One Minute Governance

A few months ago I promised/threatened to write a book. My thinking has changed a bit, but I still believe there are a lot of issues in corporate governance that we can solve together. More news very soon!

Background music is Of the Stars by KC Roberts & the Live Revolution

SCRIPT

Back in January I released an episode of OMG – episode 99 – called “I think I might write a book.” All the reasons I thought about writing a book are just as relevant now, and I haven’t conclusively banished writing a book from my to-do list, but I’m not as excited about writing a book as I was. Partly because I feel like the time it takes to get from idea to actual physical book is so long that I probably won’t even agree with myself anymore by the time the book is out. But there are still problems I’d like to try to HELP to solve. Corporate governance is still, in my opinion, deeply misunderstood – even by the people who run the “corporate governance machine” so to speak. Few people, even those who are rightfully considered experts, can articulate what good governance is in a way that anyone could understand and take steps to implement. Maybe most importantly, for anyone who wants to play a role in corporate governance in the future, there’s just about nowhere to go that will empower you to walk into a role as an executive or corporate director for the first time with the confidence that you’ve “got this.” Because everyone seems to have a different understanding of what “this” really is, and very few are taking steps to make it easier to grasp, let alone taking steps to encourage or enable new and better people to enter the space tomorrow than those who were there yesterday. So instead of a book, I’m trying something else. Something a bit less conventional. Two episodes from now, I’ll tell you everything. For now, to the extent that you see the same problems as I do, get in touch with me with some words of encouragement. I’ll really appreciate the support.

Ever feel like you're "stuck" with the wrong people on your board? Things are *probably* aren't as bad as they seem.

Background Music is Of the Stars by KC Roberts & the Live Revolution.

SCRIPT

OK so the title of this episode might not seem correct to some of you, but it’s *technically* correct, which is the best kind of correct. The truth is, there are no circumstances in which you are unconditionally entitled to a seat on a board. Even in my one-owner, zero-employees corporation where I’m the only board member, I’m only entitled to a board seat as long as I fulfill any legal and regulatory duties. But let’s talk about some more useful situations that go beyond simple legal compliance. I meet a lot of organizations where the board and/or management seem resigned to the fact that they have to live with one or more bad board members, or with a board that, as a whole, just…doesn’t have the right people. In most corporate models, there are specific democratic processes for the election and removal of directors, but using democratic constraints as an excuse for living with bad directors is just taking a complex human issue and boiling it down to compliance again. A seat on a board is a privilege, not a right. There’s no specific person who is entitled to a seat if they are not willing, prepared, and committed to contribute to effective decision-making in the ways we’ve discussed already this season. Yes, your organization might have board seats set aside for representatives of an ownership or stakeholder group – and you should be working with those groups to make sure their representatives are, y’know, good directors! Or maybe you have an ineffective director that has several years left in their term. How about helping them to improve instead of just waiting for their time to come. And if improvement doesn’t come? Thank them for their service, and start the conversation about it maybe being time to make space for the next, more effective director. Directors are, or at least should be, more than seat fillers. They are the gatekeepers of good governance.

When it comes to good governance, the conditions for great decision-making will never be perfect. But the journey is what counts.

Background music is Of the Stars by KC Roberts & the Live Revolution

SCRIPT

One thing I noticed when I first read chapter 1 of the Heath Brothers’ Decisive is that I fall victim to the four villains of decision making basically every time I make any decision. I bet you felt the same. And it gets even worse when you’re trying to make decisions as a group. Everyone brings their own “flavour” of the four villains to the table, making it super difficult to manage everything perfectly. Decisive offers some cool ideas, which you should review and test out yourself. I want to suggest that the status quo of boards of directors specifically, and corporate governance in general, create basically the perfect conditions for the four villains to thrive: time scarcity + information asymmetry + expertise asymmetry + rule-driven norms and so on, so on, so on. So here’s the thing: if you buy into my definition of good governance even a little bit, the definition being actively creating conditions that maximize the likelihood that effective decisions will get made, then the status quo of boards – from the rules of order, to the structure of meetings, to the layout of the boardroom to the flow of conversations – all of it has the significant potential to work AGAINST good governance. So, to the extent that you see a bit of the four villains of decision-making in yourself, your organization, and your boardroom…what you’re seeing is NORMAL, but it’s also bad governance. The next time you craft an agenda, prepare a board presentation, frame a key decision, kick off a conversation, read your pre-read materials, etc. Keep the four villains in mind and ask how you can set yourself, your board, your management team up to create the conditions for effective decisions. It won’t be perfect, but the effort itself is, in my opinion, the key to good governance.

Overconfidence is my "favourite" of the Heath Brothers' four villains of decision making. It's simultaneously super obnoxious and super universal. And boardrooms provide the perfect environment for overconfidence to thrive and get in the way of your decisions.

Background music is Of the Stars by KC Roberts & the Live Revolution

ADDITIONAL RESOURCES:

Freakonomics Radio Season 9, Episode 46

Gender Differences in Overconfidence and Decision-Making in High-Stakes Competitions

Gender Differences in Performance Predictions: Evidence from the Cognitive Reflection Test

The Power of Precise Predictions

SCRIPT

Maybe “favourite” isn’t the perfect word here, but I’ll say it anyway: overconfidence is my favourite of the Heath Brothers’ four villains of decision-making. It’s so complex, insidious, unconscious, and nearly ubiquitous. Overconfidence even FEELS good, so…well, it’s pretty hard to steer completely around it in group decision environments like boardrooms. Take some time to scan the academic literature on overconfidence, including awesome recent stuff by Philip Tetlock from University of Pennsylvania, and the amazing book “Range” by David Epstein. Basically, it turns out that the more expertise you have in a specific field, the worse you get at making predictions about that field…and the more confident are at making those bad predictions. Another messed up thing about overconfidence? It’s deeply gendered. Men, unsurprisingly, fall victim to overconfidence far more readily than women – hence the tendency to “mansplain.” Women, on the other hand, are more likely to be victims of UNDERconfidence, which as you can imagine also impedes effective decision-making. I’ve put some interesting links in the episode description for you to check out if you want to see more of the research in this area. People usually become corporate directors specifically because they have deep expertise in some area or another. So, as experts, how can we be useful in the boardroom without inviting the villains into the mix? My best advice is to lean on your expertise to ask big questions, tell cool stories, start interesting conversations…instead of just telling people what you think the future holds. No matter how confident you feel.

Boardrooms might seem like emotionless environments, but they *really* aren't. Even though we can't stop ourselves from feeling emotions, we can definitely acknowledge and manage the influence our emotions have on our decisions.

In this episode, I refer to a recent episode of the No Stupid Questions podcast. Listen to it here: 

Background music is Of the Stars by KC Roberts & the Live Revolution

SCRIPT

Another of the Heath Brothers’ villains of decision-making is short-term emotion. Many of us think of corporate decisions, especially those that happen in boardrooms, as being predictable, regulated, structured, even somber. In my experience, that tends to be a pretty accurate description, but that absolutely does not mean that the process is devoid of emotion. Is embarrassment an emotion? According to the recent episode 109 of the awesome podcast “No Stupid Questions,” it definitely is. I talk to *a lot* of corporate directors…like a lot a lot…and there are as many as not who’ve confided in me that they’ve found themselves at one point or another unwilling to ask a question or raise a concern because they were for all intents and purposes EMBARRASSED. To admit they don’t know, to disagree with a respected colleague, to push against the status quo, or whatever. And if someone – likely several someones – in your boardroom are too embarrassed to express themselves, then that somber boardroom vibe is clearly working at cross purposes to good governance. And that’s not even addressing the times that directors might spontaneously feel anger, frustration, pride, elation…all in ways that could negatively impact their ability to be impartial participants in making decisions. In your homework, the Heath Brothers offer some good advice here. I think I would boil my own advice down to something pretty simple: sllllooowwww doowwwwnnn. Good decisions take time. Most decisions aren’t emergencies, and if they are, you’re even more likely to get tripped up by short-term emotion!

Next up on the list of the "villains" of decision-making is narrow framing. It's basically what we do to make decisions look and feel simpler than they are. And it's a major problem!

Background music is Of the Stars by KC Roberts & the Live Revolution

SCRIPT:

Another one of the Heath Brothers’ villains of decision making is what they call “narrow framing.” Here’s my take. I always felt like the expression “don’t bring me problems; bring me solutions” was just about the stupidest thing a leader could say. First off, isn’t it a leader’s job to help to, y’know…lead people through solutions to difficult problems? Maybe more importantly, it feels like an attempt to force people to expedite a decision. What’s the easiest and most defensible way to expedite a decision? Probably to artificially frame it as a go/no-go scenario. “Are we gonna do X or not do X?” Or maybe if we’re lucky it’s a slightly more creative “are we gonna do X, or are we gonna do Y?” And in my experience, the conditions for decision-making in boardrooms are so bad that to a senior manager the idea of bringing multiple options to the board – as opposed to a done-deal ready for approval – is like a living nightmare. But what’s the point of a board? For my take, listen back to episodes 3 and 51. I don’t think any of us would answer that the point of a board is just to be an approving machine. In fact, even when managers bring go/no-go decisions to the board, they’re usually only doing it because it’s really hard to figure out how to engage the board in an efficient AND useful discussion about multiple paths or options. But the fact is that virtually every decision truly does have multiple paths or options beyond “yes” and “no”. The best way to start building better habits is to just rip off the band-aid and TRY bringing a decision to the board earlier, before management has digested it into a go/no-go binary. Give them a chance to help you narrow it down and provide varied perspectives. Whatever part of the discussion goes well, say out loud that it was good, and try to recreate those conditions again in the future. Whatever goes poorly, say THAT out loud and try to avoid those conditions in the future. Whatever you do, don’t just relapse back into your old, narrow framing habits.

By now, we've all heard about confirmation bias, and if you did your homework from the last episode, it'll be really clear to you how it gets in the way of effective decision-making. So, what are we supposed to do about it?

Background music is Of the Stars by KC Roberts & the Live Revolution

SCRIPT:

Now that you’ve read chapter 1 of Decisive by the Heath Brothers, let’s take some time to talk through what they call the four villains of decision making, starting with confirmation bias. Since you’re interested in corporate governance, chances are this isn’t the first time you’ve heard or read about confirmation bias. The unconscious compulsion to embrace information that supports what you already believe to be true, and to reject information that contradicts what you already believe to be true. Let’s be super, extra, ultra clear here: YOU, no matter who you are or what your perception of yourself might be, DO THOSE THINGS! *YOU* embrace information that supports what you already believe – regardless of whether you are correct – while rejecting information that contradicts what you believe. You aren’t broken. It’s just how people work. And you can already picture how this messes things up when groups – like boards of directors, for example – are trying to make decisions on short timelines and with incomplete information. Add on the fact that even that incomplete information sometimes gets delivered to boards in vast quantities – maybe hundreds and hundreds of pages. How else can we expect directors to synthesize all of it in the process of preparing for a meeting or decision? Confirmation bias gives us a shortcut – pay attention only to the stuff that tells us we’re probably right. If you want advice on managing confirmation bias beyond what you learned in Decisive, a google rabbit hole awaits you. For now, try just re-framing board meetings as an opportunity to try to prove yourself WRONG. It’s way more fun than loudly trying to convince people you’re right, and you’re WAY more likely to learn something from your peers.

Since we've established good governance as actively creating conditions to maximize the likelihood that effective decisions will get made, let's start exploring what it means to make good decisions. Over the next five episodes, we'll use the first chapter of Decisive by the Heath Brothers as our textbook. Download a free copy here: https://heathbrothers.com/member-content/decisive-chapter-1/

As always, the background music is Of the Stars by KC Roberts & the Live Revolution.

SCRIPT:

I’ve spent the last 114 episodes talking about corporate governance as the way decisions get made in a corporation, and the first chunk of this season talking about good governance as creating the conditions for effective decisions to get made, but what does that even mean? Well, this is one question where we – meaning YOU – have access a rich trove of scientific research and real-world evidence, so you won’t have to just trust me and OMG to get you there. And lots of organizations apply what we’ve learned from all those insights to empower MANAGERS to make good decisions. Think of all the cool ways that meetings have changed over the years, or workspaces, or onboarding, or offsites. The thing is, no matter how well these new approaches work, they basically never find their way into boardrooms. Board processes, structures, rules of order, agendas, boardroom layouts…they all just basically stay the same, or close enough to the same that the impact on decisions is essentially nothing. And you know what? The moment you start paying attention, I bet you’ll basically see and feel boardroom decisions suffering as a result. Over the next few episodes, we’ll go over a few important elements of good – and bad – decision conditions. Our textbook, so to speak, will be the first chapter of the book Decisive by Chip and Dan Heath. Your homework is to read it before the next episode comes out in a few days. You can download a free copy by following the link in the episode description. I’ll also put some links to some other cool articles on decision making in case you’re interested. Have fun!

Now that we've established some definitions and busted some myths, who's actually responsible for "doing" good governance?

Background music is Of the Stars by KC Roberts & the Live Revolution

SCRIPT:

At this point, I think we’ve done enough mythbusting and detective work that we’ve got a reasonably good idea of what good corporate governance is and isn’t. And even if you’re not convinced by my perspectives, you at least have a good sense of where I stand. So, if we stick with the conditions we’ve set so far in this season it leaves us with the important question of who is responsible for good governance. For establishing it. For measuring and monitoring it. For redefining it when needed. For being curious about new ways to achieve it. I believe the questions and answers apply at two different scales. First, inside an organization – your organization, maybe. The way your board and your managers create the conditions to integrate and synthesize the interests of your stakeholders, your owners, your employees, and more, so you can generate decisions that generate value and minimize harm, all guided by a clarity of purpose. But there is also a system-wide responsibility influenced, for sure, by organizations, and also by governments, regulators, academics, consultants, customers, communities, and more. An easy example would be that regulators can – and sometimes do – create conditions for listed companies that make it more difficult for them to have good governance – requiring them to spend time on box-ticking that could be spent on value-added decision-making. All in the name of systemic risk management. Not that that’s an inherently bad thing. It’s just a clear example of the impact – positive or negative – that outsiders can have on the governance effectiveness of corporations. My hope is that the system and the organizations within it can establish greater clarity and alignment around what good governance is in the first place, so that we’re all pushing in the same general direction.

This episode was originally called "ED&I is not the same as good governance," but now I'm not so sure...

Background music is Of the Stars by KC Roberts & the Live Revolution

SCRIPT:

I’ve talked a lot about Equity, Diversity & Inclusion on OMG before – have a listen to episodes 19 through 21 and 59 through 62 if you want a refresher. I believe *super* strongly that diversity of perspectives, lived experience, personalities, cultures, expertise, etc. etc. is a critical factor for making good decisions. Without it, we fail to challenge each other, we miss important information, we fail to consider essential risks and opportunities. And inclusion is the superpower that activates diversity. I like to think of inclusion as the act of creating conditions for everyone in the room to engage, participate, and thrive. It’s super difficult, and it’s probably impossible to optimize inclusion for everyone at the same time all the time, but the journey itself is central to activating diversity. Equity can be a bit more abstract, but I think of it as the result of doing D and I really well, where everyone has equal access to authority, power, resources, and influence. Well, it’s time for me to confess something: I started writing this episode’s script with the title “ED&I is not the same as good governance” and I think I may be kinda sorta proving myself wrong. If good corporate governance is the act of creating conditions in an organization for effective decisions to happen. And if ED&I is getting a broad range of perspectives to the table, making sure everyone participating has the opportunity to engage, participate, and thrive, and ensuring equal influence in the process…I dunno. Maybe it’s not a *perfect* description of ideal decision-making conditions, but it’s pretty frickin close!