Why Good Boards Make Bad Decisions

Those who have served on a corporate board know that while every member of a team may be smart, capable, and experienced, that does not necessarily mean they will collaborate effectively. Directors may know how to function on high-performing teams and have done so their entire careers, but a boardroom’s particular pressures and stakes can undermine their best attempts to work together.

Problematic group dynamics can derail any team, especially in stressful times, and corporate boards are no exception. When management needs agile counsel and oversight amid crises, boards can fall into familiar patterns, opting for consensus and conflict avoidance rather than asking tough questions. Under pressure, boardroom culture can stifle directors nominated for their creativity and independence, nudging them to defer to the chair and vote to double down on dubious stances.

But pressure does not have to make board culture dysfunctional. Committees can be positioned to leap into action when quick discussion would be helpful; directors can be oriented toward collaboration, teamwork, and constructive debate; and leaders can take proactive steps to keep everyone focused and flexible when a crisis raises the stakes and heightens tensions.

Making these dynamics work requires that directors be aware of and familiar with the psychology of the boardroom. They should consider how the board typically responds when external threats loom, when a major acquisition or project fizzles, or when dissent materializes. For example, do directors ignore new evidence to avoid admitting that a prior decision was shortsighted? Do they marginalize colleagues who raise uncomfortable questions?

In our experience with corporate boards, we have seen four factors routinely undermine healthy culture and performance. Fortunately, every board can take steps to move past these factors and stay on track.

Threat rigidity. Boards are increasingly forced to respond to unanticipated crises, from cyberattacks and consumer boycotts to shareholder activism and reputational controversies. Making consequential decisions under threat conditions and scrutiny—from investors, customers, employees, regulators, reporters, and communities—can have a real impact on the boardroom, with paralysis stymieing creativity and adaptive thinking.

Decades of research show that crisis situations degrade decision-making processes, a tendency that behavioral psychologists call threat rigidity. Under pressure, teams tend to narrow their focus and reflexively defer to perceived authority.

Board leaders can work to minimize threat rigidity by implementing practices aimed at helping directors solve problems with creativity and agility under pressure, such as encouraging members with relevant expertise to challenge the consensus view, ensuring that all independent directors can ask questions prior to voting, and mandating development and discussion of alternatives to avoid defaulting to the most obvious solution.

Escalation of commitment. Board-approved management decisions go wrong all the time, from underperforming acquisitions to rebranding attempts that backfire. It is no surprise that directors do not rush to take responsibility for failures. But directors, both individually and collectively, often resist even acknowledging that an initiative has failed, much less that a course correction might be necessary.

Viewing a situation from an entirely fresh perspective is challenging, but that is what it takes for boards to reevaluate decisions, projects, and courses of action. All too often, directors stubbornly double down on their initial views, using confirmation bias and cherry-picked data to argue for staying the course. They escalate their commitment even when they recognize that long-term success demands moving on.

Board leaders can help establish an openness to flexibility, moving people beyond the impulse to stick with bad decisions, by clarifying that changing course based on new information is laudable and emphasizing that directors will suffer no reputational penalty for championing projects that ultimately require pivoting.

Underestimating collective intelligence. Directors generally see gender, race, ethnicity, age, and perspective as important factors in creating diversity of thought in the boardroom. Having diverse opinions is only half of the solution: boards should also account for other unobservable aspects of board composition. Too often, group norms—the unwritten rules guiding collaboration—encourage conformity, which leads boards to arrive at decisions before hearing the variety of potential solutions that a diverse team should generate.

In contrast, boards that foster collective intelligence among directors are more effective and capable of solving problems. Teams with equal distribution of speaking time at meetings perform better, as do teams with members attuned to social cues, such as facial expressions, body language, and tone of voice.

Board leaders can work to boost a board’s collective intelligence by encouraging individual improvement, expanding the group of directors involved in the recruitment interview process to help identify candidates with greater social sensitivity, and using offsites to refine problem-solving practices.

Lack of psychological safety in the boardroom. Directors who can offer constructive input do so when they feel safe and comfortable in their environment. Open discussion cannot occur without the willingness of the board to engage in interpersonal risk-taking. Many boardroom environments make directors reluctant to volunteer viewpoints that might be unpopular.

Research suggests that psychological safety is a key differentiator in team performance, and comfort with engaging in difficult conversations drives continuous improvement. More than half of the directors surveyed in PwC’s 2024 Annual Corporate Directors Survey acknowledge having difficulty expressing their views in board assessments, suggesting reluctance to engage in conversations that could improve communication between directors.

Board leaders can take concrete steps to boost directors’ sense of psychological safety and interpersonal risk-taking by working to build a boardroom environment in which each director feels comfortable and confident in openly sharing ideas and opposing the status quo and showing appreciation for all ideas and views, whether or not they’re ultimately implemented.

PwC is a NACD partner, providing directors with critical and timely information, and perspectives. PwC is a financial supporter of the NACD.

Paul DeNicola is a principal with PwC’s Governance Insights Center.

Catie Hall is a director with PwC’s Governance Insights Center.