2.4.3 Is defensive behaviour problematic?

The participants and the legal professionals with whom I spoke commonly acknowledged that defensive behaviour may result in increased wasteful overhead expenses and, in the worst case, threaten a company’s competitiveness by excessively avoiding or excluding risks and steering the company into recession. Although it is difficult to know where reasonable caution ends and defensive behaviour begins, it can nevertheless be argued that defensive behaviour may become undesirable and have a negative effect when company directors are inclined to exclude all risks under an absolute avoidance credo or an unreasonable assurance requirement. In such cases, directors neglect their duty of care by isolating themselves and disregarding a necessity to act.2 Both types of defensive behaviour may lead the company into recession and compromise its continuity, ultimately having potential personal consequences.

Nevertheless, risk reduction and risk avoidance are generally considered appropriate concerns of the prudent business operator. MacCrimmon & Wehrung demonstrate how decisions are frequently made on the basis of risk adjustments and, when such adjustments cannot be made, risk avoidance, without always considering the best option among a set of alternatives.3 Risk adjustment practices included collecting additional information and in-depth studies, delaying decisions to allow new factors to come to light or spreading responsibility for losses by insuring certain risks. Other strategies to adjust risks involved delegating risky decisions, sharing risks to obscure individual accountability (e.g. decision-making by a joint board or decision by committee) or decentralising decision-making in the attempt to allow someone else in the organisation to assume responsibility. The ability to adjust and avoid risks at both the business and personal levels may, arguably, correlate to a director’s adaptability in creating more favourable situations in which risks can be taken and overcome.