Today, I conclude the topic of judgment for compliance professionals. I recently read a Harvard Business Review (HBR) article on the topic by Sir Andrew Likierman, entitled “The Elements of Good Judgment: How to Improve Your Decision-Making”. In Part 2 I reviewed Likierman’s first three of six key elements of good judgment, (1) learning, (2) trust, (3) experience. In closing, I wrap up by reviewing the final three, (4) detachment, (5) options and (6) delivery.
Removing emotion in an equation is both a forte and bane of many lawyers. Yet for a leader, detachment in judgment is a critical element necessary to navigate through many business opportunities. Chief executives often see passion as a positive but when it leads to bias or blind spots, serious trouble can follow. Witness Hewlett-Packard (HP) Chief Executive Officer (CEO) Léo Apotheker and his dogged pursuit of Autonomy even after red flags were raised and his own leadership team predicted the merger would be an unmitigated disaster for HP. Also consider the numerous CEOs who were taken in by Elizabeth Holmes of Theranos but refused to consider any evidence to the contrary.
However, it is more than simply being blinded by passion. Likierman says, “As you process information and draw on the diversity of your own and other people’s knowledge, it’s critical that you understand and address your own biases. Although passion about objectives and values is a wonderful leadership quality that can inspire followers to greater efforts, it can also affect how you process information, learn from experience, and select advisers.” The skill to detach, both intellectually and emotionally, is an important aspect of good judgment. But it can be a hard skill to learn. Likierman concluded, “As research in behavioral economics, psychology, and decision sciences has shown in recent years, cognitive biases such as anchoring, confirmation, and risk aversion or excessive risk appetite are pervasive influences in the choices people make.”
To improve, a leader must be willing to take in and actually listen to different viewpoints. Likierman noted, “Leadership development programs are a great forum in which to challenge assumptions by exposing people to colleagues from different cultures and geographies, who come to the discussion with different views.”
Leaders always need options and they should never be boxed in. But the key is that a leader should require more options that he or she is presented. This means a leader must challenge their advisors to bring additional options beyond those they may be presented with initially. Likierman used the example of the financial crisis where he pushed his senior advisors to consider all options including the nationalization of the banks. All options were discussed and debated. As a leader must consider not only collateral consequences but, more importantly, the unintended and even unforeseen consequences.
Likierman said, “many bad judgment calls were inevitable simply because important options—and the risk of unintended consequences—were never even considered. This happens for a variety of reasons, including risk aversion on the part of people supplying potential answers. That’s why thoroughly exploring the solution set is key to a leader’s exercise of judgment. It’s not the CEO’s job to come up with all the options. But he or she can ensure that the management team delivers the full range of possibilities, counteracting fears and biases that cause the team to self-edit. When all the options can be debated, the judgment is more likely to be right.”
To improve on this score, Likierman advises leaders to press their advisory team. Challenge them to not only think through all contingencies but be able to defend and articulate the pros and cons of all options. Finally, he noted, “Get clear about rules and ethical issues, because they will help you filter your choices. Finally, don’t be afraid to consider radical options. Discussing them could make you and others aware of some that are less radical but well worth considering and may encourage other people to speak up.”
Likierman equates delivery to execution. Here I am always reminded of one of the first things I heard Jay Martin, former Chief Compliance Officer (CCO) at BakerHughes Inc., say about compliance programs. Execution is always the key. It is where the rubber meets the road of any compliance program. It is certainly true when it comes to judgment as well.
Likierman said, “When reviewing projects, smart leaders think carefully about the risks of implementation and press for clarification from a project’s advocates. This is as important for small decisions as it is for big ones.” For the compliance professional another manner to consider it is in the context of risk management as “a leader with good judgment anticipates risks after a course has been determined and knows by whom those risks are best managed.”
To improve in execution, Likierman advises that a leader should ask his leadership team to explain how any examples they posit around execution are relevant to the situation being consider. He stated, “Get the advocates to question their assumptions by engaging in “premortem” discussions, in which participants try to surface what might cause a proposal to fail.” He then pointed to organizations which do this regularly this as part of a project-evaluation process.
The need for CCOs and compliance practitioners to cultivate good judgment, is becoming greater and greater. This is one consequence of the increase in data and data analytics available in compliance programs.
Tune into this week’s Innovation in Compliance podcast, where I visit with Gio Gallo, the co-CEO of ComplianceLine. One of Gallo’s key themes is that there is an even greater need for the human element in compliance. The podcast will post Tuesday on this site, iTunes and a plethora of others. If you have never listened to Innovation in Compliance, tomorrow’s episode would be a good one to start the podcast series with and into the future.
And, we must never forget that the human element includes good judgment
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© Thomas R. Fox, 2020