Why Do Smart Boards Make Bad Decisions?

NACD Northern California gathered board members from across industries for a private dinner, guided by Kelly Boyd and Louis Lehot from Foley & Lardner, Tracey-Lee Brown and Matt DiGuiseppe from PwC, to explore the psychology of the boardroom and why even the smartest boards can fall into the trap of bad decision-making under pressure.

KEY TAKEAWAYS

Psychology and Decision Quality

• Board effectiveness is increasingly a human and behavioral challenge, rather than simply a governance or compliance challenge.
• As complexity increases, people tend to prioritize speed over accuracy, and groups naturally synchronize around shared views [source: PwC].
• Attention is contagious in boardrooms, and momentum behind a particular viewpoint can unintentionally suppress dissent and reduce diversity of thought.
• Strong board cultures intentionally encourage challenge and independent thinking while maintaining directional alignment and commitment once decisions are made.

The Importance of Board Culture

• Boards should explicitly define their mission, desired culture, and behavioral expectations, including how disagreement and decision-making should occur; this limits it from feeling personal.
• Chairs and lead independent directors play a critical role in reinforcing cultural norms and calling out behaviors that undermine effectiveness.
• Strong boards self-police culture through recruitment, onboarding, feedback, and peer accountability, and may benefit from external facilitators to help define, assess, and strengthen that culture.

Refreshment, Tenure, and Board Composition

• Board refreshment remains a significant concern: approximately 55% of boards believe at least one director should be replaced, up from roughly 40% over the prior decade [source: PwC]
• Long tenure creates trade-offs between institutional knowledge and independence, with common concerns including a lack of contribution, outdated expertise, or misapplication of skills developed in different environments.
• Boards should start with future strategic needs and build a dual-skills matrix that captures both current capabilities and future-state requirements to reveal emerging gaps.

Managing Director Performance

• Traditional board assessments often become compliance exercises that struggle to provide meaningful feedback.
• Establishing expectations early and discussing tenure and succession after defined periods creates a constructive "pressure release valve" for future transitions.
• Removing underperforming or disruptive directors remains one of the most difficult governance challenges, due to personal relationships, collegiality, and sometimes concerns about external optics.
• In a high-growth company, the initial board directors may not be the right directors as the company scales. This should be acknowledged early to ensure the right leaders are in place at the right time.

Board Leadership and Influence

• Boards should consider leadership attributes, influence, and judgment when selecting committee chairs and board leaders.
• Strong lead directors and independent chairs create structure, manage dynamics, and encourage productive debate.
• Influence within a boardroom is not evenly distributed. Directors who speak selectively and add high-value contributions often have a greater impact than those who dominate discussions but aren’t thinking as strategically.
• Directors seeking to change board processes should build support and credibility with leadership to influence change from within.
• Activist-driven board changes can create "us versus them" dynamics that persist after new directors join, so chairs and lead independents should try to actively integrate new directors by establishing a common purpose to avoid factional behavior.

Board Working with Management

• The pace of business is frequently out of sync with how boards operate, making it essential to create deliberate pauses so directors can process information before major decisions, including delaying votes overnight when possible.
• Management should avoid framing every issue as a crisis, as urgency impairs judgment and crowds out strategic thinking.
• Repeating the same agenda structure can reinforce predictable decision-making and leave insufficient time for the topics that matter most.
• More information does not produce better decisions. Excessive information can obscure what matters most, so boards should focus on leading indicators and upstream signals rather than just lagging performance metrics.
• Directors should seek multiple sources of insight beyond the CEO, including direct exposure to customers, employees, and industry developments. 
• Directors should ask questions in ways that advance discussion rather than triggering defensiveness, and the principle of "never be surprised" remains a foundational expectation for both management and directors.
• Transitioning from an operating executive role to a board role requires letting go of habits that previously drove success, including discipline around where directors add value versus inserting themselves into management.
• Increase in-person interaction to strengthen trust and relationship-building, including with the CEO, e.g., an informal dinner the night before a board meeting.

Director Development and Relevance

• Continuous education is one of the most important responsibilities of directors. Advances in technology make it easier than ever to independently understand competitors, markets, and strategic trends, and it’s the individual’s job to stay relevant.
• Effective directors admit knowledge gaps and actively seek learning opportunities.
• Boards benefit from directors with different experiences, generations, and perspectives, though those differences can also create friction. 
• Chairs should actively create space for quieter directors, who often possess valuable insights because they spend more time listening and observing.
• Directors should regularly assess whether they continue to feel challenged, engaged, and aligned with the board's mission and values.

Board Effectiveness Tips

• Define and periodically refresh governance processes, committee charters, and decision-making frameworks.
• Define a more robust board mission, values, and composition that include not only traditional skills but also leadership skills that are needed in a crisis situation. 
• Conduct pre-mortem and post-mortem reviews on significant decisions to improve future decision-making processes.
• Create dedicated time for strategic discussion rather than allowing operational updates to dominate agendas.
• Ensure CEO succession remains a standing board responsibility rather than a crisis-driven conversation.
• Institutionalize the power of pause, focus, and empathy [source: PwC]

Resources

Board Evaluation: From Ritual to Strategic Advantage

Why Good Boards Make Bad Decisions: Four Factors Undermining Board Effectiveness (from PwC)

Thank you to our partners for making this event possible.