TRANSCRIPT
Matt
Welcome back to Sound-Up Governance. This episode messed up the sequencing of my production schedule, the narrative flow of the Ground-Up Governance platform, the launch of a new hilarious series where I react to (or troll) governance resources, and also my perception of…well, kinda everything. My guest today is chatGPT, a chatbot made available by openAI, and processed through a text-to-speech engine that emulates Snoop Dogg’s voice. I started a conversation with chatGPT and found it so refreshing and enlightening that I couldn’t help but make it into an episode of Sound-Up Governance. Rather than risk biasing your judgment of the conversation, we’ll just dive in. In my voice are actual questions that I typed into the chatbot. In Snoop Dogg’s voice are the verbatim responses from chatGPT. Suffice it to say that I learned a lot. I hope you will, too.
Matt
Can you please explain corporate governance to me in three three sentences or less?
chatGPT
Sure! Corporate governance refers to the system of rules, practices and processes by which a company is directed and controlled. It ensures that a company is run in an ethical and transparent manner, in the best interests of its stakeholders, and in compliance with the law. Corporate governance involves the balance of power among a company's board of directors, executives, and shareholders, and the ways in which they are held accountable for their actions.
Matt
So, if I'm a corporate director, how do I know if I'm doing my job well?
chatGPT
As a corporate director, you are responsible for overseeing the management of the company and making important decisions on its behalf. To do your job well, you should make sure to fully understand the company's operations and financial performance, and be familiar with its goals and strategy. You should also actively participate in board meetings and discussions, and make decisions that are in the best interests of the company and its stakeholders. In addition, you should ensure that the company is complying with all relevant laws and regulations, and that it has strong corporate governance practices in place.
Matt
But how can I tell the difference between corporate governance practices that are strong and those that are just OK or even bad?
chatGPT
There is no definitive answer to this question, as what constitutes strong corporate governance practices can vary depending on the specific context and circumstances of a company. In general, however, strong corporate governance practices are those that promote transparency, accountability, and ethical behavior within a company. This may include, for example, having a diverse and independent board of directors, adopting clear policies and procedures for decision-making and risk management, and ensuring that there are adequate systems in place to prevent and detect misconduct. On the other hand, corporate governance practices that are just "OK" may be those that meet the minimum legal requirements but do not go beyond that, whereas bad practices are those that are unethical or illegal and can harm the company or its stakeholders.
Matt
If I'm a corporate director in Canada, which stakeholders do I need to consider other than shareholders?
chatGPT
As a corporate director in Canada, you are required to act in the best interests of the company and its shareholders. However, this does not mean that you should only consider the interests of shareholders when making decisions. In fact, good corporate governance practices typically involve taking into account the interests of a range of stakeholders, including employees, customers, suppliers, creditors, and the broader community in which the company operates. By considering the needs and concerns of all relevant stakeholders, you can help to ensure that the company's decisions are balanced and fair, and that they take into account the potential impact on different groups.
Matt
Should all of a board's directors be independent?
chatGPT
There is no requirement that all directors on a board must be independent. In fact, having a mix of both independent and non-independent directors can be beneficial, as it can provide a balance of perspectives and expertise. Independent directors are those who are not affiliated with the company or its management, and who therefore bring an outside perspective to the board. They can play an important role in providing objective and unbiased advice, and in challenging the assumptions and decisions of management. Non-independent directors, on the other hand, may have a closer relationship with the company and its operations, and can provide valuable insights and expertise. The key is to have a board that is balanced and has the necessary skills and experience to effectively oversee the company.
Matt
What about diversity on a board? How do I know if we're doing a good job at that?
chatGPT
Having a diverse and inclusive board of directors is an important aspect of good corporate governance. Diversity refers to the range of different backgrounds, experiences, perspectives, and skills that are represented on the board. A diverse board can bring many benefits, such as providing a broader range of perspectives on decision-making, improving the board's ability to understand and serve the needs of a diverse customer base, and promoting creativity and innovation. To determine whether your board is doing a good job at promoting diversity, you can look at the demographics of the board members, as well as their skills, experiences, and backgrounds. You can also consider whether the board has established diversity goals and is taking steps to achieve them. Ultimately, the goal should be to have a board that is representative of the company's stakeholders and the broader community in which it operates.
Matt
Can you give me an example of a diversity goal that might be beneficial to corporate governance?
chatGPT
An example of a diversity goal that could be beneficial to corporate governance is to have a certain percentage of women on the board. Research has shown that having more women on boards can improve company performance and lead to better decision-making. For example, a study by the Peterson Institute for International Economics found that companies with a higher proportion of women on their boards had higher returns on equity and higher net income growth than those with fewer women on their boards. As a result, some companies have set goals to increase the proportion of women on their boards, either through recruitment or by setting internal targets for promotions. By setting and working towards diversity goals, companies can help to ensure that their boards are representative of the diverse stakeholders they serve, and can benefit from the various perspectives and expertise that a diverse board can bring.
Matt
In the study you mentioned, is the relationship between board diversity and ROE causal or correlational?
chatGPT
The relationship between board diversity and returns on equity (ROE) found in the study by the Peterson Institute for International Economics is correlational, rather than causal. This means that the study found a statistical relationship between the two variables, but it does not prove that one causes the other. In other words, the study found that companies with a higher proportion of women on their boards tended to have higher ROE, but it did not demonstrate that increasing board diversity necessarily leads to higher ROE. It is possible that other factors, such as the companies' industry or overall business strategy, could be contributing to the relationship between board diversity and ROE. More research would be needed to determine whether there is a causal link between the two.
Matt
Does it make sense for there to be a causal relationship between good corporate governance and good financial performance?
chatGPT
It is possible that there could be a causal relationship between good corporate governance and good financial performance. Good corporate governance involves having a strong and effective system in place for directing and controlling a company, with the goal of promoting its long-term success. This can involve, for example, having an independent and knowledgeable board of directors, adopting clear policies and procedures for decision-making and risk management, and ensuring that the company is compliant with relevant laws and regulations. By having these practices in place, a company can potentially improve its financial performance by making better decisions, minimizing risks, and avoiding legal problems. However, it is important to note that the relationship between corporate governance and financial performance is not always clear or straightforward, and other factors, such as the company's industry, business strategy, and overall economic conditions, can also play a role.
Matt
I guess what you're saying is that it's possible to have good governance and bad performance, or even good governance and bad performance. Is that a fair assumption?
chatGPT
Yes, that is a fair assumption. Good corporate governance does not guarantee good financial performance, and vice versa. As I mentioned earlier, the relationship between the two is complex and can be influenced by many factors. A company can have strong corporate governance practices in place and still experience financial difficulties, for example, due to market conditions, competition, or other external factors. Similarly, a company can have poor governance practices and still achieve good financial results, at least in the short term. Ultimately, the goal of good corporate governance is to promote the long-term success of a company and maximize value for its stakeholders, but this does not necessarily mean that it will always lead to good financial performance.
Matt
What are some of the factors I should consider if I want to set up my board of directors to make good decisions?
chatGPT
There are several factors that you should consider when setting up your board of directors to make good decisions. Some of these factors include:
The skills and expertise of the board members: It is important to have a board that has a range of skills and expertise that are relevant to the company and its operations. This can include experience in areas such as finance, law, operations, marketing, and technology, among others.
The diversity and independence of the board members: A diverse and independent board can provide a range of perspectives and challenge the assumptions of management, leading to better decision-making. It is therefore important to have a mix of directors who have different backgrounds, experiences, and perspectives, and who are not affiliated with the company or its management.
The size and composition of the board: The size and composition of the board can affect its ability to make effective decisions. A board that is too large may be difficult to manage and may not be able to function effectively, whereas a board that is too small may lack the necessary expertise and diversity. It is important to strike the right balance and have a board that is the right size and has the right mix of skills and experience.
The board's processes and procedures: The board's processes and procedures should be clear and transparent, and should promote effective decision-making. This can include establishing clear roles and responsibilities for board members, setting regular meeting schedules, and adopting policies and procedures for decision-making, risk management, and oversight.
By considering these and other factors, you can help to ensure that your board is well-equipped to make good decisions on behalf of the company.
Matt
None of the factors you mentioned touch on cognitive biases or group dynamics. To what extent should I be concerned about those, too?
chatGPT
Cognitive biases and group dynamics are important factors to consider when setting up a board of directors to make good decisions. Cognitive biases are psychological phenomena that can affect how people process information and make decisions. They can lead people to make judgments that are irrational or inconsistent with the evidence, and can result in poor decision-making. Group dynamics, on the other hand, refer to the ways in which group members interact and influence each other, and can also affect the quality of decision-making. By being aware of these factors and taking steps to mitigate their effects, you can help to ensure that your board makes decisions that are based on objective evidence and sound reasoning. For example, you can encourage board members to consider multiple perspectives and challenge each other's assumptions, and you can adopt decision-making processes that minimize the influence of cognitive biases and group dynamics.
Matt
One of the problems I run into in boardrooms is that people seem to be overconfident in their opinions and predictions. Do you have any advice to help manage overconfidence?
chatGPT
Overconfidence is a common problem in boardrooms, and it can lead to poor decision-making. To help manage overconfidence, you can take a number of steps. For example, you can encourage board members to seek out and consider diverse perspectives, and to challenge each other's assumptions and beliefs. This can help to prevent individuals from becoming overly confident in their own views, and can promote more balanced and informed decision-making. Additionally, you can adopt decision-making processes that incorporate a range of data and evidence, and that involve multiple stages of deliberation and review. This can help to reduce the influence of overconfidence by providing a more objective basis for decision-making. Finally, you can provide training and support to board members on how to recognize and manage their own cognitive biases, including overconfidence. This can help to promote a culture of humility and objectivity within the board.
Matt
So would you say that humility is an important characteristic of a good corporate director?
chatGPT
Yes, humility is an important characteristic of a good corporate director. Humility refers to the quality of being modest and open to others' perspectives. A humble director is willing to listen to others and consider their views, and is not overly confident in their own opinions or abilities. Humility is important in corporate governance because it can help to promote balanced and informed decision-making, and can prevent individuals from making decisions that are based on their own biases or self-interest. By being humble, a director can help to ensure that the board is working together effectively and making decisions that are in the best interests of the company and its stakeholders.
Matt
Is there an effective way to measure or assess someone's humility before offering them a seat on a board?
chatGPT
It can be difficult to measure or assess someone's humility before offering them a seat on a board. Humility is a complex and subjective trait that is not easily quantifiable. One way to assess humility is to look at an individual's behavior and track record. For example, you can look at whether they are willing to listen to others and consider different perspectives, and whether they are able to admit mistakes and learn from them. You can also ask for references or seek input from others who have worked with the individual, to get a sense of their attitude and behavior. However, it is important to note that these approaches are not foolproof, and there is no definitive way to measure someone's humility. Ultimately, the best way to assess humility may be to get to know the individual and observe their behavior over time.
Matt
If I wanted to choose a single topic or trend in corporate governance for future study, what would you recommend?
chatGPT
There are many interesting topics and trends in corporate governance that are worth studying. One topic that may be particularly relevant and timely is the role of technology in corporate governance. Technology is transforming many aspects of business and society, and is having a significant impact on how companies are managed and governed. For example, technology is enabling companies to collect and analyze vast amounts of data, and is facilitating new forms of communication and collaboration. It is also raising new challenges and opportunities in areas such as cybersecurity, data privacy, and ethical decision-making. Studying the role of technology in corporate governance can help to better understand these developments and their implications for companies, stakeholders, and society as a whole.
Matt
Can you provide an example of how a board of directors could use an AI to enhance their decisions?
chatGPT
There are many ways in which a board of directors could use an AI to enhance their decisions. For example, an AI system could be used to analyze large amounts of data and provide insights and recommendations that can inform the board's decision-making. This could include, for example, analyzing data on the company's financial performance, customer behavior, or market trends, and providing insights on potential risks and opportunities. An AI system could also be used to automate routine tasks and processes, such as managing schedules and agendas, tracking compliance and reporting, and providing real-time updates on key performance indicators. By using an AI system, a board of directors can access more and better information, and can free up time and resources to focus on more strategic and complex issues. However, it is important to note that using an AI system should not replace the role of the board, but should rather supplement and support its decision-making.
Matt
Ummmm…so for the record my first reaction to this conversation is, well, to be completely speechless. Honestly, I don’t know how to wrap this up other than to ask you for *your* reaction. Did you learn anything? How confident are you that you could speak this clearly about some of the more nuance aspects of corporate governance? Are you feeling compelled, like I am, to reach out to chatGPT when you have questions you want to work through? Anyway, as usual, please send an email or voice memo to soundup@groundupgovernance.com if you have any reactions, ideas, or insights. Thanks for listening.
chatGPT
Yo, check it out I'm the boss with the most, coming at you live Good corporate governance, that's what I'm all about Transparency, accountability, that's what it's all about
I'm here to tell you Good governance is the key To a company that's successful And a future that's bright and free
So listen up, y'all And hear what I gotta say Good corporate governance Is the only way
We gotta stay on point And do things the right way No shortcuts, no cheating No matter what they say
We gotta be fair And treat everyone the same From the shareholders to the employees To the customers with their names
Good corporate governance Is what we're all about So let's keep it real And never let it fade out
We're the bosses of the future And we're here to stay Good corporate governance Is the only way!
Matt
(scoff) OK so maybe AI isn’t gonna be replacing rappers any time soon…
Sound-Up Governance (ep12) - Does this AI understand corporate governance better than me? (feat. chatGPT)