Today’s episode features perspectives from Wanda Lopuch, Tony Spizzirri, Jamahl Evans, Lisa Oldridge, Nick Chambers, Meron Tecle, Andrew Escobar and Paul Smith
TRANSCRIPT
Matt
This week's one and only definition on Ground-Up Governance was "corporate governance." I define corporate governance as the way that decisions get made in a corporation. No mention of boards or policies or structures or stakeholders. No indication of what good looks like, and deliberate use of passive voice. I've used the same definition of corporate governance for maybe four or five years. Before that, if you'd asked me to define corporate governance, I would have said something like, "it's the systems and processes that boards use to..." and then I would have hesitated as I tried to think of a synonym for the word "govern" and coming up empty would have just spewed some word salad. Over the past few months, I've been having conversations on and off the record with friends and colleagues about what corporate governance means to them. And it's really pretty fascinating - the differences in perspectives and vocabulary - even though we all live and work in the corporate governance world in varying capacities. Today's episode of Sound-Up Governance is dedicated to exploring these differences. Why bother, you ask? Well, if you've gotten this far into your Ground-Up Governance journey, you clearly care about corporate governance at least a little. And knowing what the term means is an important first step to doing it well. Let's start with a quick refresher of my conversation a couple of weeks ago on Sound-Up Governance with Wanda Lopuch, who didn't particularly like the way I talk about corporate governance in general and specifically good governance.
Wanda Lopuch
So the concept of governance is not a well-known concept overall. For me, governance means a set of policies, procedures, protocols, that govern the decision-making process within organizations within certain legal framework, and with an ethical guiding light.
Matt
So, to Wanda corporate governance is largely imposed on an incorporated entity rather than something that the entity does. Fair enough. And the Chartered Governance Institute in the UK and Ireland agrees, saying that "corporate governance is the system of rules, practices and processes by which a company is directed and controlled." Although Wanda did go on to explain that there are many different ways to approach governance within those constraints. There are other people in my community who generally agree with Wanda's take here's Meron Tecle, Principal of Corporate Governance in the Total Fund Management team at Ontario Teachers' Pension Plan.
Meron Tecle
Governance, to me is a structure for formal decision making that, if done correctly, can set a precedent for responsible, ethical and savvy business decisions that permeate throughout an entire organization.
Matt
Meron, like Wanda, emphasizes the formal side and the ethical piece in addition to decisions as essential elements of corporate governance. Here's Tony Spizzirri, a Principal at Global Governance Advisors, a corporate governance advisory firm in Toronto with a specialty in executive compensation. Tony worked with me on governance projects at the Rotman School of Management for 10 years. Plus we played in a band together in high school. What's his take?
Tony Spizzirri
You know, I think of it as it's the syntax or the framework from within, you know, you can call it the corporation, you can call whatever entity it is. That's the framework, those are the boundaries, that's the direction that decisions are required to be made within. Right? Now, how you make those decisions within those boundaries, that's a different story. Part of good governance or corporate governance is communicating that framework, is the transparency, is the disclosure. So it's not just about having the policies. It's not just about having, what you're practicing, you know, what that culture is. You also want to be able to communicate that to the external stakeholders, to your shareholders that aren't in the room with you. That is part of corporate governance.
Matt
Okay, so Tony also sees corporate governance as the rules or boundaries, but he sees the boundaries more as originating inside the corporation itself and communication, disclosure, transparency as an intrinsic piece of the definition. The Canadian Coalition for Good Governance tends to agree with Tony, giving out their Governance Gavel award every year to "recognize excellence in shareholder communications by issuers through their proxy circulars." The Business Development Bank of Canada or BDC, which is a government run financial institution that exists to support Canadian entrepreneurs, defines corporate governance as, "The practice of ensuring a corporation conducts itself accountably fairly and openly in all its dealings. It is the responsibility of a company's board of directors." Lieutenant Colonel Jamahl Evans of the US Marine Corps explained to me that he thinks the board part of corporate governance is what makes it a bit wonky. My word, not his,
Jamahl Evans
I find your definition fascinating. But mine is a little bit different. And I'm still I find that it's also evolving as I learn more and more. My definition of governance begins with leadership. It begins with leadership. Because you have, but it's it's a different type of leadership. As I started this journey, to understand board governance, and just getting a bit more fascinated with it, I wasn't so much on the C-suite side, because that's not necessarily the board unless your CEO or COO is on the board. But that's closer to the military hierarchical structure, where you've got defined roles and responsibilities. The board is this group of people who are not in charge of the daily actions. They're not in charge of the company, but they're responsible for making sure that things are going the right way. And I became fascinated with that. And one thing that drew me in was, how do you lead in that organization? Where it's almost an organization of peers, with the exception of the chairperson, and the board secretary, the other roles on a board a little bit more loosely defined. You cannot get to decision-making until you have someone who is able to maintain good order and discipline among the group. Governance is leading through and within a group structure.
Matt
My friend Paul Smith, from the Future Directors Institute in Australia recently crafted a post on LinkedIn that focused more on the appropriateness of the word "corporate" in corporate governance, wondering if it should instead be "board" governance or "entity" governance or "company" governance, ultimately deciding - and I agree with him - that "corporate" really is the right word after all. Other people still lean away from the constraints imposed from the outside in and think of corporate governance as what goes on within the rules, which is even closer to my own thinking. Remember, Lisa Oldridge, the performance strategist from episode three? Here's her take.
Lisa Oldridge
There's there's two you can do like the the consultant speak definition of governance, and then there's a "Okay, so what the hell are you talking about?" definition. So I would say that the consultant speak view of governance is it's, it's just the scaffolding for good decision making. And so it's like systems and processes. But I think that what governance is not, and I think that a lot of what you see sort of in the media and social media and some of the thought capital that you see out there, it's not a Buzzfeed, you know, listicle of "these are the top 10 things you need to do in order to be doing good governance." In fact, I think that's actually an anti-definition of governance. It is the scaffolding for good decision-making that you can kind of wrap yourself, wrap around you. And that you can make shitty decisions, but if the process is good, it was probably it was probably an optimal decision given the information at the time. And it is not as if you can take a list or even a book and go chapter by chapter and emulate the things and then have, you know, a governance sausage come out the other end and work.
Matt
And Nick Chambers, a partner at Boyden Executive Search believes corporate governance is the very thinking itself that goes on at the leadership level of an organization.
Nick Chambers
At least metaphorically I like to think of governance as, at its best, as the slow down... So if an organization on a day to day basis is is just churning through work and they're churning through decisions and it's not busy work in the sense of the work not being important, but it's it's not always the deep work that allows you to consider the organization's future.
Matt
Finally, Andrew Escobar, who asked me to make it clear that his perspective is influenced by me and my work, emphasized again, like he did a few weeks ago on Sound-Up Governance, that corporate governance happens all the way through an organization. Further explaining that, to him, the influence goes both from the top down andnd the bottom up.
Andrew Escobar
Governance is how decisions are made within an organization. And that those decisions happen not only at the very top, with your chief executive with your senior leadership team, and with the board, but those decisions start to happen at every level of an organization. And that those decisions work themselves up to a board, and that those decisions also work their way down. And that in an organization with good governance, those decisions work themselves all the way up to the board. And in a good organization, those decisions work themselves all the way down. And that either means that those are really great decisions that propel an organization forward, or that those are some pretty bad decisions that hold an organization back. But either way they work themselves up and down. And they matter.
Matt
So we've heard from corporate directors, CEOs, consultants, an institutional investor, a military officer...what more could you ask for? Let me leave you with a bit of a plea. Whether you're swayed by one or more of the perspectives offered during today's episode, or you don't like any of them at all, please consider taking some time to think about what "corporate governance" means to you. It's the first step toward understanding what *good* governance is or could be. My current definition of good governance is that it's the act of intentionally creating effective conditions for making decisions in an incorporated entity. Let me emphasize intentionally creating effective conditions. It's not about the result of the decision, I'm still not using the words board, executive, stakeholder, rules, process, or any of that stuff. And I know there are tons of implications here that we don't have time to explore at the moment, but I like it because it points us toward an objective. If you don't like my definition, workshop your own. Share it with me and the rest of the Ground-Up Governance community. Send me a voice memo or an email at soundup@groundupgovernance.com. Let's keep the conversation going. Thank you to Wanda Lopuch, Tony Spizzirri, Jamahl Evans, Lisa Oldridge, Nick Chambers, Meron Tecle, Andrew Escobar and Paul Smith for being inspiring and crazy smart. And thank you for listening. Until next time.
Sound-Up Governance (Ep7) - Navigating divergent definitions of "corporate governance"