Decision-making for sustainability

The journey towards sustainability is not just about choosing the right thing to do. It is about understanding deeply the ground on which these decisions stand.

This understanding is rooted in strong, evidence-based decision-making processes that can transform how companies perceive their context and the developmental trajectories they choose.

In an era where sustainability challenges are as complex as they are critical, the path to corporate resilience and responsibility is fraught with the need for nuanced decision-making.

Complexity of sustainability decisions

Sustainability-related issues are inherently complex, involving layers of environmental, social and governance (ESG) factors that are often interdependent and sometimes contradictory.

Richard Hardyment, in his book, Measuring Good Business, underscores the importance of making sense of ESG data amidst this complexity.

He suggests that businesses must embrace a humble and open approach, acknowledging the subjective, abstract and often ambiguous nature of sustainability.

Role of diverse decision-making bodies

Alex Edmans, in his insightful recent book, May Contain Lies, discusses the dual-edged sword of group decision-making within companies, including corporate boards.

Boards that harness a diverse range of perspectives and competencies promise a more holistic approach to decision-making. They have the potential to integrate a broader spectrum of insights, which is crucial for navigating the intricate landscape of sustainability.

Promise of diversity

Diversity in decision-making is not just about fulfilling a quota or being politically correct. It is about enriching the decision-making process with varied perspectives that can lead to more innovative and effective solutions. Edmans highlights how diversity in gender, ethnicity, age and socio-economic backgrounds contributes to a richer, more comprehensive understanding of issues.

This diversity helps in mitigating risks associated with groupthink – a phenomenon where the desire for harmony or conformity results in an irrational or dysfunctional decision-making outcome.

Challenge of cohesion

However, the incorporation of diverse perspectives is not without challenges. The very diversity that adds value can also lead to conflicts or decision paralysis if not managed effectively.

Edmans points out that avoiding groupthink doesn't just require diversity but also the inclusion of these diverse voices in a meaningful way.

To harness the full potential of diverse boards, Edmans recommends diverse groups to innovate using practices like the following:

– Delphi Method and Silent Starts: These techniques encourage independent thinking by preventing the undue influence of dominant personalities during the decision-making process.

The Delphi Method enhances decision-making by conducting multiple rounds where participants anonymously decide on predictions, estimates or choices and then provide the rationale behind their choices. These contributions are then shared with the group, allowing members to adjust their views without bias towards the contributors. Silent Starts, used by companies like Amazon, involves starting meetings with a period of silent reading, ensuring all members form independent opinions before any discussion begins, thus reducing the influence of dominant personalities.

– Blue-Sky Thinking and Anonymous suggestions: Such approaches foster creative and out-of-the-box ideas without the fear of judgment, enhancing the quality of contributions from all board members. Complementing this, anonymous suggestions allow ideas to be shared without attribution to individuals, creating a safe environment for all members to contribute freely. This approach reduces the fear of judgment and enhances the diversity and quality of contributions from various organisational levels.

– Voting mechanisms and private feedback: These methods ensure that decisions are made based on the merit of ideas rather than the hierarchy within the boardroom. Voting mechanisms ensure decisions are made based on the merit of ideas rather than the influence of senior members, by allowing votes to be cast anonymously or collected privately. This method supports a democratic decision-making process and ensures each opinion is considered equally. Additionally, private feedback mechanisms encourage members to provide honest insights directly to the chairperson, fostering a comprehensive understanding of different perspectives and potential alternatives.

Economic impact of political diversity

Research by Slava Fos, Elisabeth Kempf and Margarita Tsoutsoura, quoted by Edmans, has shown that political diversity within companies can have significant financial implications.

The researchers examined donation and voter records to identify the political affiliations of top executives of S&P 1,500 firms between 2008 and 2020. Their findings suggest that departures of politically misaligned executives are value-destroying for shareholders, costing firms an average of $200 million, likely due to increased groupthink. This underscores the economic value of fostering a politically diverse corporate culture.

Beyond gender diversity

While gender diversity is often touted as a solution for improving board performance, studies indicate that it alone does not guarantee better outcomes.

This could be due to the fact that demographic diversity does not necessarily equate to cognitive diversity, which, as Edmans argues, is crucial for effective decision-making.

Role of leadership

Leadership plays a pivotal role in cultivating an environment where diverse opinions are not just heard but are actively encouraged.

Techniques like allowing the most junior members to speak first or using structured brainstorming sessions can prevent the overshadowing of less dominant voices.

Road ahead

As companies continue to navigate the complex terrain of sustainability, the need for robust, evidence-based decision-making becomes increasingly apparent.

By embracing diversity and fostering an inclusive environment, companies can enhance their decision-making processes, leading to more sustainable and effective outcomes.

The journey is undoubtedly challenging, but with the right strategies and a commitment to evidence-based approaches, businesses can pave the way for a more sustainable future.

Dr Axel Kravatzky is managing partner of TT-based Syntegra-360 Ltd, vice-chair of ISO/TC309 Governance of Organizations and president of EUROCHAMTT.

He enables companies to flourish through integrated governance, certified management systems and transformational leadership.