Abstract
Individual and group biases corrupt a rational and fact-based approach to governance. We lay out the problems affecting CEOs and their executive teams, as well as owners and their Boards of Directors.
This chapter shows that a great deal of alignment and durable commitment is required for value creation. At the same time, heterogeneity on a board is an essential ingredient for effective decision making. Yet, heterogeneity may also render board work unmanageable. Board composition is thus a crucial decision. Examples are presented to illustrate this point, as well as to highlight the ways boards may succeed in conquering this challenge.
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Notes
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The classical source for habits and for changing them is The Power of Habit: Why we Do What we Do in Life and Business, by Charles Duhigg, Random House Books, 2013. In it, the author convincingly argues that people should understand the triggers of particular habits they like to change, identify them, notice when they arise, and program better responses to these triggers than their natural responses. Triggers are not under our control, but responses are, once we learn to look for triggers.
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Daniel Kahneman and Amos Tversky, “Prospect Theory: An Analysis of Decision under Risk,” Economectrica 47(2): 263–291, 1979.
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Richard N. Foster, Innovation: The Attacker’s Advantage, Summit Books, 1986.
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Diane Vaughn, The Challenger Launch Decision: Risky Technology, Culture, and Deviance at NASA, University of Chicago Press, 2016.
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Massa, M., Taraporevala, K., Van der Heyden, L. (2023). Delusions, Confusion, and Biases. In: Value Creation for Owners and Directors. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-031-19726-0_10
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DOI: https://doi.org/10.1007/978-3-031-19726-0_10
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