8.2 Mental deception and the performance of management duties

The multi-person BoD and the multi-person SB are faced with many challenges. The task of directors and members of the SB is complex. Furthermore, directors and members of the SB must fulfil all kinds of duties required by legislation and regulations. They perform their tasks under the banner of collective responsibility shared by the BoD on the one hand and the SB on the other. Despite the possibility of allocating duties, collective responsibility automatically entails the need for collaboration, or at least communication. If the multi-person BoD and the multi-person SB seek to accomplish that the result they achieve is greater than the sum of results that could have been achieved by the members as individuals (the notion of optimisation), then attention should be devoted to the biases that can undermine the notion of optimisation. These biases are, respectively, group polarisation and groupthink.

Group polarisation refers to the tendency of people in groups to shift their opinions in the direction which the group was already inclined to take due to the effects of group discussion. This increases the group’s propensity for risk-taking. Group polarisation within the board of directors can for instance lead the board to undertake an investment that is too risky under the influence of group discussion. The causes of group polarisation include social pressure experienced by the individual to modify his own individual opinion to the group mean – or at least to what the individual perceives to be the group mean. A second cause could be that the individual modifies his opinion to the mean without there being an underlying psychological change or without certain substantive arguments playing a role. In doing so, the individual assesses the group mean as being more neutral than his own opinion. A third cause can be found in the area of information and arguments. For example, the positive experience with a high-risk investment may facilitate a riskier investment in the future. These experiences have an impact on other individuals within the group due to group discussion.

Groupthink is a phenomenon that occurs when the desire for group consensus overrides people’s common-sense desire to present realistic alternatives. The causes include, inter alia, a sense of incontestability, rationalisation of one’s own behaviour, unjustifiably high levels of trust in group morality, the group exerting pressure on the individual with a dissenting view, a sense of pressure to conform to the group opinion, stereotyping other groups and the group’s belief in the illusion of anonymity. Groupthink can cause optimism, foolhardiness and ethically questionable actions. Under the influence of groupthink, the BoD and SB may for instance be inclined to review insufficient alternative scenarios. Not considering alternatives reduces the quality of judgment and decision-making by the BoD and SB.

Groupthink and group polarisation occur at the individual cognitive level of the director and the commissioner. These biases, however, have a marked impact on the supra- individual level of the BoD and the SB. The supra-individual level is the systems level, or the level of the collective, and that of the BoD and SB as a team. This impact makes it necessary to study the supra-individual level of the BoD and SB to understand the functioning of the multi-person BoD and the multi-person SB. The interaction between cognitive processes that can be understood separately at the individual level provides patterns of management behaviour that can no longer be traced back to individual processes. However, the Dynamical Systems Theory (DST) is a valuable tool that allows us to assess the conduct of the BoD and SB as a team and to identify cognitive influences at the supra-individual level. DST is used to describe the behaviour of the complex dynamical systems. DST is a mathematical method applied to a large variety of disciplines, such as neurosciences, quantum mechanics, biomechanics, meteorology, and artificial intelligence.

Mapping the pattern like behaviour of the BoD and the SB (the attractor – for example, a strong consensus culture), possible external distortions of the BoD and the SB (perturbations – for example, a hostile public bid), synchronisations of the BoD and the SB (for example, whether directors click with each other), and the learning curves and scale invariation of larger and smaller patterns (fractals and power laws – for example, schooling of the BoD and SB) enables us to analyse the supra-individual level of the BoD and SB. This analysis helps improve the performance by the multi-person BoD and the multi-person SB and facilitates making modifications to the judgment and decision-making process such that groupthink and group polarisation risks can be reduced. This can be accomplished through the mitigation techniques provided by me in regard to the role of the chairman, diversity, openness and trust, the devil’s advocacy technique, the nominal group technique and, lastly, evaluations. Ultimately, directors and members of the SB need to apply the recommendations themselves to obtain more autonomy over team behaviour. Further statutory regulation is unwanted in view of the risks of a box-ticking mentality and removing the sense of responsibility among directors and members of the SB regarding their own conduct.