Have you noticed that even a board made up of individual creative thinkers can prefer the status quo over change? If you’ve noticed this tendency, what you’re seeing is status quo bias – just another cognitive bias that affects our decision-making.
You know the saying, “If it ain’t broke, don’t fix it.” In other words, if things are working, we’re content to keep them that way. Simply put, status quo bias negatively affects our ability to make decisions – our ingrained preference for stability keeps us from judging different options fairly. And when the status quo bias comes out in a group setting – such as the boardroom – it pushes collective decisions in a certain direction.
Boards often prefer a set of established norms and value the familiar. Under the influence of the status quo bias, they may overvalue what they’re familiar with and undervalue opportunities that involve substantial change. As a result, boards can be reluctant to embrace new strategies, resistant to new ideas, and unwilling to invest in long-term projects.
All that makes the status quo bias an important topic for board directors who want to have an impact on their board’s decisions.
Behavioral economics is a field that combines elements of economics and psychology to understand how and why people behave the way they do in the real world. Practitioners in this field focus on the differences between what people “should” do and what they actually do, and the consequences of those actions.
Understanding how people actually behave – rather than how we think they should behave - has long been useful in the marketing realm. Now it’s being studied and applied in pretty much every domain where people make decisions – including the boardroom.
Let’s face it – understanding human behavior is a complicated business. The BehavioralEconomics.com article The Three Laws of Human Behavior provides us with a simple model for how humans behave, consisting of three “laws”:
All three of these laws are relevant to boardroom behavior, but it’s the first one – status quo bias – that we’ll explore in today’s blog. If you’re curious about the other two, check out the article.
Status quo bias is defined as the preference for maintaining one’s current situation and opposing actions that may change it. It’s human nature to feel uncomfortable with situations where the outcome is uncertain. Our tendency to want to keep things the same has a considerable effect on how we behave in all aspects of our lives, whether business or personal.
The reasons we’re all prone to the status quo bias are well understood by behavioral economists.
When we’re part of a group or an organization, we tend to view them as fixed entities with their own established structure and behavioral norms. We quickly become comfortable with the status quo, not bothering to question why things are the way they are, or how they could be better.
As food for thought, let me provide a few examples of some of the norms that a modern board might be dealing with, and how the status quo bias could affect the way directors think about and decide on potential change.
The work week. Why do employees work five days a week? It’s been an accepted norm for decades, but there’s nothing natural or inevitable about it. Although studies suggest that a four-day work week might actually increase productivity, it’s a fair bet that most directors would tend to resist supporting such a change, wanting to keep things the same as they’ve always been.
Remote work. Our recent pandemic experience demonstrated that a great deal of work can be satisfactorily completed at home, and that it’s possible, maybe even advantageous, to hold most meetings virtually. Yet in many cases, management and boards have insisted on employees returning to the office and in-person meetings. The status quo bias is behind at least some of those decisions.
Diversity, Equity, and Inclusion (DEI). The status quo bias makes it difficult for people to accept changes, even when they support them in theory. Employees, management, and directors can be skeptical about DEI initiatives — not because they oppose equity, but because they oppose change. In a boardroom context, you might hear directors express concern that bringing on new directors from diverse backgrounds may dampen the board’s collegiality.
Artificial Intelligence (AI). In your own boardrooms, you may have spotted the status quo bias at work in the form of resistance to even talking about new technologies like AI. After all, we’ve been getting along fine without it, haven’t we? A general lack of knowledge among directors just serves to increase the reluctance to consider it.
Organizational restructuring. Organizational restructuring decisions often bring the status quo bias to the forefront. Mergers, acquisitions, and re-organizations all have real costs – personal as well as financial - but both directors and management often overestimate these, while at the same time underestimating current costs and pains. Anticipated regret and loss aversion often play significant roles in the way these decisions are handled.
Here are some signs that your board may have a status quo bias problem, gathered from the PwC article Unpacking board culture: How behavioral psychology might explain what’s holding boards back and other sources.
For most board decisions, management gets to frame the issue, draft a proposal, and make recommendations. Given that, it’s important for you and your board to keep in mind that members of your management team are every bit as prone to cognitive biases as anyone else.
To counter that tendency, directors need to rigorously examine not just the final recommendation, but also the process that management followed, the inputs they considered, the criteria they used, and the rationale for making their selection.
Ask yourself if the status quo bias was in play in management’s decision-making. Choosing the status quo is not, in and of itself, an indication of bias – it may be, in fact, the best available option. Asking open, direct questions about how management arrived at their recommendation is a good way to satisfy yourself in this area. For instance, management often deals with the problem of choice overload by listing only a few of the available options. It can be useful to ask management what choices were considered then eliminated, and why.
Here are some additional tips to minimize status quo bias in the boardroom, adapted from Unpacking board culture: How behavioral psychology might explain what’s holding boards back and other sources:
As with any cognitive bias, the first step to avoiding the status quo bias is self-awareness. Acknowledge it when it happens. When a change is proposed, pay attention to how you react. Are you hesitant? If so, why? Getting to the root of your concerns can help you determine if status quo bias is playing a role.
Learn to recognize status quo bias in your fellow directors as well as the management team. When you do, the best way to shake things up is with questions. Soften your approach by using we instead of you, asking questions like “Are we sure we’ve considered all the options?” or “Have we missed some of the risks of not making a change?”
Go ahead and acknowledge the fears, risks, and concerns involved with change, but also understand what’s driving the board to consider a new idea – an opportunity or threat that can impact the organization and its stakeholders.
False urgency is your enemy when dealing with status quo bias, or any cognitive bias for that matter. If you have the opportunity, use soak time to weigh all of your options carefully and give them each equal consideration. Doing so will prevent you from automatically opting for the default option.
Scott Baldwin is a certified corporate director (ICD.D) and co-founder of DirectorPrep.com – an online membership with practical tools for board directors who choose a growth mindset.
We Value Your Feedback: Share your suggestions for future Savvy Director topics.