One Minute Governance

Check out Matt's tour schedule here: https://ffm.live/MattinOz

TRANSCRIPT:

Hi everyone. Matt Fullbrook here. This is a quick bonus episode of OMG to spread the word to everyone who follows the show that I’m going to be in Australia and New Zealand next month on a bit of a roadshow. Over the course of the month, I have stops in Brisbane, Auckland, Melbourne and Sydney (in that order) with events tailored for everyone from students to board chairs to CEOs to generally curious nerds. There are breakfast events, cocktail events and casual dinners. If you’re going to be in any of those places in October, or if you know anyone who is, check out the link in the show notes for an evolving list of dates, including links to get tickets or submit RSVPs. If you’re hearing this, I assume it means you’re a fan of the show, and if you like OMG you’ll really enjoy all these sessions. Thanks for checking it out and spreading the word. Hope to see you down under.

This season, every episode of OMG focuses on a question that directors really need to answer.

OMG is written, produced, narrated and scored by Matt Fullbrook.

TRANSCRIPT:

Question #24: What are the most painful elements of our meetings? The work of a board is, well, work. And for almost all of us, work sometimes sucks. The fact that work sometimes sucks is not an indication that something is wrong. It’s just often a fact of life. As long as it also doesn’t suck – preferably most of the time. So, with that out of the way, board meetings are sometimes painful. Different parts of board meetings might be painful to different participants. For example, what’s painful for the board is often less painful for management and vice versa. But in almost all of the cases I’ve encountered, there are parts of board meetings that are painful for everyone. Maybe it’s the times when we pull something out of consent agenda. Maybe it’s the presentations by that one executive who’s just kinda boring. Maybe it’s every time that jerk – let’s call him Matt – opens his mouth and goes on and on about some nonsense. Maybe it’s the sheer quantity and weight of the compliance burden we face. Again, I’m not saying that the pain is necessarily bad, and I’m certainly not trying to imply that I know how to relieve all your pain. But if pain relief is to be found, we need to start by naming it.

This season, every episode of OMG focuses on a question that directors really need to answer.

OMG is written, produced, narrated and scored by Matt Fullbrook.

TRANSCRIPT:

Question #23: What might I do to make things a bit better? Conventional definitions of corporate governance frame it as something that exists: a system of processes and structures that promote transparency and accountability or some other such nonsense. Nonsense because it leaves us with the impression that corporate governance isn’t something that actual people actually do. There’s a similar problem with thinking of corporate governance only as a thing that belongs to the board, as a whole. As in, nobody other than the whole board collectively might have any impact on corporate governance. A weird implication of that framing is that it obscures the fact that individual directors matter. Personally, I believe that an individual director or senior executive can cause good governance to happen. This won’t surprise anyone who’s followed this show for a long time, but when a single person is intentional about the conditions that affect our decisions, that person is literally doing good governance. Just them, on their own, doing good governance. So, what might *you* do to make things a bit better?

This season, every episode of OMG focuses on a question that directors really need to answer.

OMG is written, produced, narrated and scored by Matt Fullbrook.

TRANSCRIPT:

Question #22: Is benchmarking a sensible way to set CEO pay? If you haven’t listened to the previous episode about knowing whether your CEO is doing an awesome job or not, you might want to take a sec and do that. A very large proportion of organizations I meet, and probably 99% of listed companies in the Western world all set their CEO’s compensation amount and structure in large part based on comparisons to their peers, also known as “benchmarking”. This makes sense if you believe that the most important part of CEO compensation is to avoid having your CEO quit and leave for another organization that pays better. The thing is, we have no idea how low a CEO’s pay would have to go before they might quit. And if we combine that with the stuff from the previous episode about how hard it is to know whether a CEO is any good or not, then we’re left with an important question. The one that’s the subject of today’s episode. One of the main problems with basing CEO pay on benchmarking is that it causes CEO pay to increase rapidly from a starting point that was already unjustifiably high. But even if we don’t care too much about the amount, benchmarking also lets boards off the hook of thinking too hard about what truly effective compensation really looks like. I promise you the answer to that question is not “effective compensation for our CEO looks like whatever everyone else is doing.” So, is benchmarking really a sensible way to set CEO pay?

This season, every episode of OMG focuses on a question that directors really need to answer.

OMG is written, produced, narrated and scored by Matt Fullbrook.

TRANSCRIPT:

Question #21: How do we really know if our CEO is doing an awesome job? Did you know that there’s no evidence that the market for CEOs is efficient? An efficient market is one where supply and demand are basically equal. When a job market is efficient it means that both sides of a potential transaction have lots of information about each other and they are able to confidently assess the talent of the candidates, the appropriateness of the compensation, etc. We don’t have any of that for CEOs. There’s a great summary of this in Larcker and Tayan’s amazing paper Seven Gaping Holes in our Knowledge of Corporate Governance, which I’ve referenced a few times on this show. Anyway, since we have no objective way of knowing whether our CEO is the most qualified person for the job, or whether we’re paying them appropriately, it raises an even more urgent question of how good they might be at their job. You can’t just say, “well the company is really profitable and shareholders are happy, therefore the CEO must be amazing.” Why? Partly because to confidently prove that the CEO is the cause of that success would require you to get rid of the CEO and see what happens. Or to have a multiverse with an infinite number of different CEOs so you can compare them against each other. And how many stories can we think of where a CEO had great performance at the time, but once they were gone we realized that they’d done lots of damage in the process. But answering this question should start, in my opinion, with an open-ended and open-minded conversation about what doing an awesome job really means. In terms of actions AND results.

This season, every episode of OMG focuses on a question that directors really need to answer.

OMG is written, produced, narrated and scored by Matt Fullbrook.

TRANSCRIPT:

Question #20:  What *really* motivates our CEO? If you have the patience to follow me on LinkedIn, you may have noticed me complaining loudly about executive compensation a couple of times in the past year. I think it’s totally broken, and nobody seems to have any interest in fixing it. The fact is, we have no idea what a CEO is actually worth to a firm and we have no idea how different compensation approaches and amounts cause CEOs to behave. And in the meantime, the obsession with benchmarking CEO pay against other CEOs is designed specifically to cause pay to go up forever, thus exacerbating the wealth gap…which we actually DO know is provably bad for everybody. And part of the reason why I find this so infuriating is that the core of the solution to these problems starts with a really simple question, which happens to be the subject of today’s episode. Let’s imagine that it turns out that our CEO likes money. Likes it A LOT! And that’s convenient, because we happen to be paying them in money and not, say, salamanders. So that’s great. Except what if there’s something that might motivate our CEO even more than money (or salamanders). What if it turns out that if we gave them Friday afternoons off they would jump out of bed every morning and work 10x harder, even if we paid them half as much money? Or what if they would literally give up EVERYTHING to dance the Macarena with Taylor Swift? We could craft some huge and ambitious 5-year operational goals and spend that time convincing Tay Tay to get to work on jumping and turning 90 degrees to her left. People are complicated, and so are their interests and motivations. What could you learn by exploring this question?

This season, every episode of OMG focuses on a question that directors really need to answer.

OMG is written, produced, narrated and scored by Matt Fullbrook.

TRANSCRIPT:

Question #19: How, specifically, do our board evaluations make us better? I’ve had the amazing privilege of working with many, many boards on board evaluations over the years. I would guess that the first one I ever worked on was 20-ish years ago and the most recent one was within the past couple of months. Most board evaluations take tonnes of time and money to conduct. They involve some combination of interviews and/or surveys and analysis and reporting and facilitation. If you’re really unlucky as a board, your board evaluation tells you that everything is perfect. It might feel good, but deep down you know you might be pretty good, but definitely not perfect. But even the lucky ones basically never get their money’s worth. Let me put it this way: a great board evaluation should make give you fuel to be tangibly better tomorrow than you were yesterday. Right? Otherwise, what’s the point? Hence today’s question: how do our evaluations make us better? When exploring this question, try to have high standards. As in, try not to settle for “well, we added one more item to consent agenda and that saved us 46 seconds at the last meeting!” And don’t confuse NEW behaviour with BETTER behaviour. Just because something might have changed doesn’t mean it has improved. My hope is that exploring this question will increase your expectations of your board evaluations overall, and of the consultants you hire to conduct them.

This season, every episode of OMG focuses on a question that directors really need to answer.

OMG is written, produced, narrated and scored by Matt Fullbrook.

TRANSCRIPT

Question #18: How do we hope to spend our time? Today and in general. Time scarcity is probably the thing that makes board work most complicated. I guess that’s kind of like saying that time scarcity is what makes life most complicated. Still, my point stands. One of the most remarkable things about my work with boards over the years is how similarly different boards tend to spend their time. This is especially true considering that boards really have tonnes of control over what they do and how they do it. Boards could choose to spend an entire year composing a rock opera about a tarantula and an aardvark who become best friends and travel the world, as long as they do the bare minimum of compliance. It wouldn’t be a particularly smart or savvy way to approach their work, but still…it’s up to them. And that’s really my point: if boards can basically do whatever they want with their time, why do they mostly all do the same things? And funny enough, the pile of standard board stuff seems to expand to fill exactly as much time as we have allocated for meetings – or maybe a bit more, but never less. This means boards have a convenient excuse not to try anything new: we don’t have time! But what if we permitted ourselves one conversation – maybe during a strategic retreat so as not to intrude on precious board meeting time – where we pretended that none of what we tend to spend our time on were mandatory. What WOULD we spend our time on. What topics, what conversations, what presentations, what meals and breaks, how much time on which things? Maybe we could take one tiny step toward that dream at every meeting.

This season, every episode of OMG focuses on a question that directors really need to answer.

OMG is written, produced, narrated and scored by Matt Fullbrook.

TRANSCRIPT

Question #17: What information do we hope to receive? Building on the last episode about what conversations we hope to have, it’s hard to have a useful conversation without useful information. Now think about all the things that go into making information useful. When it comes to boards, we put a lot of energy into making sure the information we get is comprehensive, relevant and clear. All of that helps a lot. But the challenge of informing a board is obviously waaay more complicated than that. You’ve got a group of people who are guaranteed to have different personalities, preferences and lifestyles. In other words, if they could all design their own ideal pre-reads, each of them would want something different. Now layer on top of that the fact that most boards are made up of people with different skills and technical expertise, so they’d all want and need different levels of explanation and complexity or simplicity for different topics. Given all that, it’s probably impossible to hit the bullseye. But information doesn’t have to come as pre-READS, right? Sometimes using various media to convey information is like a hack to unlock the needs of different people in the room. It’s why most books now come in physical, digital and audio formats. And if you add video, images and illustrations, tables and graphs to the mix. Heck, I bet someone out there could even imagine how to inform boards through taste and smell. So ask yourselves, what information do we hope to receive, and when and how much and what medium, and every other question that might help.

This season, every episode of OMG focuses on a question that directors really need to answer.

OMG is written, produced, narrated and scored by Matt Fullbrook.

TRANSCRIPT

Question #16: What conversations do we hope to have at the next board meeting? We tend to have really careful and smart plans for board meetings. Even organizations that lean more to the informal or experimental still usually have predictable and well-structured board meeting agendas and objectives. How well we adhere to the plans is another story. It’s hard to predict how long each presentation and conversation will *actually* take. And it’s way more common for things to take longer than expected rather than going home an hour early. Either way, we plan topics, we assign speakers, we might even clearly identify certain things as being information-only, or topics for discussion (but not decision), or decision items or educational or whatever. All that clarity helps to keep us focused and informed and useful. But it misses a potentially important element: what exactly do we want to talk about? How do we want that discussion to feel and flow? Whose perspectives do we really need to take into consideration? How do we plan to ensure that we receive those perspectives? When do we want the conversation to happen, and – most importantly – what’s the actual point? As in, when the conversation is over, what do we hope we will have accomplished? After all, if this is well-defined then it becomes way easier to, for example, put a time limit on it and expect to stick to that time limit. More importantly, it increases the probability that the meeting will be useful to everyone involved.