Thursday, June 24, 2021

Implicit Governance

An innovative boardroom strikes the right balance of being explicit and implicit, being broad and deep, setting solid common ground and streamline business flow effortlessly.

The digital environment is constantly changing, forcing the business to keep adjusting. Corporate board as one of the most important governance bodies of modern organizations plays a significant role in steering the company in the right direction. 

Governance is not about controlling only, at the board level, how governance operates depends on whether the corporate governance entity is explicit or implicit, and whether it is fulfilled by all executive directors, or non-executive directors, or a mix. Corporate governance indicates a relationship with the board, shareholders, management and stakeholders .If all these parties would perform to the vision and mission of the organization, it would increase the performance significantly. In today’s “VUCA” new normal with the mixed bag of new and old, visible and hidden factors of business management, implicit governance has a role in reading between the lines and lubricating business flows to make a seamless digital paradigm shift.

The art of implicit governance is to make wise advice-pulling managements out of trees to see the forest;
not to pushing them for crunching numbers only: Digital organizations are organic, fluid, holistic, vibrant, energetic, responsive, in a relationship with its environment dynamically, and above all enhances and amplify human potential. The board directors as the top business advisor role need to have unique insight and sufficient knowledge to understand the business ecosystem, helps to expand the horizon of the management as they often overly focus on the daily businesses and meeting shareholders’ expectations. A heavy push perhaps causes change friction; an implicit suggestion with a skillful pull enables the management to think profoundly and improve their holistic understanding of business vision, values, goals and performance measurement.

Governance sometimes may not serve the goal of creating good art, but deploying services or components to the enterprise without governance is the trap to failures. Because the corporate board also oversees other broad areas like investing, enterprise architecture, policy & principle setting, etc. If the management get stuck at “what,” and “how” to implement their organizational strategy; then the corporate board with the breadth of knowledge and expertise can help them with foresight by digging into “why”- they do certain things, or the ignored “what” of their management discipline by analyzing the aggregates, not necessary to dive into all the details. Either practicing explicit or implicit governance discipline, the board is responsible for ensuring an appropriate mix of skills, knowledge, and experience are present or available for it to fulfill its function and develop their navigation competency which directly impacts how they lead and what they could bring to the table and advise the leadership team wisely.

The science of implicit governance is to work closely with management to reconcile strategic paradoxes:
Business management and governance are not opposite, but complementary disciplines to accelerate organizational performance. Therefore, there is a natural tension between them and there is a strategic paradox you have to deal with for achieving higher than expected results. Paradoxes are very hard to reconcile with corporate governance as traditional governance approaches in the boardroom often focus on compliance practices as some old school of management thinks governance is only for the bottom line; while modern corporate boards need to take proactive, and sometimes implicit governance practices to enforce performance and potential -focus on the future business performance.

Insightful BoDs as implicit governance practitioners need to ponder: Does the mental model of executive leadership consider the creation of a strategy to be part of corporate governance? Among executives in the company, if using the word "governance" in conversation, would the mental model that they refer include the process for developing strategy and creating the plans to execute on it? Is innovation part of the business strategy, do BoDs feel comfortable to delegate innovation to management completely without their oversight? Etc. 

Corporate management is to leverage limited business resources for achieving business value; corporate governance is where resources are allocated to turning the strategy into a reality. As you would not like to either have your future strategy constrained by the current corporate governance or the corporate governance weakened by too much creativity. Nowadays, corporate boards need to work thoughtfully to deal with such paradoxes: logic vs. creativity in strategic thinking or revolution vs. evolution in strategic planning. Besides overseeing business strategy, corporate governance could be part of strategic planning because if it isn't, strategic planning becomes a synonym for wishful thinking.

The psychological aspect of implicit governance is to improve decision effectiveness by overcoming a variety of “implicit bias” smoothly: Cognitive bias, optimistic/pessimistic bias, focalism bias, etc, are all causes of decision ineffectiveness and leadership immaturity. Oftentimes, individuals have cognitive differences, personal perceptions, diverse background and working experience, they have implicit bias and some tactical knowledge that influence how they respond, decide, and take certain actions. Silo mentality, various non-critical thinking patterns, lack of insight or contextual intelligence, etc, lead to poor or inaccurate judgment, illogical interpretations, and then, further cause a series of mismanagement issues cascaded into big problems and fatal business failures. Thus, exploring psychological aspect of implicit governance enables business leaders to improve their decision maturity.

Decision making is in less mathematical or fancy methodological consideration but as a sociological problem. Willingness to acquire additional information begins with an acceptance you do not know enough to achieve your purpose. Even if BoDs are senior leaders who usually have seasoned professional experiences and solid knowledge of many issues, they still need to keep seeking out different voices, appreciate diverse viewpoints, continue learning and updating knowledge. Trying to be "objective" is to try to let go of one's bias, systems understanding of truth is one gateway to overcome the variety of biases to improve decision coherence at the boardroom.

Good corporate governance creates a good decision-making system and good controlling system, which can assure the corporations’ operation under the correct directions and behaviors correctly. To unleash the full potential of the business, corporate board leadership needs to be future-oriented and further-looking, with a clear business vision and broad range of business perspectives, strike the right balance of being explicit and implicit, being broad and deep, setting solid common ground and streamline business flow, with the goal to improve their organizational agility and maturity.


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