Why Boards Fail: Nick Curum on Discipline Over Intelligence in Investment Decisions

In a recent LinkedIn post, Nick Curum delves into a critical but often overlooked reason for investment failures in capital-intensive projects: the collapse of discipline at the point of commitment, rather than a lack of intelligence. Curum, drawing on over two decades of experience, argues that the real destruction of value rarely begins during the construction phase but rather when enthusiasm outpaces structured decision-making processes.

Curum highlights a common blind spot for boards and investment committees. While they meticulously scrutinize costs, interrogate returns, and debate strategy, they frequently neglect to rigorously stress-test the decision-making process itself. This, according to Curum, is where failure often hides.

“Most boards don’t lose money because they lack intelligence. They lose money because discipline collapses at commitment.”

The post details how, in the context of a boardroom, every major investment typically appears compelling. The financial models work, the strategic narrative is cohesive, and the potential upside seems significant, leading to broad agreement. However, Curum points out that the seeds of failure are sown not in the construction phase, but in the initial approval process.

The Hidden Failure Point: The Decision Process Itself

Nick Curum asserts that the failure point is not a lack of data or strategic insight, but a breakdown in the discipline of the decision-making framework. Boards often focus on the ‘what’ of an investment – its cost, its potential return, its strategic fit – but fail to adequately examine the ‘how’ of the decision itself.

“Boards scrutinise cost. They interrogate returns. They debate strategy. But they rarely stress-test the decision process itself.”

This oversight allows optimism and enthusiasm to potentially override a robust, disciplined evaluation. Curum suggests that this is a systemic issue, leading to significant financial losses over time, even when the initial intelligence behind the investment seems sound.

Seven Tests for Sound Investment Decisions

To counter this pervasive issue, Curum proposes seven critical tests that every major investment should undergo before receiving approval. These tests are designed to probe the robustness of the decision-making process and ensure that optimism is tempered by structural discipline.

Key Investment Safeguards Proposed by Curum:

• Reference Class Forecasting: Curum questions why internal forecasts might deviate significantly from historical averages for comparable projects without strong justification.
• Stage-Gate Capital Release: This test focuses on whether capital is released based on tangible evidence or mere optimism.
• What Must Be True: Curum advocates for explicitly listing critical assumptions and defining triggers that indicate when these assumptions are no longer valid.
• Downside Exposure Map: Beyond qualitative risk descriptions, this involves quantifying the project’s survivability under stress scenarios.
• Portfolio Balance: This assesses whether investments support scale, defend core operations, preserve optionality, or lead to dangerous concentration of exposure.
• Incentive Alignment: Curum probes whether executive incentives are structured to reward long-term value creation or short-term, potentially misleading, optics.
• Capital Reallocation Discipline: He questions the rigor with which the cessation of funding for underperforming initiatives is tracked, comparing it to the scrutiny applied to new approvals.

Curum poses a challenging question for boards: If stripped of their presentations, would their actual capital decisions over three years align with their stated strategy? He contends that many boards believe they possess capital discipline but fail to measure it effectively.

“Most boards think they have capital discipline. Few measure it.”

Ultimately, Nick Curum’s analysis on LinkedIn serves as a crucial reminder that true investment success hinges not just on smart ideas, but on the unwavering discipline of the processes that bring those ideas to fruition. The failure to stress-test the decision-making itself, he argues, is a costly oversight that many organizations continue to make.