1. Groupthink and board dynamics: Some evidence from the field

2. Background and context
Increased interest in trustee board dynamics
Increased interest in behavioural finance
21st Century Trustee – The Pensions Regulator
Asset Management Market Review – The Financial Conduct Authority
Joint work with SEI, Rostrum, and The University of Leeds 2

3. What is groupthink
Originated in the work of Irving Janis in 1972 looking at US foreign policy decisions.
The overarching conclusion was that a number of disastrous foreign policy decisions by the US were a result of groupthink.
There were no contrary opinions.
Alternatives were ignored.
There is a desire for conformity and so independent critical thought is not something that is valued or appreciated. 3

4. In-groups and out-groups
Two distinct view points that leads to two groups.
The in-group work towards their goal(s).
The out-group are suppressed and marginalized.
Clearly there will be conflicting views but there is no desire for the in-group to listen to the out-group.
This is an extreme case. 4

5. Other forms of groupthink
Rationalization of decisions (we have always done it this way)
Self-censorship to limit conflict
The desire to present a unified view
Concealment of information – plausible deniability 5

6. Consequences of groupthink
The presence of groupthink limits critical appraisal
Risk associated with a given decision is not properly considered
Groups can become self-referencing and seek out information that supports the position they wish to take and supports decisions they have taken in the past.
It can lead to the group believing their decisions, and the process by which they arrive at them, is superior.
Groups fail to plan for contingencies in case decisions go wrong. 6

7. The DB Pension Trustee Environment
Board composition
Conflicting goals?
Complexity/risk/uncertainty
Trustees and their advisors – Myners Report
Behavioural biases at an individual level
Problems at the group level 7

8. Groupthink and trustee boards
Challenging the advice that is being provided given
Seeking alternative views
Discussions about risk – planning for failure
Using the same advisors across a range of activities
Consensus around decisions provides ‘collective responsibility’
Images of organizations – working with this is hard… 8

9. Some evidence on this
Only 1% of trustees surveyed said they always reached their own opinion
59% ranked the views of other trustees as very or extremely important
84% said they did not seek a wide range of alternative views
78% said there was no ‘devil’s advocate’ role 9

10. Some evidence on this
Only 3% of chairs absented themselves to limit undue influence
30% of chairs do not express an opinion when assigning tasks
41% are encouraged to discuss ideas outside of the board with trusted individuals
59% do not consider alternatives to consultant recommendation
42% have never personally challenged the consultant 10

11. Some ways forward
It is horrible being self-critical – it is worthwhile
Ensure that the board is a place where decisions are challenged and debated.
Allow debates take place without the issuance of a personal opinion - this allows alternative views to be put forward without prejudice.
Appoint a devil’s advocate for certain tasks
Give the same task to two independent groups
Time…the biggest problem 11

12. A final thought…
Bad decisions happen all the time, what makes the difference is the process in arriving there. 12