Blind Spots in the Boardroom

By Jim DeLoach

12/05/2023

Black Swan Corporate Strategy Strategy Oversight

A look back at business failures often reveals blind spots that either concealed a dysfunctional culture or led to a lack of understanding, strategic error, or missed opportunities. We’ve all heard the adage that what we don’t know can be more damaging to reputation, brand image, market standing, and competitive position than what we do know. This adage gets to the heart of the nature of blind spots.

Even successful organizations and proud brands can experience blind spots. The graveyard of failed companies and the hall of shame of organizations that have experienced significant reputation loss are filled with examples. For purposes of this discussion, we define a blind spot as something pertinent to an organization’s viability that the board and C-suite have not addressed. In this context, blind spots include significant matters that leaders either are not aware of or have chosen to deemphasize, ignore, or conceal.

There are different types of blind spots companies may have. They could result from directors’ lack of basic understanding and currency in the boardroom. They may be strategic in nature (e.g., misalignment in the employee ranks with business strategy or a strategy out of touch with market realities) or can result from a dysfunctional culture. They can also arise from uninformed board-facing executives, unexplored unintended consequences, inadequate enterprise risk assessments, an inability to manage unconscious bias, and an inadequate oversight and control structure. Ignoring the market’s transition toward a sustainable world is yet another example. “Black swans” also bear mention as they are highly improbable, catastrophic events that few see coming yet are often explained in hindsight as though they were predictable.

The possible existence of blind spots raises several fundamental questions for directors:

  • Are we exercising our fiduciary role effectively in overseeing the company’s strategic direction and risk management?
  • How can we as a board encourage a culture of openness and transparency within our organization to facilitate the identification of potential blind spots?
  • Are we taking time to learn what we don’t know by asking the right questions? Do we understand our strengths and limitations as a board, and are we collaborating effectively in the boardroom?
  • Does management tell us what we need to know, even bad news?
  • Are we confident that the company is deploying effective risk management frameworks? Is anything missing or incomplete? 
  • Are we probing enough to ensure that capital allocation and high-cost digital transformation proposals have been thought through? For example, when implementing artificial intelligence initiatives, are we satisfied that management understands the limitations of automation and ensures appropriate human involvement in critical decisions?

How can the board become more aware of blind spots?

Here are four inward-looking suggestions for the board itself:

  • Assess whether the current board culture, composition, and agendas are fit for purpose in this disruptive business environment.
  • Hold executive sessions without management present to encourage candid dialogue. 
  • Conduct a periodic self-assessment of the performance and collaboration among the full board, its designated committees, and individual board members. 
  • Determine whether board education is adequate, relevant, and timely.

Additionally, here are outward-looking steps for the board to take:

  • Pay attention to input and feedback from analysts, investment bankers, start-ups, suppliers, and other external partners who are part of the value ecosystem. 
  • Assess the quality of discussions with management and the sources of intelligence that feed into the company’s strategy-setting process.
  • Obtain briefings on industry, competitor, and technology trends as well as feedback
    from customers.
  • Encourage customer advisory teams, knowledgeable subject-matter experts, and field operators to challenge assumptions and provide fresh insights. 
  • Request an objective culture assessment seeking confidential feedback from all levels of the organization and a report of the unvarnished results to the board. 
  • Conduct sessions with specific company executives to provide a channel for open discussions.
  • Make more effective use of internal audit, particularly with respect to assessing the culture.

What the Board Can Do to Minimize the Impact of Blind Spots

Directors should watch for signs indicating the possible existence of blind spots. If these signs exist, the board’s actions depend on the facts and circumstances. The following are steps the board can take if blind spots are found:

Exercise focused attention and decisiveness to correct cultural dysfunction. Allowing dysfunction to fester can risk talent drain and lasting brand erosion as well as reputation damage.

Expect management to inculcate a resilient mind-set that adapts to shifting market realities. Directors should insist on more agility in the C-suite and boardroom. Companies positioned to pivot quickly in response to market shifts understand their most critical strategic assumptions; monitor continued validity of those assumptions over time; use “early alerts” to trigger timely warning and decisions to address change; and build discipline in the culture to encourage timely action before market opportunities and emerging risks become common knowledge.

Understand how management deploys scenario analysis to look ahead to what may be around the next corner. Anticipating extreme, but plausible, scenarios and stress-testing base plans against those scenarios provide a discipline that forces “What if?” discussions around response plans, action triggers, and decision prompts. Understanding the pain of management’s strategic assumptions being rendered invalid facilitates preparedness for unforeseen events, even black swan events.

Encourage management to minimize the impact of unconscious bias. When making risk-reward decisions, efforts should be taken to reduce the dangers of groupthink by ensuring that all views are heard from the right sources and are considered. It is important to avoid the trappings of beginning with a presumptive conclusion. It helps to foster diversity of thought, distinguish between divergent and convergent dialogues, accept conflict and devil’s advocacy as the norm, understand why dissenters disagree, seek diverse external perspectives, and consider the consequences if a decision is wrong. Managing by fact and grounding discussions with a relentless focus on the customer experience also helps to inform the conversation.

Set the tone with sound governance. As directors keep an eye on relevant market trends, they should work with executive management to build trust within the company, organize for speed, deploy data-informed approaches to understand customer behavior, and incent necessary changes to processes, products, and services. Investing in talent that can make the desired behaviors and performance happen is key. A commitment to core values, preserving brand image, and fostering a diverse, inclusive environment committed to ethical and responsible business behavior are table stakes.

Ask management the tough questions. Intellectual curiosity goes a long way in the boardroom. Today’s dynamic times require courageous, collaborative conversations. A proactive and resilient approach to addressing blind spots entails asking questions of management that explicitly reference their potential existence. For example, what blind spots might exist in our current strategic plan, and how can we proactively identify and address them? Do we seek feedback from employees, customers, suppliers, and other stakeholders continuously to identify potential blind spots in our business model and culture? Are we using data analytics and emerging technologies effectively to uncover blind spots with respect to our operations, the customer experience, or trends in the market?

These suggestions are by no means exhaustive. The point is that managing the risk of blind spots depends on the facts and circumstances of each company. In the end, it is about currency, collaboration, trust, transparency, and remaining in touch with changing market realities.

Protiviti is a NACD partner, providing directors with critical and timely information, and perspectives. Protiviti is a financial supporter of the NACD.

Jim DeLoach
Jim DeLoach is managing director of Protiviti. DeLoach is the author of several books and a frequent contributor to NACD BoardTalk.