The colours of decision-making

Vinay Bharat-Ram

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IN a rational world, a corporate decision-maker defines his goal after examining various alternatives in terms of their possible outcomes and probabilities of success. He shares this entire process with his colleagues, subordinates and owners so that he can lead a collective effort towards the goal. In reality, of course, in the process of generating alternatives the goal itself may be modified through interaction with others. But finally the onus of achieving it, once defined, and the full responsibility for it lies with the decision-maker.

In a practical setting the managing director or CEO is the decision-maker. The chairman as well as members of the board are there to examine, vet and influence his decisions, specially those which have a major bearing on the corporation. The question is, where does the promoter or entrepreneur fit in? He may or may not be the decision-maker but his stake in the quality of decisions made as well as their success is far greater than that of the other directors on the board. He has much more at stake than even the decision-maker who at worst might lose his job.

In effect, therefore, there are three thresholds of involvement in decision-making. These are important from the viewpoint of understanding roles and role relationships. It is also important to recognise that while the decision-makers at the first and the second levels are replaceable, the third has a long-term stake in the growth of the business unless he decides to sell out (see table below).





Good Performance

Members of the board

No stake

Marginal loss of reputation

Marginal gain in reputation


No stake (if non-promoter)

Loss of job and reputation

Gain in reputation, income, bonus and stock options, etc


May or may not be a decision-maker

High stake

Financial loss as well as loss of reputation, loss of the enterprise, takeover or liquidation

Gain in financial status as well as reputation



Members of the board are generally part-timers and are there to lend prestige and credibility to the enterprise. Some may take a deeper interest than others, especially if they represent a lending institution. The full-time directors, of course, are expected to make a contribution in their respective areas of specialisation.

The CEO or the decision-maker, if he is a non-promoter, is typically a professional who has knowledge of the business and is there to take the enterprise forward over time. He stands to gain through success or lose his reputation or even his job if he is a failure. In today’s world his contribution is measured in terms of shareholder satisfaction.

The promoter, even if he is a non- CEO but a member or chairman of the board, occupies a very different position to other board members. His own funds are involved in the success of the enterprise and he sinks or swims with it. His role as a non- CEO is difficult to divorce from influencing the decisions of the CEO. He may be regarded as a backseat driver but then to some extent that is inevitable. A wise promoter will interfere least with the CEO and offer support with the intention of influencing his decisions in a positive manner, as well as pointing out possible pitfalls.

Ideally he should examine the alternatives that the decision-maker considers prior to arriving at his decision, suggest additional alternatives where possible, and question each so that the decision turns out to be sound. Of course, making a speedy decision rather than waiting for more alternatives is also an alternative. Selecting a course of action after the generation of alternatives is a universal tenet which should precede major decisions. The pattern should be no different if he himself assumes the role of decision-maker.

The promoter, furthermore, is often a member of a family which shares an interest in the business. This carries with it its own implications vis-à-vis roles and role relationships. Family concerns raise complex issues, some of which are: (i) A difference in age and experience, as is typical between father and son. (ii) Differences in educational levels. (iii) Sibling rivalries or rivalries between cousins which usually end in a separation. (iv) Differences of attitude towards employees. (v) Differences in the way each would like to define the business or restructure it. (vi) Differences in value systems which may affect ethical practices or corporate governance. (vii) The difficulty in keeping a professional distance between family members. Emotions often tend to cloud rationality and judgment. Often, the same argument by an outsider is more acceptable than when made by a family member. (viii) Furthermore, different promoters are not equally gifted in all aspects of business. They should ideally recognise their own strengths, aspirations, biases and shortcomings. Only then can they bring others in to fill in for their shortcomings, thus leaving time to concentrate on what they are good at. For example, a visionary may not be the best operating manager and vice versa. The combinations are innumerable.

While I have highlighted some issues which may seem to have a negative tenor, let us not overlook the fact that family members generally share the same objective of value accretion in the enterprise. They may possess different talents which are complementary. To that extent they could add value if a system of working together could be charted out. However, before we get deeper into that, let us recognise that there are four dimensions to decision-making. These are: (a) a vision, (b) a strategy, (c) the decision itself, and (d) its implementation.

Each, of course, may involve a selection from a set of choices. The traditional way of looking at this process is through a SWOT (strengths, weakness, opportunities and threats) analysis. While useful, it does not seem to go far enough. A vision is not generated mechanistically by listing opportunities and threats. It is more akin to a biological process which combines intuition, information and a passionate belief in an idea. It may or may not follow the track of generally accepted opportunity and threat perceptions since these are not ‘givens’. They are born out of an individual’s way of looking at his environment and integrating information.

There are examples. Though Ambani saw the same environment in the ’60s as many other businessmen, he also discerned ways of overcoming obstacles that were not apparent to most others. Some saw a vision of the it industry long before it took shape in India. Nirma did not regard Levers as a threat, but rather as an umbrella under which it could expand its business. A vision, therefore, involves sifting through facts in a unique manner that gives rise to a unique opportunity.

Corporate strengths and weaknesses again are not ‘givens’. Strengths are stretchable and weaknesses can be overcome. What is of greater relevance is the ability to convert a vision into strategic intent and the intent into a set of steps which can form the backbone of a strategy. Once this is spelt out, the options available to accomplish this strategy can be narrowed down to a decision.

These processes generally unfold unconsciously inside the mind of the entrepreneur or decision-maker. That is the way most corporations transit from a nascent stage to maturity. Somewhere along the line the processes get broken down in a conscious manner such that the visionary, the strategist, the decision-maker and the implementer get separated. There is no hard and fast rule about it. The visionary and the strategist may be the same person while the decision-maker or implementer could be somebody else. The visionary again need not necessarily be the promoter. Having given the initial push, he may sit back and let the CEO drive the vision. Nevertheless his role in monitoring the CEO formally or informally usually remains.





What is important is that a purpose or shared vision begins to emerge which, in Simon’s terms, ‘involves a notion of a hierarchy of decisions – each step downward in the hierarchy consisting in an implementation of the goals set forth in the step immediately above. Behaviour is purposive in so far as it is guided by general goals or objectives; it is rational in so far as it selects alternatives which are conducive to the achievement of the previously selected goals.’1 In the final analysis most decisions involve a compromise. The environment generally ‘limits the alternatives that are available and hence sets a maximum to the level of attainment of purpose that is possible.’2

We thus have a framework within which an organisation can create a structure, set its norms, value systems and goals. In a mature organisation the journey from vision to decision is marked by some notable characteristics. The entrepreneur can choose his team in regard to vision strategy and, most importantly, in consonance with his value system. Unfortunately, he cannot make such a choice when it comes to relatives. This is perhaps one reason why family businesses break up and is one further reason why it is important to explore the conditions under which family businesses can grow and prosper.



‘Among the studies of administrative organizations that I have read, few have caught and set down in words the real flesh and bones of an organization; even fewer have convinced me that their conclusions as to the effectiveness of the organization or the recommendations for its improvement could properly be deduced from the evidence presented.’

Hebert A. Simon


Coming from the only Nobel Laureate in Economics for management science this should be a humbling thought. I will, therefore, attempt to speak my mind with some trepidation. Any organisation represents a hierarchical structure. We might draw this as shown above.

This has been shown as a triangle because it seems that fewer people will be involved at the vision stage, some more at the strategic level, and even more at the decision point. The implementation would be widely spread between numerous sub hierarchies which are difficult to capture in a triangular format. What is important, however, is the feedback from the implementation point to each level in the triangular hierarchy.

Subsumed in this simple model are notions of authority, structure, communications, generation of alternatives, information and so on. Every management practitioner is familiar with these concepts and there is little purpose in belabouring the much written about impact of information technology, the trend towards leaner organisations, rapid pace of change, need for a shift in the mindset and so on. Important as these are, the more stable elements of vision, strategy, decision-making and implementation will endure.

Every entrepreneur will take the process forward in his own style be it autocratic, paternalistic, trusting or paranoid. The most talked about example of entrepreneurship is usually of Bill Gates of Microsoft. In India we have Dhirubhai Ambani, Rahul Bajaj and Azim Premji among others and, of course, Vikram Lal, who has now substantially distanced himself and the family from his business. Each would probably have his unique philosophy despite the never-ending search by management gurus to name those common magic characteristics of success.

The greater problem arises in families comprising of gifted yet sometimes headstrong individuals. Nevertheless, if the families are small, solutions are possible. In today’s world, where core competencies are part of the currency of management jargon, it is possible to form holding companies with one or more subsidiaries. Each subsidiary can develop its own vision and strategy. Whether managed by a family member or professional, strategy formulation will need to be addressed pragmatically in the light of what is indicated in the earlier part, especially as the promoter seldom divorces himself from the affairs of the company.

Fortunately, the world is today moving towards the concept of maximising market capitalisation and this could well become the uniting objective in the more enlightened families. Furthermore, within the norms of prudent corporate governance, adequate structure and feedback mechanisms could be set up to accommodate (to some extent) the individual personality orientations of each family member. The emphasis here is on the word ‘enlightened’, meaning thereby that enough elbow room or space is created around each individual so that he can function with some level of independence, though continuing to be accountable for final results.

In the spirit of Simon, every structure should be seen as tentative in the context of a fast changing world. Management is not a perfect science and what holds true today may not hold true tomorrow. It is increasingly probable that family members will wish to opt out of business without impairing their dignity, self-respect and financial worth. This seems a little far-fetched in India where even the oldest business families are not beyond the third and fourth generation. In the U.S. on the other hand, corporations have devised mechanisms whereby the owners can enjoy the benefit of Trust funds while organisations are managed totally professionally, right from the vision stage downwards.

An interesting case in point is of the Ford Motor Company which after Henry Ford was managed professionally till, in the fourth generation, his great-grandson entered the business at the top, thanks of course to his competence, quite aside from the fact that the controlling interest of the company lay with the Ford family. With regard to Toyota Motor Company, it is hard to speculate if and when it will distance itself from the Toyota family. And yet let us not forget that two-thirds of the world’s businesses are actually family managed.

The business scene in India is at an early stage of evolution. Most companies are small by global standards and are on the threshold of the challenge posed by global competition. It is, therefore, important for families, specially the smaller ones, to come together and create simple, workable structures which ensure dignity and elbow room within the framework of maximising the creation of wealth.



1. Herbert A. Simon, Administrative Behaviour, The Free Press, New York, 1997, p. 4.

2. Ibid., p. 5.