The Dangers of Group Think

AGB Editor Julie Bourbon is attending the Foundation Leadership Forum and sends this quick update from meeting.

Group Decision-Making: Implications for Investment Committees
Gary R. Mottola, Senior Research Analyst, Vanguard
Kim Stockton, Investment Analyst, Vanguard

The dangers of "group think," including serious damage to the institution's portfolio, were discussed. While groups have the potential to outperform individuals in decision making, since they can draw on collective memory and knowledge base, there are perils. Group think tends to happen in groups that are highly cohesive, homogeneous, insulated and under stressful conditions. Symptoms include overestimation of the group, resistance to new ideas, and pressures toward uniformity. Outcomes include failure to analyze alternatives, failure to examine risk of preferred choices, poor information search and failure to develop contingency plans. Managing the size of the committee (not too big, not too small), holding regular meetings, focusing the agenda, creating an atmosphere of open inquiry, encouraging healthy debate and dissent, and educating committee members will help to keep your investment committee making good decisions, now and in the future.