One Minute Governance

Compliance is important, but more emphasis on compliance means less emphasis on good governance.

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Earlier this season in episode 104 I confessed that the 20 years of work I did on board ratings was maybe not optimally spent. The heart of the problem is that I was one of many who were perpetuating a false equivalence between good governance and compliance, or in my case good governance and the disclosure of specific information in specific ways. Obviously, complying with rules and communicating truthfully and transparently with stakeholders matter a *lot* but they’re not at all the same as good governance. And what happens when people like me put pressure on boards and executives to invest their scarce time into compliance with external expectations that are unrelated to good governance is, well, good governance is less likely to happen. If you buy in, even a little, to my definition of good governance as the act of intentionally creating effective conditions for decision-making, then you already know what I’m talking about. A compliance-oriented agenda clearly doesn’t describe effective decision-making conditions. Honestly, the fact that real-world boards of large, sophisticated listed companies spent time worrying about the board ratings that I ran kinda feels embarrassing to me now. If there’s a message here it’s this: to all you regulators, institutional investors, activist investors, researchers, journalists, and anyone else who has the platform and wherewithal to compel directors to comply with more rules and expectations, before you open your mouth please ask yourself if that compliance is really in service of good governance.

Are a set of 150-year-old parliamentary rules really applicable in a typical boardroom?

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I was with a board recently, engaged in a conversation about what “good governance” is (surprise, surprise!). One of the board members asked me where Robert’s Rules of Order fit into good governance. If you don’t know about Roberts’s Rules, take a second to Google them. Anyway, it’s a perfectly fair question. After all, basically every board deploys Robert’s Rules occasionally or frequently, especially when a vote is at hand. It’s a handy process to make sure we know that, in fact, a decision happened, which is good! The reason why I found the question so interesting is that it never would have occurred to me that Robert’s Rules were anything more than a potentially convenient tool, and certainly not a critical component of corporate governance generally or even board effectiveness specifically. Did you Google them? If you did, you probably saw the Wikipedia page which describes Robert’s Rules as “a manual of parliamentary procedure” from 1876. It goes on to explain that the rules “govern the meetings of a diverse range of organizations – including church groups, county commissions, homeowners associations, nonprofit associations, professional societies, school boards, and trade unions.” There’s something a bit startling about parliamentary rules being adopted by all these other types of organizations, and especially by boards, to be honest. Have you ever spent time watching a parliament try to make decisions? If you have, you probably noticed that rules matter a lot because, well, there are constantly arguments between groups of people with misaligned interests, pushing and pulling against each other. If that sounds like your board, then maybe you should hang on to Robert’s Rules for dear life. If not, you might want to consider a less structured approach once in a while.

It was only a few months ago that I proposed my definition of "good governance," and I've already changed my mind.

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I know it’s only been, like, three months since episode 102 where I offered a definition of “good governance.” Well, I’m excited to say that I already think I got it wrong. I’ve had a slight, yet significant, shift in perspective thanks to reactions that I’ve received from clients, classrooms, and listeners. Let’s begin with the definition from episode 102: Good corporate governance means creating conditions that maximize the likelihood that effective decisions will get made. The most important part I got wrong was emphasizing the effectiveness of *decisions* which isn’t really what I meant to do in the first place. We all know that one of the things about decisions is that you can’t know what the result will be until you make the decision in the first place, and talking about an “effective decision” implies that the result will be good. So that needed to change. I also don’t really like the “maximizing the likelihood” part because that implies that good governance is really a game of chance. On top of that, some people have told me I should add the word “intentional” somewhere, while others prefer “active.” I think I’ll use both. Ultimately, what I really want to convey is that the heart of good governance is an interest and curiosity in the conditions for making decisions throughout an organization. So here’s where all this wordsmithing has gotten me as of November 2022: “Good corporate governance is the act of intentionally creating effective conditions for decision-making in an incorporated entity.” Let me know what you think. Clearly, I’m in a pretty impressionable place right now, so you might just change my mind.

I'm HUGELY grateful to all of you for listening and caring about OMG. So grateful, in fact, that I'm asking you for something more: please consider "liking," following, subscribing, reviewing, and spreading the word. 

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It’s sincerely amazing to me that we’re so close to 150 episodes of OMG. Any of you who know what it’s like to put literally anything out into the world – a product or service, artwork, thought leadership, or whatever – you all know that feeling of uncertainty. No matter how confident you are that you’re on to something, there’s always that looming doubt: will *anyone* care? And let’s be real here, OMG is where I – a solitary and opinionated human being – put my own personal thoughts and opinions about an esoteric and unsexy topic out into the world. There was no guarantee that it would find an audience of any kind, let alone one so thoughtful and engaged as you. So I’ve arbitrarily decided, in episode 139, to ask you for something. Whether you’re a dedicated follower or a recent convert or a first time listener, please consider following or subscribing to OMG on your favourite podcast platform. Please also take a moment and leave a rating or review. Most importantly, the most powerful way to build an audience for a podcast is to simply tell your friends, family, and colleagues what you like about OMG and recommend that they tune in. It probably hasn’t occurred to you that OMG basically *can’t* be ad-supported without ruining the vibe. Imagine adding a 60-second advertisement at the beginning of a 90-second podcast episode? It would be AWFUL. So, no, sadly spreading the word won’t make OMG any money, but I knew that from the start. No, spreading the word just, well, spreads the word. I believe in what we’re doing, and I hope you do too. Thank you, sincerely, because knowing that you’re listening is what makes creating OMG such a fulfilling experience.

In stark disagreement with my past self from episode 92, I don't think a regular old skills matrix is good for anything. Here's what I think we can do better.

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Less than a year ago, back in December 2021, in episode 92 of this podcast I said the words “I actually really like the standard skills matrix, as long as it’s well-defined and regularly updated.” And I proposed adding a new feature in the form of laying out the bare minimum expectations that EVERY director needs to bring to the table. Just to, y’know, make sure that everyone actually brings at least the bare minimum in addition to their CV. Anyway, I’m here to say that I completely disagree with the December 2021 version of myself. Not only do I not ‘really like the standard skills matrix’ anymore, but I also don’t think that my proposed feature is sufficient to take a plain vanilla skills matrix from trash to treasure. If your skills matrix is going to actually help you to recruit a good group of directors, here’s the information I think it needs – at the very least – to be substantially useful. First, it needs skills – measurable stuff like “basic financial literacy” or “types at least 80wpm,” or “can hit a 95mph fastball”. Second, it needs professional expectations, like “has managed an organization with a $50m budget” or “has taught at least 1000 people how to surf.” Third, it needs those bare minimum things I mentioned before, like “is available to attend 24 meetings per year,” or “is fully caught up on OMG.” Fourth, it needs some indication of interpersonal aptitude, like “demonstrates willingness to change mind when presented with new information,” which can be tested in an interview.” Finally, it needs an indication of how many people on the board need each of those things. With those bare minimum things, for instance, EVERYONE needs those. But how many experienced surf instructors do you need? Is it one? Five? How many fast typists? How many seasoned executives? Put ALL of it in your skills matrix! Otherwise, how can you *really* assess your recruitment needs?

I keep hearing leaders talk about the increasing volatility, uncertainty, complexity, and ambiguity in the world. I think we might be missing something...maybe even an important opportunity.

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Volatile, Uncertain, Complex, Ambiguous. VUCA. It resonates, doesn’t it? Whether you’re talking about just some schmo like you or me, or a complex organization, things just *feel* VUCA, right? And it’s becoming such a cliché to say that VUCA is the “new” normal. As in, things are more volatile, uncertain, complex, and ambiguous than ever before and we better get used to it. Personally, I don’t like either part of that statement: the “more than ever” part or the “we better get used to it” part. First off, for everyone but the most fortunate among us, the world has always been VUCA. When you don’t have enough of what you need, whether it’s money, food, shelter, opportunity, that’s VUCA. Maybe what’s new is that those of us who ARE among the most fortunate now have to think way beyond our own wealth or our quarterly results or the interests of our shareholders. Maybe – as individuals and organizations – we need to stop simply, y’know, extracting from the world and instead spend some time thinking about how to make things sustainably better? Maybe the fact that we may need to thing bigger, longer-term, and with more empathy FEELS like things have become VUCA, but what if…stay with me here…what if it’s just no longer possible to entirely outsource VUCA to those more vulnerable? Political instability? Climate change? Economic uncertainty? Your organization has roles to play – big or small – to de-VUCA-fy the lives of those you’re able to affect. Think about it. I’m pretty sure you instinctively already know it’s true.

Boards often don't look for the best directors, and so the people who could be the best directors don't ever consider being on boards. A vicious circle!

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Since I started studying corporate governance back in 2001, a lot has changed in the way that most boards approach the identification and recruitment of new board members. Some of this has been driven by new regulations requiring greater independence and specific expertise. In theory, that should have really affected the composition of boards, especially those of listed companies that are most directly impacted by the new rules. But aside from some cosmetic changes on the independence front, the complexion (literally and metaphorically) of boards really didn’t change at all – for more about how I feel about director independence scroll all the way back to episode 6. Since then, most boards I interact with use some kind of skills matrix to illustrate the capabilities that they’re looking for and measure the actual board’s aptitude against. There’s nothing wrong with that, but my experience that that boards typically use skills matrices to reinforce the status quo. To be fair, there are a LOT of amazing corporate directors out there, but they’re often amazing in addition to (or even despite) their skills and professional experience rather than because of it. And the fact is that boards continue to emphasize measurable professional backgrounds instead of asking “what would a truly excellent new director look like? What would they bring to the table?” This leads to two problems. The obvious first one is that most boards fail to even look for excellent directors in the first place. The second one is equally, or maybe more important. People who could be excellent directors don’t even know that they could be, because they assume – correctly – that they’re not what boards are looking for.

A friend recently suggested to me that literally everyone in an organization is part of corporate governance, and I *love* the idea!

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I had an amazing conversation with a young person who, despite his age, is a legitimately experienced corporate director and a bit of a provocateur. You can already imagine how much I like him. If you’re interested in learning more, head over to the latest episode of the Sound-Up Governance podcast at www.groundupgovernance.com. Anyway, his name is Andrew Escobar and one of the truth bombs he dropped was something I wholeheartedly believe but had never really thought about before: Everyone in an organization plays a role in corporate governance. Every single person. Thinking of corporate governance as something that begins and ends in the boardroom clearly doesn’t align with my concept of corporate governance, so that’s not new. But this is taking it further. Imagine a massive company with countless employees in hugely varied roles, some of whom probably don’t even know that there IS a board, let alone what a board does or what corporate governance is. Still, those people have positions in the organization only because of a decision that was made at some place in the hierarchy, so we’re already talking about corporate governance. But it goes the other way, too. The experiences of those employees, and their performance, their productivity, no matter how seemingly insignificant, DOES have influence over decisions that happen throughout the organization, and possibly all the way to the top. Not to mention, those employees make decisions themselves. Think about that: EVERY SINGLE PERSON IN AN ORGANIZATION is “doing” corporate governance, whether they know it or not. It’s so cool.

I'm only just now getting to Adam Grant's Think Again and omg its such a useful governance book.

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OK so all you governance nerds out there are probably *way* ahead of me on this one, but I’m only just now getting to Adam Grant’s Think Again: The Power of Knowing What You Don’t Know. It’s an amazing synthesis of all the great work out there on why thinking is only really great when accompanied by RE-thinking. All presented through engaging storytelling and accessible explanations of complex stuff. In short, it explains how important it is for us to change our minds, frequently, because it means that we’re learning. Finding out you’re wrong about something important to you can feel painful – especially if you were wrong about something that you feel was part of your identity – but ultimately it’s unequivocally GOOD to find out you’re wrong because you now have a chance to be right, or at least more right than you were before. It took about 10 years of studying corporate governance before I started to see the pattern that a willingness to change one’s mind was one of the most common traits that corporate directors valued in their peers. Boards are frequently expected to collectively digest and understand massive amounts of information into clear decisions within infuriating time constraints. One way to manage that is to enter the room with clear and stubborn preconceptions and confidently follow a path without questioning. Another way is to practice letting go of our preconceptions when we get new information, and accept that being wrong isn’t a personal flaw, but not wanting to be right might just cause us to walk off the cliff at the end of our preconceived path.

Rule nerds are the best. They make me feel like I have a superpower, and you should take really good care of the rule nerds in your organization.

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I frequently have the privilege of working with groups of incredibly smart and experienced people on interesting projects, engaging conversations, and fun exercises. The luckiest organizations, in my opinion, have at least one person in the room who is obsessed with the rules: knowing what they are, understanding what they mean, knowing when we’re close to breaking them, anxious when we do in fact break them, and hoping others will take the rules as seriously as they do. Let’s call them rule nerds. I’m admittedly at the other end of the spectrum. I have a great deal of respect for the rules, but mostly ignore them and trust the others around me to help to keep me in line. You can already see why being rule nerds kinda feels like having a superpower. I can go around being creative, or pushing boundaries, or being generally annoying and aimless, and if there’s a rule nerd in the room they will warn me way before I do anything destructive. It’s especially great if the rule nerds also like to have fun. Sometimes, OK frequently, I will ask boards to do exercises with rules that are obnoxiously ambiguous – where part of the exercise is to creatively interpret the rules in a way that will lead to the best or most useful result for your team. The fun-loving rule nerds help their teams to make sure they’re actually, you know, doing the right work, but then also get a kick out of taking ambiguity and making it more precise, more practical, and ultimately creating order out of chaos. Take good care of the rule nerds in your life. If you’re like me, they might just keep you from stepping on some rakes.