TRANSCRIPT
Matt
Welcome back to Sound-Up Governance. Last week we ended on a cliffhanger.
Paul Smith
Okay, so given, let's let's assume that is the case, then how and what should we be educating our boards on?
Matt
That's my buddy Paul Smith from the Future Directors Institute in Australia. In the first two installments of our chat, we've talked about the nuts and bolts of governance and done a deep dive into governance education. This time we wrap up the education piece, and then convince ourselves that we're really onto something with the whole "what does good governance mean?" thing, and finally chat a bit about AI in the boardroom. The vibes are good, and the aspirations are lofty. It's always a pleasure to chat with Paul. Anyway, on to the final chunk of my conversation with Paul Smith.
Paul Smith
How and what should we be educating our boards on?
Matt
Yeah, I think that the first thing and I you know, I think you and I agree on this, and I'm pretty sure we've already talked about it. But if we haven't, I think the most important thing is...and I'm going to, I'm going to use this in the terminology of definitions again, because that's kind of where my brain's at now. But that's just, you know, that's just language. We need a shared definition of what "good" is, right? How do we know that when we came out of this conversation, or meeting or agenda item or whatever, that we did it okay?
Paul Smith
Yeah, we did good.
Matt
Yeah. We're as close to good as we can, and maybe even awesome sometimes. Right.
Paul Smith
But and that's just we made a decision in the first place. But
Matt
Well, see that that's, that's, I think part of the problem is that we kind of train boards to be yes/no machines. And as long as you understand it, and you're willing to endorse it, that means it did your job.
Paul Smith
Yeah.
Matt
And I'm kind of not there. I kind of think it's that we want boards to understand that a better set of conditions for making decisions requires them to demand multiple paths to explore. Not a recommendation. If you're if every time you're supposed to make a decision you're asking your your executive team for a recommendation, that's, that's a red flag to me. And not, I mean, sometimes, right? If the building's burning down, we're gonna die in 45 seconds, we're not going to sit here and be like, "well, what are the 10 options we've got right now?" You know, the circumstances matter. You don't need to spend a half a meeting deciding whether to approve the minutes from the last meeting.
Paul Smith
I use the example of deciding where to hold the Christmas party.
Matt
Right.
Paul Smith
Because a lot of boards ended up getting involved. that's awesome.
Matt
That's the problem. It's cool!
Paul Smith
It's easy, and it has no consequences apart from
Matt
And it's fun. Right? This is part of the problem. The thing the... give yourself time for fun. That's okay. Talk about the fun shit have a special meeting about your your Christmas party. But when you got other more important things to do, don't let the Christmas party take over.
Paul Smith
I was using this example as a as a as a proxy for the simple decisions, which really aren't your decisions?
Matt
Yeah. So I have we, I don't even know if we've explored the education thing. I believe that what what governance education misses most of the time, in my experience, is actually talking about what good governance means.
Paul Smith
What I was gonna say is beyond that is if we understand good governance, and you and I agree on this is creating the conditions for these decision effective conditions for decision making, as opposed to decision conditions for effective decision making. Then we need to be teaching boards, how to create those conditions
Matt
And to understand and this is where I suck and I learned this today. I learned this with a client today. I suck at getting ahead of that because conditions... So for those of you who know or don't know, doesn't matter refresher is my working definition of good governance right now and it changes almost every week is "the act of intentionally creating effective conditions for making decisions." So conditions is doing a lot of work there. Because it leaves the questions I get are what about purpose? What about regulations? What about whatever?
Paul Smith
These are all conditions, though, aren't they?
Matt
Yeah, and I'll always say, "but that's a condition, but that's a condition. That's a condition." People say, "Oh, okay, yeah, I get it."
Paul Smith
Yeah. So it's a secondary part of the definition is defining the conditions,
Matt
Right, or at least bucketing what's, what might fall under that. Right? So that because it's nice, and it's elegant, and it's pithy. And that's great. And whether it's catchy or not, I don't know. But you don't want something that's catchy and lacks meaning. To me internally, it's got a lot of meaning. But
Paul Smith
Well, again, if we look at, sorry to interrupt
Matt
No, you're good.
Paul Smith
But you know, if we look at some of the counter points to that very high level definition that you and I agree on. People go "well, what about processes?" It's a condition!
Matt
Yes, right. Right. Everything that's that's everything. So compliance is a condition that's regulatory compliance, or whatever,
Paul Smith
Board composition: condition.
Matt
People is a condition. Information is a condition
Paul Smith
What's not a condition? That's what we should be asking
Matt
Well, no, everything everything is, right? And this is the thing is that maybe where the most important separation is, is what are the conditions we control? And what are the ones we don't? So we don't control the law. We don't control the regulations. We don't control maybe some of the circumstances that we exist in, related to the decision we have to make. We do control everything from the big stuff, like how do we frame the question? How do we determine the cadence of the decision? To the more sort of tactical stuff like who should be in the room? And what information do we need? And so on. To the really mundane stuff like how should the room be laid out? Right? All that stuff, to me is conditions. And they impact the effectiveness of the like what we do around. That there's all decisions that we make, it's like a stratification of decisions. But I'm obsessed right now with boardroom layout. How many different? How many boardrooms have you seen that aren't people sitting around and oval or rectangle or square or horseshoe?
Paul Smith
None. And the only thing I recommend if they're doing that is they always orientate themselves differently, either through the meeting or next meeting,
Matt
Meaning sit in different seats?
Paul Smith
Yeah.
Matt
Right. So I haven't seen any different from that either. Maybe a horseshoe, I've seen a classroom style, or like auditorium style in a very large board
Paul Smith
Yeah, which is itself problematic
Matt
Well, all of its problematic, right?
Paul Smith
Before we go down the rabbit hole, this is a good one to go down. I want to come back to his conditions. Creating. You mentioned about there's a whole bunch of conditions which are outside of our control. So is it creating or controlling the conditions? The controlling the conditions you can, you are in control of
Matt
Yeah maybe you're right.
Paul Smith
It just it was just came to my mind you were talking about there's a whole bunch of conditions which are outside of a board's control. So how do you create those conditions? If they're already created, like the people side is already there. The rules are already there, the processes may not be there. Are we creating the conditions or we controlling the conditions? Is that the role of a board
Matt
You're good. So so how much of this is...
Paul Smith
At least we're getting somewhere now.
Matt
Well, how much of and I think, you know, I'm now I need to think about optimizing the conditions for myself.
Paul Smith
Oh optimizing the conditions!
Matt
Well, we can't so optimize is aspirational,
Paul Smith
Now we're getting wordplay
Matt
I like aspirational, that's great. But we'll never be optimized. 0% chance we're optimizing the conditions.
Paul Smith
Yeah.
Matt
Right? So let's get that straight. It's never going to be optimized. So I don't want the definition of good governance to be something that's not achievable.
Paul Smith
Yes.
Matt
The other thing about control, which I actually think is maybe more accurate and reflect better what I want, it makes it seem less active.
Paul Smith
Less dynamic?
Matt
Yeah maybe
Paul Smith
Yeah...meh
Matt
Part of this is a sales pitch, man, right? We're trying to I'm trying to... Because my problem is there's a vacuum. Right? The I went out into the world of stuff that's out there defining good governance, and it's all shit. All of it. And I didn't even look, do you guys have a definition of good governance on your site?
Paul Smith
Yeah, it's pretty much the same as yours, though.
Matt
Okay, good. So, but other than that, and the only reason I like it,
Paul Smith
We don't define, we define what a future director does, which, which is essentially the same as governance.
Matt
So if you go out into the world and look for definitions of good governance, and honestly, I mean this sincerely, if you find one that you like, send it to me, because I'm trying to collect stuff. Partly to make fun of it and troll it, but partly to illustrate that there's a problem. And I think that this sounds like a surface problem. It sounds like there's no substance there. There is substance
Matt
Do good governance
Paul Smith
Creating conditions rather than yeah it's essentially that but we don't we miss out the do good governance. It's creating conditions which are the good governance.
Paul Smith
It's huge. If you can't get this right, everything else that falls out below it is flawed.
Matt
And this ties back to the governance education. Because if none of it is zeroing in on an objective of achieving good governance, then it's not anything. Right? That's part of the problem is if we're just updating topics, but it's not about good governance, or we don't agree on what that is.
Paul Smith
And this is, this is where I think, for me, current governance education is flawed as it focuses on the technical knowledge.
Matt
Yeah, right.
Paul Smith
It doesn't focus on the I don't know, the human skills of thinking of decision making of in a dynamic group environment. Which others teach, but not in the governance world, unless you go out and seek it. It's even in the more advanced stuff, "teach me cybersecurity," it's knowledge, it's information, "teach me about governance," it's knowledge and information and laws. It's not how to actually put those into practice. Now, people might go, then well, then you're learning is through experience. The problem is, when you go into the boardroom, you adopt the experience of that group, you adopt the culture of that group. So how can you get a decent education on the job? When it's so potentially one dimensional and not being executed well. Because we don't have that singular, high level definition of how to do it well. Even they're doing it well could be different depending on what stage that company is in or what is what its purpose is like, what is trying to get to. Tou know, there's some startups where the purpose of the board is to help them get to exit not to help them you know.
Matt
But it's not get to exit it's get money. What do we do?
Paul Smith
Let's get the best valuation best, the best exit for the owners, which include themselves.
Matt
Still there's no difference there to me, we still need to create effective conditions for making decisions, just a different objective.
Paul Smith
Yeah. The purpose of the board is different. But the overarching "what is good?" is the same
Matt
It's the same, that's the reason you know what, honestly, that's the reason the biggest reason why I like that definition is because it applies regardless of circumstance.
Paul Smith
Every single time I've tried to test it, it comes back and go it's it's like a scientific proof or mathematical proof. It sort of proves itself because it's, it's it's not obviously, you can't just rely on that, you have to again go into the conditions and there's stuff to do there. But it it sort of proves itself.
Matt
Yeah, whether you're talking about a board or your management team or your whatever
Paul Smith
Even that conversation you had, with Wanda on your on Sound-Up right where she was saying "that that's not what it is."
Matt
We ultimately landed on similar...
Paul Smith
Where she was at was right down into the application whereas here in the overarching theory, the umbrella, everything else falls out below that. So you were agreeing with each other just at different... she was thinking about in practical application terms whereas you were going, this is the starting point that everything falls out from.
Matt
And that's what this is it is that like, I do know...we have to acknowledge both of us that we're trivializing a little bit for the sake of creating a pitch or like something that's really consumable and pithy. But it doesn't matter
Paul Smith
You've got to start from that point otherwise you can't capture... if you got into a talking about that book "system after system after system," you lose people.
Matt
Yes.
Paul Smith
No wonder everybody thinks it's a boring world. If you can actually communicate this stuff effectively. This is some of the best people in the cyber world are the communicators, the the people who actually can communicate this stuff because it's complex. But if they can make it simple, everybody can get hold of it. And then that's the basis you start from right. That's what you build off is a simple, like, some of the most memorable things are simplistically explained, even if they're super complex.
Matt
So I don't know if you listen to this, and it's not out to the public. Today is December 8. It'll be out to the public on December 9, and I don't know when you're going to be watching or listening to this so who knows
Paul Smith
If ever
Matt
Yeah,
Paul Smith
This could be a trial run.
Matt
But I Yeah, right. We've got all day tomorrow, too. So I had my next guest on Sound-Up Governance tomorrow is chatGPT
Paul Smith
Oh, yeah AI Ooh. OK that's kind of cool.
Matt
It wasn't intentional. I had a conversation with chatGPT. And I was like, "Wait, this is like the most coherent conversation I've ever had about corporate governance." Like, I'm just going to copy and paste this and send it through through a text to speech generator, which, incidentally, sounds like Snoop Dogg. And, but it occurred to me, I was like, wait, you know, I had been spending time trolling all the stuff that was out there by the experts. And none of them were able to engage in the subject as meaningfully as chatGPT. And I was like,
Paul Smith
Okay, so that's going to be fascinating, but it reminds me of conversation I had yesterday about AI in the boardroom, and how...
Matt
I asked chatGPT about that, by the way.
Paul Smith
Okay. This is awesome. We're getting right into my sweet spot here. I've always been fascinated about where boards might go with AI. So I'll go back a step. Have you heard of Sofia? The machine learning?
Matt
Yeah. Yeah,
Paul Smith
It's basically, for those who don't know, she's essentially a robot anthropomorphized into a female form. But it's machine learning is not AI. There was an exercise started in, in Holland, inside Netherlands not called Holland, in order for her to sit on a supervisory board, so the European or the German model, where you have a fiduciary board and the supervisory board. And she was going to sit on the or it, she was going to sit on the supervisory board, but they were basically asking a whole bunch of board directors and governance experts to train it up. So it would be armed with the collective combined knowledge of all these people in order to do its role and see as experiment. COVID, ruined the whole thing. So I think they're gonna start picking it up. But love the experiment. Now imagine AI, which could like chatGPT, trawl the vast volume of information, and then bring that to the fore in the boardroom. If we're talking about training up boards around all these different bits from an information perspective. AI have got that covered. If we can train AI, in the critical thinking element that humans can do the nuanced and nobility that might come from that, boards essentially, potentially come in obsolete, but even then it's not about them becoming obsolete. That's where AI could enter the boardroom is like this is this vast array of knowledge, and then all you have to overlay is that critical thinking of that?
Matt
Right. So the reason I didn't find this terrifying, the fact that it was so good at having an interesting conversation about corporate governance is first of all, everything that it had to say was incomplete. That doesn't mean it can't get better. But it still was really... wise is the wrong word, but it was close to it. It was able to get into a level of detail I didn't expect and when I challenged it, it would say, "Yeah, that does make sense. How about this?" And that's another characteristic that doesn't often exist in a lot of the people who work on this really deeply. They're not like, "oh, yeah, cool. Okay. I've changed my mind. How about this other thing?" Right.
Paul Smith
It's kind of refreshing, isn't it?
Matt
Right. It doesn't it has no ego. Yes. And it, there's nothing at stake for it.
Paul Smith
No, there's no, it's not. And I think that's the great thing I've heard about, it's not being biased in any way. Like there's that other thing out there that moment, which is the AI art. And there's a huge amount of male bias because men are being put as astronauts and women of being stripped down into bikinis. From the art perspective. I can't remember what it's called
Matt
Dall-E, which is made by the same people as chat GPT. So I, I really enjoyed the conversation. And I liked the fact that I could challenge it, and it would say, "Yeah, okay, that thing you're saying does make sense. So here's this other thing." I even asked it, this was outside of the interview that I did, but I asked it. "Tell me who you think are some interesting thinkers in the corporate governance space?" And it gave a list, all of whom I recognized. And I was, like I said to it, "all of those are lawyers and academics. Got anything better?"
Paul Smith
What did it say?
Matt
And it gave me a list of CEOs, which is was one step more interesting
Paul Smith
Did you ask it why those names?
Matt
No, I didn't
Paul Smith
I think this would be the fundamental question that curiosity about why it's choosing to share that, as opposed to anything else. And how it's been programmed to think of where we'll be picking those names up, is it would it be because they've sold the most books, or there's they've got the, I suppose probably where it will come from is looking at where it's getting its data from, would be they've got the most mentions. So therefore, by default, its volume. Rather than actual credibility,
Matt
it says that it doesn't have access to current events. I've tried asking it about current events, and it says, "I don't have access to that. So I can't comment on it," basically. But then you can change it around and say, "Oh, imagine a scenario where..." and you just basically describe the current event. "What do you think about that?" And it will say something.
Paul Smith
Wow.
Matt
And so it's not? I don't know what the constraints are. I don't know what the but it's,
Paul Smith
You know what we should record? I know you're going to do it anyway. You know we should record we should get not right now. But we should do that live?
Matt
We can do tomorrow!
Paul Smith
Yeah, we'll do it tomorrow, type it in. We can just read it out or go do text to speech. And we just be we can have a three way conversation with chatGPT
Matt
Why don't we why don't I stop recording for a moment. And we could talk more about that.
Paul Smith
Okay, because we're probably done, aren't we? Bye!
Matt
Bye! Cheers, I mean,
Paul Smith
Yeah.
Matt
Incidentally, Paul, and I completely forgot to have that conversation with chatGPT while he was here, so we'll have to add that to the long list of ambitious stuff that we're working on together. So that means we've reached the end of the saga of Paul and Matt on Sound-Up Governance. I learn a lot every time I speak to Paul, but most importantly, I always feel like I'm a little less alone on this long journey to provoke meaningful change in corporate governance. Thank you for listening and following along. As usual, please send any ideas, questions, complaints and comments to soundup@groundupgovernance.com. See you next time.
Paul Smith
Scotch in a coffee mug. It's not exactly Mad Men. That was really good. I don't know how on earth we's use stuff like that, but it's awesome.
Sound-Up Governance (ep20) - What *should* we be teaching directors? (feat. Paul Smith)