Blind Spots in the C-Suite & Boardroom

By Jim DeLoach, Former Andersen Partner and currently a Managing Director at Protiviti. He is the author of several books and a frequent Forbes and NACD contributor.

Copyright 2024 Corporate Compliance Insights. This article originally appeared on Corporate Compliance Insights and can be found here. Reprinted with permission. No further reproduction is permitted without permission from Corporate Compliance Insights..

Even the most skilled leader can’t manage a risk that’s not on their radar

Looking back on business failures often reveals blind spots that led to lack of understanding, strategic error and missed opportunities. Protiviti’s Jim DeLoach asks: Are the executive team and board aware of the organization’s blind spots?

We’ve all heard the adage that what we don’t know can be more damaging to reputation, brand image, market standing and competitive position than what we do know. When what we don’t know is something we should know, a blind spot exists. Whether they relate to cultural, strategic, operational or governance issues, blind spots are almost always a factor underpinning a business failure, a massive regulatory sanction or fine, or a loss of trust and market permission to play. In today’s volatile markets and global geopolitical landscape, failure to recognize and act on changing business fundamentals inevitably leads to a potentially lethal strategic error. Since everyone — and every organization — has blind spots, awareness is important.

We define a blind spot as something pertinent to an organization’s viability that the board and C-suite have not focused on at all or enough. In this context, blind spots include significant matters of which leaders either are not aware or have chosen to de-emphasize or ignore. They can be embedded in the human subconscious and can frame a leader’s perspective when faced with evaluating situations, judging people and making decisions. With new technologies quickening the pace of disruptive change and creating unprecedented market opportunities as well as formidable challenges and risks, blind spots can be very limiting to individuals and are especially dangerous to organizations, leading to missed opportunities, excessive risk taking, failure to anticipate events and harm to the public.

Major sources of blind spots

Blind spots can arise from a number of factors: lack of basic understanding in the C-suite and boardroom, misalignment with business strategy, strategic drift, a dysfunctional culture and the unexplored unintended consequences.

A core blind spot for senior leaders and directors is a lack of currency with important matters germane to the company’s present and future success. This is important with respect to emerging technologies, particularly artificial intelligence (AI) and cybersecurity. It leads to dysfunction in strategic conversations — e.g., unrealistic expectations, ineffective communications with management, challenges in setting appropriate goals and targets and the lack of informative dashboards on topics that matter. Drowning in a sea of data doesn’t help. Insights are the new gold.

Boards typically place heavy reliance on company executives to keep them informed of things that matter. Senior executives in turn rely on direct reports, and so on. When board-facing executives and executive team direct reports are unaware of significant issues smoldering deep within internal processes that have not been escalated upward to appropriate levels in the organization, it contributes to a variety of serious blind spots in the boardroom and C-suite.

Misalignment with business strategy is another source of blind spots. This can occur when middle managers trail away — either inadvertently or intentionally — from the focus and values set by the CEO and executive team, and neither senior leaders nor directors on the board are aware of the disconnect. It can arise from a lack of a shared sense of purpose, poor communication processes or a failure to assess whether the organization has the necessary talent and expertise to develop, deploy and maintain cutting-edge technology initiatives.

Strategic drift is yet another blind spot. It occurs when the corporate strategy is out of touch with changing market realities. Disruption at an accelerating pace is the new normal. Market opportunities and the associated risks pertaining to advances in emerging tech can alter customer behavior and business models. The impact of technology on the future of work, entertainment and optimizing food production processes will be profound. Other market trends — e.g., geopolitical, demographic, regulatory, economic, competitive, customer preferences, labor markets, workplace and supply chains — also create fresh opportunities and risks.

Fully understood, this disruption alters strategic assumptions. Strategic drift results from a lack of diversified perspectives in the C-suite and boardroom, a steadfast commitment to preserve the status quo, and an inward-looking focus that ignores market developments.

Then there is a dysfunctional culture. Resistance to change, lack of transparency and trust, confusing organizational structures, aggressively dominant or overconfident CEOs, ambiguous decision rights, flawed incentives, a warrior environment, lack of an enterprise-wide view, strategic disconnects from core values, significant talent gaps, and toxic workplaces (such as those requiring people to work in hazardous conditions, producing unsafe products or undertaking recklessly risky bets) all contribute to a culture not fit for purpose in our disruptive times.

Unexplored unintended consequences are a common source of blind spots, particularly with the implementation of innovative products and services, significant improvements to internal processes (e.g., the potential risks underlying deployments of generative AI) and the effects of major decisions. The dreaded FOMO (fear of missing out) can lead to organizations deploying technologies that spawn fresh cyber threats, data privacy issues and risks of harm to consumers that have not been fully vetted.

Other sources of blind spots

Flawed, incomplete or outdated risk assessments can mislead, for leaders cannot manage risks that are not on their radar. Ignoring significant risks that loom on the horizon because they are highly unlikely to occur over a specified time period creates a false sense of security that leads to a general lack of preparedness. For many of these “gray rhino” risks, it is a matter of when, not if.

Inability to manage unconscious bias is a source of blind spots. The various forms of bias and the groupthink phenomenon they encourage often result in a desire for harmony in an organization, meaning there is greater weight placed on getting along than on expressing disagreement on the things that matter. Unconscious bias can lead to ignoring alternative views and salient contrary information, leading to poor decisions, missed opportunities, strategic error, ethical and legal issues and regulatory compliance problems.

Inadequate oversight and deficiencies in the control structure can create a lack of awareness of issues requiring immediate attention. Lack of proper oversight and controls in place can lead to a scandal, a compliance matter or another situation not consistent with the organization’s core values.

Finally, there is the continuing transition toward a sustainable world. This topic portends disruption on many fronts and is contentious and potentially existential.

“Black swans” also bear mention, as they are highly improbable catastrophic events that few see coming. They are often explained in hindsight as if they were predictable. Yet prior to occurrence, their causes and effects are not generally understood. Indeed, the specter of rare and extreme events equals uncertainty, which is exacerbated by blind spots with respect to randomness and particularly large deviations. The 2007-2008 financial crisis is an example because most financial services industry players, including the Fed chair, could not envision a systemic collapse of the housing market in all major regions of the United States.

Fundamental questions for leaders

The above sources of blind spots raise five fundamental questions for senior executives and directors:

How can we as an executive team and as a board encourage a culture of openness and transparency within our organization to facilitate the identification of potential blind spots?

Are we taking time to learn what we don’t know by asking the right questions? Do we understand our strengths and limitations as an executive team and as a board, and are we collaborating effectively in the C-suite and boardroom to leverage our strengths and address our weaknesses?

Do direct reports tell executive leaders what they need to know, even bad news? Do board-facing executives do likewise with the board?

Are we confident that the company is deploying effective risk management frameworks? Is anything missing or incomplete?

Are we probing enough to ensure that capital allocation and digital transformation proposals have been thought through? For example, when implementing AI initiatives, are we satisfied that proponents understand the limitations of automation and intend to ensure appropriate human involvement in critical decisions?

Finally, for boards, there is this question: Are we exercising our fiduciary role effectively in overseeing the company’s strategic direction and risk management?

In summary, successful organizations and proud brands are susceptible to blind spots in the boardroom and C-suite. The graveyard of failed companies and the hall of shame of organizations that have experienced significant reputation loss are filled with examples of blind spot obliviousness.

About Jim DeLoach: Jim DeLoach, a founding Protiviti managing director, has over 35 years of experience in advising boards and C-suite executives on a variety of matters, including the evaluation of responses to government mandates, shareholder demands and changing markets in a cost-effective and sustainable manner. He assists companies in integrating risk and risk management with strategy setting and performance management.