but I am imagining as a director, it's, if you perceive bias, when a decision is presented to you, it can be pretty, can [00:05:00] erode your confidence in that decision pretty heavily. So what approaches do you think executives can take to mitigate or eliminate that bias in their decision making before it gets to the board?

[00:05:13] Christy Boyce: So I think it comes back to articulating the logic of why you're pursuing a particular option and sort of forcing yourself to document that and trying to take a critical view of that. So it's very easy and for lots of good reasons for executives to sort of get sucked into the detail.

[00:05:32] Christy Boyce: You've got to, I think, find a way as a senior executive to pull yourself back out and sort of stand on the balcony as if we were looking down on the decision, and saying, what could we have missed? What could go really wrong here? What haven't we considered? And that you've got to make space and time for you to do that. It's very difficult to do that when you're in the middle of running the analysis or whatever.

[00:05:57] Christy Boyce: You've got to sort of make the time to take the [00:06:00] step back.

[00:06:01] Richard Conway: And do you think it's also important for executives there to think, I guess, particularly if we were thinking about, say, a transactional example, it can be very easy as you're working through a transaction just to collect this bias along the way that the transaction should happen, for example. What about just thinking about counterfactuals or posing yourself a couple of questions that help you pull back that way?

[00:06:27] Richard Conway: Is there anything that you recommend in that regard?

[00:06:31] Christy Boyce: Well, I think, you know, making yourself be the devil's advocate, right? Thinking about what are all the things that could go wrong? Why wouldn't you do this? And sort of forcing yourself into that role. Because ideally you want to have done that before you get to the boardroom, because probably there's someone in there who hopefully politely will play that role if you haven't already played that role.

[00:06:51] Christy Boyce: So, being able to show that you've played the devil's advocate role and you've really thought about what could go wrong here. Why might we be wrong?

[00:06:59] Richard Conway: And I [00:07:00] wanted to ask you another tricky question, which is around data and having data to support your conclusions. And I guess the pressure that management teams are under when they're presenting these things is, directors would like you to present the options you went through, why you're recommending the decision that you're recommending.

[00:07:20] Richard Conway: Probably some data to back that up, et cetera. And they'd like that all in three pages, if that's okay. But, on the data point, specifically. How much weight do you put to the depth of the data that's presented in a paper? And as someone on a management team who's writing a paper, how do I know when I've given the board the right amount of data to support my conclusions?

[00:07:44] Richard Conway: And then I guess a double barreled question, is there any role at all for intuition in decision making at this level?

[00:07:53] Christy Boyce: I'll answer the question about intuition first, then I'll answer the question about data. I don't think there's a role for [00:08:00] intuition if it's just, you know, I woke up this morning and I feel like X. I think what there is a role for, and sometimes people call it intuition, but it's really not, is pattern recognition.

[00:08:10] Christy Boyce: So what analogies are out there? What have you seen before that looks like this? What have you learned from that, that might lead you to head one way or the other? In that context, I just encourage you to be really transparent about the analogy that you're referring to or the prior experience that you're referring to.

[00:08:28] Christy Boyce: So I think pattern recognition is a really important tool in an executive sort of briefcase in terms of decision making. But it's, it's actually not intuition, it's something about what you've learned or what you've seen in the past. So, that's the comment I would make.

[00:08:43] Christy Boyce: And then in terms of data, I don't want to see reams of data and I don't think most boards want to see reams of data. What you want to see is the relevant data point and or have confidence that there are data points that haven't been shared, but that sort of research and work has been done.

[00:08:58] Christy Boyce: So it's [00:09:00] picking the thing that is most relevant in the most relevant way and sharing that rather than sharing, you know, we did gazillion pages of analysis. And it doesn't always have to be numeric. I mean, obviously I prefer it was numeric, because everyone loves numbers, but different observations or, you know, behavioural things, you know, there's different, well, I mean, there's, sort of financial number crunching at one end of the spectrum.

[00:09:27] Christy Boyce: There's sort of numeric evidence that is more about say customer behaviour or industry dynamics or things like that, that is not quite financial, but it's still helpful and equally relevant decision making. And then there's sort of qualitative observations.

[00:09:41] Christy Boyce: But all of those things have a role in decision making and it's being clear about what's most appropriate. But you don't want to sort of share the ocean that you boiled. You want to share the five most relevant grains of salt that came out of it in terms of the decision that's being made, if [00:10:00] I can use that analogy.

[00:10:01] Richard Conway: I guess, to kind of paraphrase that a little bit, it's not about showing the board how much work you've done. It's about showing the outputs of that work.

[00:10:10] Christy Boyce: Yeah, sharing the insights, right? Yep.

[00:10:13] Richard Conway: Yep. And Christy, lastly on this. So if management has practically done all of those things, they've gone through a good process. They've come to a good landing, etc. What are the things that are really indicators for you as a director when you're receiving a paper on some transformative decision like this. That is the case, are there particular hallmarks you're looking for, and on the flip side, are there things that are really red flags to you that, you know, indicate to you that management just needs to do more work?

[00:10:47] Christy Boyce: So I'd want to know if they've considered the options. I'd want to see the clear logic that led them to a particular option. I'd want to be confident they thought about what could go wrong. I'd want to see that [00:11:00] they thought about what will matter in terms of success. So, what will be critical in an execution sense to getting the most out of this decision or to delivering what we think we can deliver out of this decision?

[00:11:13] Christy Boyce: I think they're probably the main things. What would worry me is if it seemed like they'd sort of made, decided something up front and they were just looking to justify it. That they hadn't sort of taken that step back and said, what could go wrong here and what would determine whether we're successful or not.

[00:11:31] Christy Boyce: The one thing I would say is, I think it's important to be clear that you can make a good decision and sometimes it doesn't work out the way you thought it would. Because, you know, let's just say you're in an environment where there are five different versions of the world. And one will be horrible for the decision, but it's got a 5 % probability.

[00:11:48] Christy Boyce: But for one reason or another, you end up in that 5 % scenario and the decision doesn't work out the way you thought it would. Well, that doesn't necessarily mean the decision was a bad [00:12:00] decision. It just means you sort of got unlucky to some extent. I think the question though, to ask yourself in that situation is, okay, we're gonna make this decision, which will be good 95% of the time, but in 5% of the time it won't be.

[00:12:12] Christy Boyce: What can we do to make sure if we end up in the 5%, assuming we don't control ending up in the 5%, that makes it less bad and is there anything we can do to sort of mitigate that or make the 5% less likely to occur?

[00:12:26] Richard Conway: Yeah, absolutely. And you talk about 5 % there, Christy, just to follow up on that, which seems fairly unlikely.

[00:12:34] Richard Conway: Was that just a number you were throwing out? Or is that a threshold where you think that management should be thinking about what to do in that scenario? Or even less likely than that?

[00:12:44] Christy Boyce: Oh, I think 5 % probably is a good test. I mean, if it was 20 % likely, I'd want them to put more thought into it, put it that way.

[00:12:53] Christy Boyce: So I was just trying to sort of illustrate the point, but yeah, there'd be plenty of times when you make a decision that actually makes sense 80 % of the time. [00:13:00] But if you end up in the 20%, it's not going to be so great. So if you suddenly found yourself going down the 20%, how do you know you're going down the 20%?

[00:13:08] Christy Boyce: What are the signs? And if you are going down the 20%, is there anything you can do to try and make it less likely? Is there anything to do to make it less bad? Can you reverse anything? You know, thinking those things through is important.