Effects of technical knowledge and decision aids on the evaluation of diagnostic and non-diagnostic evidence.

Abstract

This study investigates the effects of technical knowledge and decision aids on directors' performance on two components in the risk management process: risk identification and risk evaluation. The ability of directors to perform these oversight duties effectively has implications for the proper monitoring and governance of companies. These findings indicate that technical knowledge is a key driver in the ability of directors to identify and evaluate diagnostic factors, and that any lack of technical knowledge may not easily be supplemented with simple and generic decision aids; there is evidence that the use of such decision aids may inadvertently encourage a greater emphasis on non-diagnostic factors, an undesirable effect that does not appear to be mitigated by higher levels of technical knowledge. The findings also suggest that the use of some of the common proxy measures for director expertise and competence may be inappropriate. There are thus policy implications for the training of directors, the provision of decision aids to enhance task performance, and staffing and evaluation of corporate boards.