Questionnaires and interviews

There are 3 questionnaires used in the main study, plus a RepGrid interview, the source and details of which are described below:

 Risk Readiness Questionnaire (Appendix B). This is based on Beasley et al. (2010, 2011, 2012, 2013) and is designed to measure the level of risk readiness of the Board. The Beasley et al. questionnaires were used in this research as a basis for the risk readiness study due to the widespread usage and publication of these results in the USA, and the endorsement by the Enterprise Risk Management Initiative (The ERM Initiative) in the College of Management at North Carolina State University, in conjunction with the American Institute of Certified Public Accountants

(AICPA). This endorsement provided twofold validity relating to the specific questions and reliability of the results, due to the annual nature of the survey across a large number of USA companies. Because of the general non-USA specific nature of the questions, it was felt that they could provide a valid assessment of the level of risk readiness for South African companies. See Appendix A for a summary of the 2010 results.

 Risk Aversion Questionnaire (Appendix B). There is considerable literature on the extent of cognitive bias as discussed in Chapter 2 Part 3. Kahneman and Tversky

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(1979) conducted in-depth research into the extent of human cognitive bias when faced with risk. This valuable work provides the basis for understanding human biases, and also for providing a methodology to assess the extent of such risk aversion. The literature urges researchers to develop holistic views of institutional theory, to include aspects of behavioural theory. Much of this thesis focuses on behavioural issues, particular cognitive biases associated with strategic decisions and attitudes to risk and uncertainty. “Fewer than one out of 8 of articles published in leading scientific management journals is about actual Board behaviour” (Huse, 2005, p. S66). It was considered prudent to use the existing methodologies which have been used extensively in many experiments and research on individuals to assess the degree of cognitive bias of Boards which can be considered as a form of cognitive entity. The work of Kahneman and Tversky (1979) was therefore used in the construction of a questionnaire designed to assess the level of risk aversion/risk tolerance of individual Board members.

 Risk Bias Questionnaire (Appendix B). Yazdipour, Constand (2010, pp. 96-97) argue that in the area of financial distress and failure it is not possible to focus purely on business operations to explain the reasons, but also to include human, managerial and decision making issues to explain corporate failure. They propose that human biases could provide more powerful success/failure predictability for small and medium sized enterprises. Their article is particularly relevant to this thesis in terms of the systematic bias of Boards when faced with risk:

“... findings from the fields of cognitive psychology and neuroscience have

fundamentally changed the way we now look at how financial decisions are made. An entrepreneur may assign a low risk assessment to an otherwise high risk project and subsequently take on a riskier project than the potential return justifies.” (p.96).

The following comments from the same article are also relevant to this study:

“the very powerful affect heuristic has been defined as a feeling state, such as

“goodness or badness” when one faces an investment opportunity....and can be viewed as a quality, such as acceptable or unacceptable, when associated with a risky business

venture....and has been able to explain the otherwise peculiar negative relationship between expected risk and expected return or gain in investment situations.”(p.97)

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This Questionnaire was based on Kahneman and Tversky (1979) and was designed to assess the degree of mental bias prevalent amongst Board members when faced with risky options. The results of the questionnaire were analysed in accordance with the detailed methodology set out in Appendix D of the Pilot Study. (The Risk Bias Questionnaire was not included in the original pilot study.)

 In order to gather information to answer the 2 final questions set out in Table 3.4 above, viz., how Boards interact as a group in dealing with strategic issues and how Boards as a group respond to risk and uncertainty it is necessary to identify a powerful interviewing technique to elicit answers to these questions. The RepGrid technique was used for this part of the research, and is discussed in considerable detail in 3.7 below.

The summary of data capturing techniques is set out in Table 3.5 below.

Table 3.5 Summary of the techniques used in the data and knowledge generation phase

Technique Data / knowledge gained

Process modeled on Comment

Risk Readiness Questionnaire

State of readiness of the Board in terms of risk oversight obligations

Beasley et al., 2010; King III These questions were drawn from the Beasley et al. survey, and from the King III regulations on risk oversight.

Risk Aversion Questionnaire

Presence of cognitive bias amongst Board members when faced with risky choice

Kahneman and Tversky, 1979 The questionnaire is based on the questions used by Kahneman and Tversky (1979)

Risk Bias Questionnaire

Extent of bias amongst Board members when faced with risky choice – does Prospect Theory apply to Board members

Kahneman and Tversky, 1979 Questions are based on questions used by Kahneman and Tversky 1979 to gauge the extent of cognitive bias under risk Initial RepGrid

interview with individual Board members

How do individual Board members construe their risk

Jankowicz(1990,2004);

Wright R.P.

(2006,2008);Alexander et al., 2011)

Interviews will be conducted with members of intact Boards using elicited constructs

Content Analysis How do Boards as an intact entity construe their risk obligations

Jankowicz(2004); Wright R.P 2006

The repertory grids will be merged to provide an overall view of how the Board construes risk – this will be discussed with the Board and their responses recorded.

The original pilot study questionnaires which were set out in Appendix C were modified and expanded, principally in order to obtain additional information which appeared

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deficient from the pilot study. More detail on these changes is discussed in the pilot study (Chapter 4).

3.7 Repertory Grid Techniques (RepGrid)