Breaking groupthink in board and committee meetings

Effective decision-making in board and committee meetings is crucial for the healthy function of financial services firms. But decision-making can be skewed by groupthink, which occurs when board and committee members put agreement, harmony and conformity above critical evaluation of ideas and opinions. This can lead to irrational or dysfunctional decisions and negatively impact compliance, risk management, organisational performance, as well as corporate culture. Mario Menz discusses what organisations can do to improve risk management by breaking groupthink in board and committee meetings.

Dr Mario Menz (mario.menz@hotmail.co.uk) is head of Compliance and Money Laundering Reporting Officer for Ghana International Bank plc, as well as course director of the LLM Financial Services Law, Regulation & Compliance at London Metropolitan University.

Corporate governance and committee structures

Corporate governance plays a crucial role in the success and stability of financial services firms, as it ensures firms operate with transparency, accountability and responsibility. It fosters investor confidence and contributes to the overall stability of the financial system. The 2007 financial crisis and numerous corporate scandals have underscored the importance of robust corporate governance in financial services. Regulators, investors and other stakeholders now place a greater emphasis on the need for strong governance practices to mitigate risks, protect customers and ensure sustainable growth. Committees serve as an essential component of corporate governance, supporting the board of directors in its oversight and decision-making responsibilities. The Basel Committee on Banking Supervision's 'Corporate governance principles for banks' [1] for example provides guidelines on the types of committees banks should have, their composition, the content of committee terms of reference, along with committee reporting - including information committees should receive and provide to the board. The principles note that by establishing specialised committees, firms can leverage the expertise and diverse perspectives of their members to tackle complex issues, enhance risk management and promote informed decision-making. Committees also contribute to the overall effectiveness of the governance structure by facilitating communication and coordination across various departments and functions. They provide checks and balances to prevent the concentration of power and reduce the potential for conflicts of interest.