Page 155 - COSO Guidance

Enhancing Board Oversight: Avoiding Judgment Traps and Biases | 7

Boosting the Board’s Ability to Appropriately
Challenge Judgments Through Proactive Framing

At the core of a director’s ability to raise effective questions, by policy makers from “the war on drugs” to “drugs are a
appropriately challenge and evaluate judgments, and cancer on our nation.” There are important implications
help both the board and management avoid judgment of thinking about the drug problem through one frame
traps and biases is a concept called judgment framing. versus the other. If the drug problem is a war, we will send
Frames are mental structures or perspectives that we use soldiers to the border; we will use force to attack and
to determine the relevance or importance of information. arrest. If it is a sickness, we will tend to educate the public,
The underlying analogy behind framing is that different treat addicts, and look for preventative measures. Again,
perspectives are visible through different window frames. the point is not that one frame is necessarily better than
For example, consider the different vistas that are available the other but, rather, that the two metaphors point to very
from different windows of the same office building. Different different perspectives and actions.
vistas or frames also are possible with judgment problems;
often, there are many possible perspectives on the same identifying Frames
situation. Different frames can lead to significantly different Management and boards facing an important judgment
understandings or interpretations of a situation, and these will initially adopt a frame, and board members should
different understandings and interpretations will affect work to identify and understand the frame that is being
behavior and decisions. used by management, other board members, and the board
overall. One way to recognize a frame is by identifying
For example, research shows that people’s willingness to the analogies or metaphors being used. People often
take on risk depends on how a situation is framed. Doctors use sports metaphors, such as “this investment is a slam
6
and patients tend to select riskier treatment options when dunk.” This basketball analogy was used in the previous
a medical condition is framed in terms of the odds of dying ABC Manufacturing Inc. acquisition example, and it
as compared with when the identical situation is framed suggests a near guaranteed basketball scoring opportunity,
in terms of the likelihood of surviving—same situation, suggesting that the acquisition is obviously going to be
different frames. Similarly, tax professionals may be more highly successful and beneficial to the company and its
accepting of management’s high-risk tax position when shareholders, with very little risk of things going wrong.
the underlying transaction is a done deal as compared Analogies can shape important discussions; we can often
with when the same transaction and position are not yet challenge the frame by looking at the situation using a
completed. Same transaction; however, the professionals different analogy or metaphor.
either agreed or didn’t agree with management’s position
depending on the frame with which they viewed the
transaction. The point here is not to suggest that one frame “If everyone is thinking alike, someone isn’t thinking.”
is better than another; there often is no single best frame.
However, judgments can be improved by considering the – General George S. Patton
problem from the vantage point of multiple frames.

The Power of Framing
Frames are necessary and helpful, but individuals are often
unaware of the perspective or frame that they or others are
using. As a quick illustration of the power of framing, you
may have heard of the phrase “the war on drugs.” In an
effort to change the nation’s approach to the drug problem,
when General Barry McCaffrey became the nation’s “Drug
Czar” a number of years ago, one of the first things he did
was change the metaphor, or frame, that was being used

6 For a review of judgment framing and references to the underlying research, see Judgment in Managerial Decision Making.

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