AMPLIFY  VOL. 38, NO. 4
  

The board of directors holds ultimate responsibility for the health of an organization. However, as noted by Ryan Krause and his colleagues, “There remains considerable ambiguity as to what constitutes effective board decision-making, and even greater ambiguity as to how to achieve it.”¹ Many view the board’s primary role as monitoring and advising. Increasingly, however, its real value lies in helping the executive team navigate today’s complex business environment. This perspective emphasizes the importance of boards that provide strategic guidance to CEOs and their teams.

On closer examination, this idea may not align with our own definition of what drives sustainable competitive advantage. Board members are often far removed from the operational realities of the organizations they serve, and their advice leads to superior performance only if it is both rare and difficult to substitute. Moreover, CEOs and their teams have access to many other sources of strategic guidance — strategy consulting firms, for example. Of course, the board’s advisory role is more nuanced, and the experience that board members bring to decision-making can indeed add significant value in the right circumstances.

Similarly, when we think of monitoring, high-profile cases like Enron or WorldCom often come to mind — situations where executives engaged in fraudulent activities. However, volumes of research show that “bad” decision-making more commonly stems from a simple truth: decisions are made by humans.^2,3 Even well-intentioned, highly skilled, and capable executives can make choices that, in hindsight, are seen as mistakes.

In their Harvard Business Review article, Andrew Campbell, Jo Whitehead, and Sydney Finkelstein pose a provocative question: “Why do good leaders make bad decisions?”⁴ Their answer points to the influence of cognitive biases on human decision-making. For instance, hubris or overconfidence can lead to CEOs overestimating their own abilities — often based on a string of past successes driven more by luck than sound decision-making.

What does this mean for board decision-making? Monitoring is clearly important, but we believe boards should go beyond detecting fraud or misconduct to help establish processes that mitigate biased decision-making and elevate overall governance quality.

A significant step in that direction is for boards to prioritize asking in-depth questions over offering advice. This shift repositions the board from passive oversight to active participation in shaping the conditions for effective decision-making and long-term performance.

In This Issue

This issue of Amplify features a collection of articles that explore how boards can evolve beyond conventional roles to become active stewards of long-term value — drawing on leader character, data and analytics, behavioral insight, structural design, and strategic engagement.

Trevor Hunter opens the issue by examining how leader character strengthens board decision-making. As environmental, social, and governance (ESG) considerations and the United Nations’s (UN’s) Principles for Responsible Investment (PRI) reshape board responsibilities, directors are now accountable to a broader set of stakeholders beyond shareholders. Hunter draws on the Leader Character Framework developed by Mary Crossan, Gerard Seijts, and Jeffrey Gandz of Canada’s Ivey Business School, highlighting its role in navigating complex — and sometimes conflicting — obligations. Research shows that the framework’s 11 dimensions, including courage and integrity, support ethical behavior and long-term success. These traits can be embedded in board policies and codes of conduct to signal a strong commitment to principled governance.

Next, David F. Larcker, Amit Seru, Brian Tayan, and Laurie Yoler explore how AI could reshape boardrooms by enhancing the volume, quality, and timeliness of information available to directors. AI can reduce information asymmetry, support predictive analysis, and enable real-time scenario planning. These tools help boards become more proactive and better prepared for meetings. However, the authors caution that greater access to information may blur the line between governance and operations, requiring executives to manage directors’ deeper involvement carefully.

Shuhui Wang and Hirindu Kawshala then analyze more than 14,000 earnings call transcripts to examine how CEO overconfidence impacts firm complexity. They find that overconfident CEOs tend to reduce complexity, often at the cost of long-term alignment, as illustrated by John Flannery’s short tenure at General Electric. Their study underscores the importance of aligning CEO traits with a firm’s strategic and operational needs, particularly during leadership transitions. Boards must discern whether simplification efforts reflect sound strategy or risky overconfidence.

In her article, Alessia Falsarone examines the evolving role of lead independent directors (LIDs), offering a five-part framework to assess when and how to appoint them. Although LIDs can strengthen board independence and communication, their function varies by context. In firms where the CEO also chairs the board, LIDs often serve as a bridge to management and stakeholders. In other cases, they foster open dialogue on issues like ESG and AI ethics. Falsarone illustrates this with examples, including Coca-Cola’s LID leading efforts in transparency and sustainability amid activist pressure.

Next, Filip Lestan and Ruy de Quadros Carvalho analyze 249 Brazilian firms to assess how board structure influences innovation governance. They found that forming innovation-related committees is far more impactful than vision statements or rhetoric, enabling boards to ask better questions and oversee complex initiatives. Larger boards are more likely to form such committees, while CEO duality and director busyness significantly reduce the likelihood. The article concludes with four actionable steps to strengthen innovation governance through board design.

Finally, Siah Hwee Ang closes the issue by calling for a shift in how executives engage with boards — not just as monitors or advisers but as long-term strategic assets. He advocates for structures that tap into directors’ expertise through agenda setting, follow-ups, and subcommittees. Boards’ hard skills can be institutionalized via staggered succession, while soft skills can be preserved by documenting decision-making processes. Regular engagement is key, with boards contributing to short-, medium-, and long-term strategic discussions.

Rethinking Board Effectiveness

This issue of Amplify invites a reexamination of what makes boards truly effective — not merely as watchdogs or advisers, but as architects of sound decision-making, ethical stewards, and strategic enablers. It begins with an exploration of leader character, reminding us that effective governance is rooted in the personal virtues and ethical dispositions of individual board members. From there, it moves to the transformative potential of AI, which can amplify the cognitive capacities of boards while raising important questions about the boundaries between insight and overreach.

As we delve deeper, the focus shifts to behavioral dynamics, revealing how traits like CEO overconfidence can distort decision-making and alter firm complexity — an insight that boards must heed, especially during leadership transitions. The role of LIDs then comes into view, offering a structural lever to promote transparency, balance authority, and foster dialogue in evolving governance contexts.

Insights from the study of Brazilian boards underscore the critical importance of committee design and structural capacity, particularly for governing innovation in a fast-changing environment. Finally, the issue concludes with a call to view boards not just as formal governance bodies but as strategic institutions that can embed expertise, transfer soft and hard skills, and foster long-term value through thoughtful engagement.

In short, board effectiveness doesn’t stem from operational closeness or retrospective insight, but from a purposeful integration of character, capabilities, structure, and strategic vision — all working in concert to support thoughtful, future-oriented governance in an increasingly complex world.

References

¹ Krause, Ryan, Michael C. Withers, and Mary (Mara) J. Waller. “Reducing Bias Through Board Decision-Making: An Information-Processing Model of Board Decision Synergy.” Academy of Management Review, 6 March 2024.

² Andrei, Alina G., Mirko H. Benischke, and Geoffrey P. Martin. “Behavioral Agency and the Efficacy of Analysts as External Monitors: Examining the Moderating Role of CEO Personality.” Strategic Management Journal, Vol. 45, No. 1, September 2023.

³ Benischke, Mirko H., Geoffrey P. Martin, and Lotte Glaser. “CEO Equity Risk Bearing and Strategic Risk Taking: The Moderating Effect of CEO Personality.” Strategic Management Journal, Vol. 40, No. 1, October 2018.

⁴ Campbell, Andrew, Jo Whitehead, and Sydney Finkelstein. “Why Good Leaders Make Bad Decisions.” Harvard Business Review, February 2009.