Here’s a tip from the sixth edition of our popular publication The Public Company Handbook, which is an easy-to-read guide that provides practical insights regarding legal and other board management issues facing public—or soon-to-be-public—companies.

This tip involves group decision-making. By and large, people will make better decisions as part of a group – so convening a group of intelligent individuals to address tough issues should be an asset of corporate Boards. However, the failures in Board decision-making in Enron, WorldCom and other corporate governance scandals appeared to arise, in significant part, through flawed group decision-making.

Boards can help decision-making by understanding that each director will make decisions differently when serving as part of a group than when acting individually. For example, studies show that responsible and capable people take less responsibility in group settings, in effect becoming “bystanders,” than they would individually. Stress from time constraints or the importance of a decision can accentuate human factors that lead to flawed group decision-making.

Here are some practical steps Boards can take to avoid the potential pitfalls of group decision-making:

– Keep the Board small or use Board committees and executive sessions to discuss decisions in smaller groups, minimizing “bystanders”;
– Assign a “devil’s advocate” role to a director or group of directors to analyze the downside of critical decisions;
– Create a nonconfrontational way for newer or more junior members of the Board to make suggestions, raise questions and give their opinions – especially in the critical first year;
– Assign each director an area of focus, on committees or on a task force, regarding a subject of specific concern for the company; and
– Identify anomalies or issues as they emerge, before they become crises.

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Photo of John Thomas John Thomas

John Thomas, a partner in the firm’s Corporate practice, is a seasoned business transaction lawyer with more than 25 years of experience counseling and representing private and public companies in a variety of industries, including high technology, apparel, aviation, financial services, senior living…

John Thomas, a partner in the firm’s Corporate practice, is a seasoned business transaction lawyer with more than 25 years of experience counseling and representing private and public companies in a variety of industries, including high technology, apparel, aviation, financial services, senior living and clean technology. John focuses his practice on counseling and representing clients in mergers and acquisitions; corporate financings, including underwritten public securities offerings and private placements; joint ventures and strategic alliances; restructurings and spin-offs; purchases, sales and leases of aircraft and aviation finance; commercial transactions and contracts; periodic reporting and securities law compliance; and corporate governance.

Photo of Eric DeJong Eric DeJong

Eric DeJong, a partner in the firm’s Corporate practice, has been providing transactional, governance and securities-related advice to public and private companies in a wide range of industries for over two decades. Eric has extensive experience with mergers and acquisitions, including representation of…

Eric DeJong, a partner in the firm’s Corporate practice, has been providing transactional, governance and securities-related advice to public and private companies in a wide range of industries for over two decades. Eric has extensive experience with mergers and acquisitions, including representation of both buyers and sellers in public-to-public, private-to-public, private-to-private and private equity transactions. He also regularly advises public companies on SEC reporting, disclosure and corporate governance matters. He has a broad range of securities offering experience, including initial and follow-on public offerings, debt offerings and PIPE financings. In addition, he represents private companies in venture capital and other private financing transactions and general corporate and business matters.

A frequent speaker and writer on corporate law topics, Eric is co-author of the leading treatise on Washington corporate law, Washington Business Entities: Law and Forms, Second Edition (2010), co-author of The Initial Public Offering Handbook: A Guide for Entrepreneurs, Executives, Directors and Private Investors, Second Edition (2016) and a contributor to The Public Company Handbook: A Corporate Governance and Disclosure Guide for Directors and Executives, Fifth Edition (2015). Eric is a longtime member and current co-chair of the Corporate Act Revision Committee of the Washington State Bar Association’s Business Law Section, which is responsible for considering and proposing changes to the Washington Business Corporation Act.