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Better decision-making in times of crisis

Investments
COVID 19 Coronavirus

By Jessica Melville | May 5, 2020

Here are our five top tips.

So many things have been put on hold throughout this crisis – client meetings, team get-togethers (in person, at least), travel plans. One thing that is getting a good work out is decision-making. As governments and regulators take unprecedented action in response to this global pandemic, there is a deluge of information coming thick and fast, and we must challenge ourselves to be responsive not reactive. Now, more than ever, we need strong decision-making as market dislocation and volatility means that even incremental shifts to our portfolios can have a meaningful long-term impact on risk and return.

When we reflect on our experience advising institutional investors, as well as some soul-searching about how we best run our own business, we can point to some hallmarks of good decision-making: those involved are clear on their governance framework; decisions draw on diverse opinions; there is effective information sharing; and, there is an effective means of combining individual opinions to arrive at the decision. Here are our five top tips to turn these lessons into action:

Tip 1: Work within your governance boundaries

Set yourself up for success by being clear on your organisation’s delegations and your role in a decision-making process. An organisation will have the confidence to make strong decisions when everyone knows and is playing their part. Is your role to provide expert opinion? In that case offer wisdom to help build conviction. Are you an independent advisor? Draw on your experience, act as a sounding board, offer challenge to stimulate healthy debate. Is your role to oversee a team of investment professionals? In this case empower and trust them, offering guidance and support in equal measure. Investment committees will add value by ‘seeing around corners’, through anticipating future trends and identifying the unexpected issues that may arise.

A good governance framework is your guard against behavioural biases such as anchoring and confirmation bias. That said, your governance framework needs to be responsive to changed circumstances. Have the courage to challenge the assumptions you made in the journey to here. Did your portfolio perform as expected? If not, why not? What should change, if anything, from here?

Beliefs are a key tenet of strong decisions and should guide us through these periods of uncertainty. There may, however, be some beliefs that will need revisiting, particularly if you think that the current crisis marks the start of a fundamental shift in the way the world works. Beware though that there is a lot of noise in the current environment. The challenge for all of us is separating signal from the noise.

Tip 2: Optimise your agenda

There are many things that will come up as critical to address in the short term. These need to be weighed up against your strategic agenda. Balance the urgent with the important. Remember you and your team won’t be able to do it all in these circumstances and recognise that your governance budget is finite. Do keep sight of the small number of critical issues that will make a difference in the medium and long term. It’s easy to over-do the anxiety on the near-term. We can be more productive applying ourselves to meeting the longer-term mission through a balance in our time horizons. Actively consider what items on the agenda can be deferred. This is not likely to be a short-term crisis, so set your team up to be able to stay the course and guard against early burn-out.

We have worked closely with NSW TCorp on a number of issues as they transform their investment approach. They have developed a neat 3x3 matrix to assess work agenda items according to the stakeholder they serve — people, clients, portfolios — and the nature of its importance and urgency — crisis essentials, critical BAU activity, and strategic imperatives. If something comes up that isn’t for one of these important stakeholders, and if it has not been triaged to this level of importance, then it is deferred. This reflects a gentle acknowledgement that the team should not be expected to operate to BAU capacity and efficacy.

Tip 3: Seek out the wisdom of your crowd

Look to your diverse team of experts, with their breadth of perspectives, experiences and thinking styles. Ensure that you have a mechanism to hear new ideas and different perspectives on how to solve the problems at hand. Create safe spaces to explore those views, offline and without time pressure where possible. There is no playbook for this crisis so the ‘right answer’ could come from anywhere, irrespective of seniority or domain expertise. If the expertise doesn’t currently exist in your team look further afield, such as to your advisors and asset managers, to efficiently access different perspectives on the decisions you need to make.

Tip 4: Bring it together effectively

Consult widely, decide narrowly is a pearl of wisdom for decision-making, and critical for turning the collective intelligence of your organisation into effective and impactful outcomes. You may feel apprehensive that you have to make important decisions in a virtual setting — this is completely understandable given the long-standing practice for investment committees to be “sitting around the table”. Below we propose a model for ‘best practice’ decision-making in virtual meetings, including Investment Committees.

Tip 5: Embrace technology, but be wary

We spend a lot of time talking about the nexus between humans and machines, and technology has been a great enabler of communication for businesses around the world. Meetings and decision-making have much to gain from technology like video conferencing and online polling software.

Quantitative analysis and modelling draw from large data sets and typically backward-looking regressions to estimate risk on a forward-looking basis. A word of caution here: do not become overly reliant on these tools, especially during crisis points. Portfolio design models have problems framed by humans, informed by human beliefs and coloured by human biases, and tend to optimise outcomes according to the parameters of historical regimes. The data on our current situation is rapidly unfolding, the scenario is unprecedented, the one thing we can say with any certainty is that there will be unknown unknowns. Now is the time to let the judgement of your people prevail by considering a range of scenarios informed by sound data.

Final thoughts

We are all making big adjustments to our ways of working on many fronts. Decision-making is a critical enabler that brings people and culture together with data and analytics to give effect to portfolio decisions that drive investment outcomes

The silver lining in our current environment is that we might come out the other end of the tunnel with more inclusive practices, more effective ways to collaborate and more confidence in our decision-making. In a time where bad news abounds, that is a gift.

Disclaimer

Willis Towers Watson has prepared this material for general information purposes only and it should not be considered a substitute for specific professional advice. In particular, its contents are not intended by Willis Towers Watson to be construed as the provision of investment, legal, accounting, tax or other professional advice or recommendations of any kind, or to form the basis of any decision to do or to refrain from doing anything. As such, this material should not be relied upon for investment or other financial decisions and no such decisions should be taken on the basis of its contents without seeking specific advice.

This material is based on information available to Willis Towers Watson at the date of this document and takes no account of subsequent developments after that date. In preparing this material we have relied upon data supplied to us by third parties. Whilst reasonable care has been taken to gauge the reliability of this data, we provide no guarantee as to the accuracy or completeness of this data and Willis Towers Watson and its affiliates and their respective directors, officers and employees accept no responsibility and will not be liable for any errors or misrepresentations in the data made by any third party.

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Jessica Melville
Head of Strategic Advisory, Investments

Global Head of Governance Consulting, Investments

Rebecca Bannan, CFA
Senior Investment Consultant, Investments

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