Blind Spots in the Boardroom

Download

A look back at business failures often reveals blind spots that either concealed a dysfunctional culture or led to a lack of understanding, strategic error or missed opportunities. Is the board aware of the organization’s blind spots, and is it addressing them?

We’ve all heard the adage that what we don’t know can be more damaging to reputation, brand image, market standing and competitive position than what we do know. This adage gets to the heart of the nature of blind spots. Whether they relate to cultural, strategic, operational or governance issues, they are almost always a factor underpinning a business failure, massive regulatory sanction or fine, or loss of trust and market permission to play.

In today’s volatile markets and global geopolitical landscape, failure to recognize and act on changing business fundamentals inevitably leads to a potentially lethal strategic error. Since everyone has blind spots, awareness and acceptance of this issue is important.

Examples of blind spots and why they happen

Even successful organizations and proud brands can experience blind spots. The graveyard of failed companies and the hall of shame of organizations that have experienced significant reputation loss are filled with examples. For purposes of this discussion, we define a blind spot as something pertinent to an organization’s viability that the board and C-suite have not focused on at all or enough. In this context, blind spots include significant matters that leaders either are not aware of or have chosen to deemphasize, ignore or conceal.

Download

With many companies and their boards thriving, there is a lot happening in the marketplace. New technologies are affecting everything we do, quickening the pace of disruptive change, and creating unprecedented market opportunities as well as formidable challenges and risks. The forces of supply chain de-risking, geopolitical tensions, changing demographics, evolving workplace expectations, shifting cybersecurity threats, and sustained higher inflation and interest rates are creating dynamics that boards of directors should consider as they perform their crucial role in overseeing the organization’s strategic direction and risk management.

Examples of the different types of blind spots companies may have include, among others, lack of basic understanding in the boardroom, misalignment with business strategy, a strategy that is out of touch with changing market realities, a dysfunctional culture, inadequate enterprise risk assessments and inability to manage unconscious bias. “Black swans” also bear mention as they are highly improbable catastrophic events that few see coming and are often explained in hindsight as if they were predictable. Yet prior to occurrence, their causes and effects are not generally understood.

The various sources of blind spots raise several fundamental questions for directors to discuss as a board:

Are we exercising our fiduciary role effectively in overseeing the company’s strategic direction and risk management?
How can we as a board encourage a culture of openness and transparency within our organization to facilitate the identification of potential blind spots?
Are we taking time to learn what we don’t know by asking the right questions? Do we understand our strengths and limitations as a board, and are we collaborating effectively in the boardroom?
Does management tell us what we need to know, even bad news?
Are we confident that the company is deploying effective risk management frameworks? Is anything missing or incomplete?
Are we probing enough to ensure that capital allocation and high-cost digital transformation proposals have been thought through? For example, when implementing AI initiatives, are we satisfied that management understands the limitations of automation and ensures appropriate human involvement in critical decisions?

In this issue of Board Perspectives, we suggest 10 steps the board can take to become more aware of blind spots, offer examples of red flags indicating the existence of possible blind spots, and comment on what the board can do to minimize the impact of blind spots, including the tough questions to ask of management.

The takeaway is that managing the risk of blind spots depends on facts and circumstances. In the end, it is about collaboration, trust, transparency and remaining in touch with changing market realities.

Go deeper: Read more here.

(Board Perspectives — Issue 170)

Listen to our Board's Perspectives podcasts, which provide practical insights and guidance for new and experienced board members alike.