Corporate Governance

– Individual Assignment
The Board’s Role in Sustainability: Strategic
Decisions for Navigating the Energy Transition
to a Low-Carbon Future

Birmingham Business School

Corporate Governance & Innovation
Dr Joachim TIMLON
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Learning objectives

By the end of this day, you will be able to

explain the board's effective strategic
decision making by:
•understanding that strategic decisions are
susceptible to the principal-agent problem
and, hence, never simple to make but
sometimes go wrong because of human
shortcomings
•showing that any strategic decision with an
element of risk is subject to human biases,
such as over-optimism and loss aversion.
•realizing how boards can reduce their
exposure to intertwined and harmful
patterns of distortions and deceptions by
adjusting their decision-making process and
strengthening the culture of debate.

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Learning objectives

The seminar will help you to:

•better understand strategic decision-
making processes by learning from the CFO
of RWE, a German electric utility firm, who
spearheaded the effort

The workshop will help you to answer

the group assignment by:
•gaining topic knowledge about how
repeatable innovations can build promising
ventures into growth businesses
•gaining topic knowledge about three
approaches that work for launching a new
business

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Strategic decisions are vulnerable to distortions and deceptions - biases, politics and egos might torpedo them

How might the ADNOC Board be vulnerable to distortions and deceptions?

How might biases, politics and egos torpedo their good strategic decisions?

His Highness Sheikh Khalid bin

Mohamed bin Zayed Al Nahyan,
member of the Abu Dhabi Executive
Council and head of the Abu Dhabi
Executive Office, chaired the meeting of
the Executive Committee of the Abu
Dhabi National Oil Company (ADNOC)
Board of Directors.

https://middleeast.in-24.com/News/330242.html
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Strategic decisions are vulnerable to distortions and deceptions - biases, politics and egos might torpedo them

There are many well-documented biases, but these are among the most
dangerous in the strategy room.

• Overconfidence
• Confirmation bias
• Survival bias
• Attribution bias

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Peter Drucker famously
said that “culture eats
strategy for breakfast.”
Nowhere is that more
evident than in meetings
to decide corporate
strategies. In those
rooms, egos and
competing agendas,
biases and social games
reign. That’s because
strategy isn’t the only
thing at stake. Jobs -
even careers - are on
the line.

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Strategic decisions are vulnerable to distortions and deceptions - biases, politics and egos might torpedo them

…then add the social dynamics – the agency problems that are the real
torpedoes to solid board decisions

• Sandbagging:
“I’m only going to agree to a plan that I know for sure I can deliver. My reputation is on the line, and I
can’t risk being the one division that misses budget.” Individuals will often have a different attitude to
risk than their overall enterprise does.

• The short game:

“Someone else will be running this division in three years, anyway. I just need to milk performance for
the next couple of years, get a good bonus and the next promotion—or maybe get poached by our
competitor.” The motivations of the executive are not automatically aligned with those of the owners.

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Strategic decisions are vulnerable to distortions and deceptions - biases, politics and egos might torpedo them

…then add the social dynamics – the agency problems that are the real
torpedoes to solid board decisions (cont.)

• My way or your problem:

“I know this business and industry better than the CEO and better than the board. They’ll just have to
believe what I tell them. If I don’t get the resources I ask for, then there’s my excuse for not
delivering.” The line executive has inside knowledge, and often the CEO and board have little choice
but to accept their version of the truth. Market share can be defined favorably by excluding
geographies or segments where the presenter’s business unit is weak.
• I am my numbers:
“I get judged by my numbers, not by how I spend my time. I’m just going to work hard enough to hit
my targets, but not a lot more.” One’s supervisor can’t directly observe the quality of effort, and
results can be noisy signals. Were those poor results a noble failure? Were those great results dumb
luck?

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Strategic decisions are vulnerable to distortions and deceptions - biases, politics and egos might torpedo them

How cognitive biases can torpedo your decisions

https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-strategy-and-corporate-finance-blog/how-cognitive-biases-c
an-torpedo-your-decisions

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