It is generally accepted that the many are smarter than the few, and collective wisdom shapes successful businesses. As well as adding wisdom and diverse thought, businesses often use committees or groups to reduce individual biases. In many cases this is very successful, in others less so.
The main reason this approach does not always work is that biases often develop within a group as they strive for consensus and look to avoid confrontation. Seeking the path of least resistance can result in groupthink, where realistic appraisals of current or alternative courses of action are lacking.
Another form of social bias is sunflower bias, where groups align with the views of their leaders, whether that be from admiration or fear.
A fascinating example of the two combined was Sir Richard Greenbury, who joined Marks & Spencer at the age of 16 and rose to become chief executive and chairman.
In the mid-1990s, under his chairmanship, it seemed that M&S could do no wrong. The retailer dominated the high street; its management was held up as an example to other businesses. Sir Greenbury led M&S to record success but then failed to admit the need for change in a shifting fashion market, which precipitated a dramatic collapse in the company’s fortunes. This would nearly cost the 100 year-old retailer its independence in 2004.
One problem that led to this incredibly collapse was that nobody around Sir Greenbury would challenge him, firstly because of the tremendous success he brought the organization, then later due to what became a culture of fear. In retrospect, his nickname within the organization “big fellow” says a lot.
In a documentary reflecting on the demise of the fashion business of Marks & Spencer, board members spoke of how, despite great concerns of where the chairman was taking the business, nobody dared to speak up, instead preferring to avoid confrontation.
As a result, the organization has still not managed to recover within fashion, the element of its business that used to be their key driver of profitability.
Corporates are often aware of the risk groupthink poses to decisions made by committee. What they are less cognizant of, and something that we repeatedly see when working with executive boards, is the sunflower effect that occurs amongst those who bring the material and proposals to the committees in the first place. individuals have often formed views of what it is that the committees want to see, and in order to please them, they ensure that this is in fact what the committee gets. As a result, risks are substantially under reported, and alternative investments are missed.