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Governance, Risk and Compliance
By Resolver Modified February 7, 2021
Decision-making is a crucial part of running a successful corporation. Within companies, there are frequently different people who are directly in charge of plotting the course of operations. Chief financial officers, chief executive officers, chief operational officers – they all have different responsibilities and roles, but they must also work together in order to ensure the company is progressing forward and meeting the expectations of shareholders.
The act of decision making can defined as choosing one alternative over all the others. This process implies there are multiple ways to accomplish a goal, and that one of these options was chosen because it is the most viable method of achieving success. However, a person’s own values, desires and lifestyle all color their decision-making capabilities, which can radically affect how a company chooses the right alternative. The key is picking personalities that will fit together in a way that makes for the best decision-making process in the boardroom. Companies rely on these executives to chart the best path, but this course of action will differ based on the thought process of the specific executive – both for better and for worse.
There is no ideal way of determining which threats are going to have the biggest impact on a company or which strategies will allow businesses to successfully avoid them. There are frequently multiple solutions to the same problem, and different people will have better answers depending on the scenario. For example, people with low risk aversion – those who are more apt to be innovative and adventurous – may provide better solutions when a company is financially sound.
On the other hand, executives with high risk aversion – people who are more worried about committing errors – may be better situated for making decisions when money and resources are tight. Scholars have devised a number of decision-making models that detail these different thought processes. Executives who make decisions by realizing a problem, establishing and evaluating a plan, devising and implementing alternatives and then monitoring their progress fall under the rational planning model. This model is a multi-step process that aims to implement policies that will follow a logical path from problem identification to solution. The aim is to clearly recognize an issue through a group-based decision, develop multiple solutions to this problem and enact the one that perceivably leads to the best results.
The rational model succeeds by accounting for every possible variable and assumption, and in order to work, needs people with considerable knowledge of their field. There are other potential drawbacks to this decision-making model as well – for example, it requires a great deal of time to observe all the different solutions. On the other hand, there is the behavioral or administrative decision-making model.
Sometimes, executives can arrive at the correct solution with little regard for logic – they make choices based on instinct. This model assumes that managers have incomplete or imperfect information on a given scenario, are confident in their unconscious reflexes and habits, realize they have limits to how rational they can be and tend to choose the first applicable solution. A company that is almost wholly aggressive and forward-thinking may not consider risk identification and could end up breaking compliance standards or not seeing a threat that may have been obvious with a conservative thinker.
Conversely, a company consisting of entirely analytical personality types might not be able to see the benefits of taking alternative and innovative approaches. Businesses need to accept that people – particularly executives and leaders – will not always agree with each others’ strategies and solutions. Managers should be able to appreciate that each person tackles issues with their own strategies and embrace others for their unique strengths.
The dynamic between CEOs and CFOs is perhaps the most important within a company. These two positions hold a tremendous amount of power within a corporation, which is why it’s pivotal that they complement each other’s strengths and weaknesses. Recent research from Deloitte notes there are four primary personality types among CEOs and CFOs: Guardian, one who tends to be meticulous and detail-oriented; Driver, one who is frequently competitive, determined and decisive; Pioneer, an individual that is creative and adventurous; and Integrator, someone who is diplomatic and considers all implications. According to the research, approximately half of CFOs now perceive themselves as being Drivers. Meanwhile, approximately one-third (30 percent) said they consider themselves Guardians, 11 percent are Integrators and 10 percent are Pioneers. When asked to describe their CEO counterparts, 34 percent said they were Drivers, 33 percent said Pioneers, 22 percent said Guardians and 11 percent said Integrators.
Different personality types complement decision making in various ways, and the relationship between the CEO and CFO benefits when certain personality pairings come to fruition. However, there are specific pairings that occurred more often than not, which Deloitte did not expect. For example, CEO Pioneer/CFO Driver was the most common, although the company anticipated CEO Driver/CFO Driver, CEO Guardian/CFO Driver and CEO Driver/CFO Guardian to be just as popular. “The data suggests under prevailing business conditions having a Driver in the relationship is important. Nearly three-fourths of all observed CEO/CFO pairings involved at least one Driver – an interesting finding given that only 42 percent of these executives are drivers,” the Deloitte report notes. “It may be that Drivers are the most versatile when it comes to amicable pairings – pairing relatively well with all styles including their own or Drivers are just essential to drive execution as part of the CEO-CFO pairing.”
Given the current economic conditions and the huge number of standards that businesses are being forced to comply with, the decision-making process has become more difficult than ever before. However, it’s also crucial that corporations make the right decisions, and to do that, they need a good pairing of different personalities in the boardroom and throughout the company.