The dimensions of decisions facing a CEO are multi-faceted and contrasting – short and long-term horizons, internal and external focus, analytic and instinct based, quantitative and qualitative.
I’d describe the list of decisions to be made a CEO carries in their head as akin to a ‘box of frogs’ – a steam of issues constantly jumping around, when you’re seeking to find clarity and lucid thought, a maelstrom of distractions.
Researchers and psychologists have suggested that human beings have two modes of processing information and making decisions. The first, system 1 - thinking is automatic, instinctive, and emotional. It relies on mental shortcuts that generate intuitive answers to problems as they arise using rules of thumb.
The second, system 2 - is slow, logical, methodical and deliberate, it tells us when our emotions have clouded are judgement. Daniel Kahneman, winner of the Nobel Prize in economics, popularized this terminology in his book 'Thinking Slow and Fast'.
All CEOs seek to make the right decision, but we know that’s not always the outcome. There are two main causes of poor decision making - insufficient motivation and cognitive biases. All too often we allow our intuitions or emotions to go unchecked by analysis and deliberation, resulting in poor decisions.
Fundamentally, a CEO needs to create opportunities for reflection. Taking time out of busy days to just think may sound costly, but it is an effective way to engage. Equally, the CEO needs to focus on the decisions they need to make, and develop their own decision-making framework.
In essence, the CEO has to be a decision architect, taking many factors into consideration when constructing a decision making process and crafting good decisions. Making good decisions is easier said than done of course.
One key consideration is which decisions should the CEO be responsible for in the organisation? There is a clear trend away from the ‘command and control’ models of the past - where the CEO was asked to make most of the decisions – to new models that empower employees to make decisions for themselves.
I’m an advocate of cascading responsibility and support making decisions at the lowest level possible in an organisation. Common sense tells us that the people closest to a situation will have the greatest knowledge of the particular issue, and best placed to assess options. However, merely changing the level at which the decision is made will not by itself lead to better decisions.
The challenge for the CEO is to find a way to balance the greater knowledge of a particular situation that an employee may have, with the bigger picture strategy and vision they are trying to implement. This is why it is vital for a CEO to clearly articulate their vision and values throughout an organisation on a consistent basis, ensuring that employees understand the purpose and principles of the organisation, which facilitates good decision-making at all levels.
It’s also essential that a CEO architects a framework on how they make their decisions and are consistent in its application, and share this with the organisation. I’d like to propose five rules for a CEO to embrace:
Rule 1: The quicker the decision the better. If a CEO is indecisive, and does not make timely decisions, the organisation will pause, stall and wait for the outcome, and lose valuable momentum. No one wants to make a bad decision because they feel pressured and decided too quickly, but in most cases a quick decision is critical to keeping an organisation moving forward.
Rule 2: Wrong decisions should be reversed quickly. You can afford to make decisions quickly only if you are also willing to quickly admit when you’ve make a mistake. You cannot be emotionally tied to a decision, or ignore the fact your call was wrong. Don’t allow bad decisions to fester and get caught like a rabbit in the headlights, move quickly to correct.
Rule 3: Share your thinking on big decisions. Once you've made an important decision, communicate clearly with those in the organisation who are affected. Without prompt, clear and transparent communication, decisions can leak out, become subject to rumour or misinterpretation. You’ve made the decision, explain to everyone what you decided, quickly.
Rule 4: Communicate why you made a decision Besides communicating your decision, CEOs should also communicate the reasoning used to reach their decisions. This isn’t about justifying yourself, rather an opportunity to reiterate your vision and values, which should underpin all decisions, and help colleagues understand how and why a decision was made.
Rule 5: Trust your instincts. I often took comfort in the fact that if the other smart people in the organisation didn’t agree on a course of action, then the decision was probably close to a 50-50 call. That made it easier to just pick one, trust my instinct, and move on to the next issue.
Decisions are the lifeblood of leadership. Being aware of the issues in creating a decision-making architecture will make a CEO more effective in their leadership role, embracing a culture, process and style of decision making. Ultimately, making better ones can dramatically increase the performance of an organisation, and that’s the goal of all CEOs.