Sound-Up Governance

Each week, we will release two illustrated definitions of corporate governance jargon in order of increasing complexity. In this instalment we have the definition of "conflict of interest". Check the episode thumbnail for an illustration by Nate Schmold.

Originally published Feburary 22, 2023

What is Sound-Up Governance?

The real impact of corporate governance isn't about compliance or structure or policies, it's about the conditions that impact decision-making. Sound-Up Governance features fresh perspectives to help boards and executives to be a bit better tomorrow than they were yesterday.

Picture yourself as a director in a boardroom during a board meeting where you need to make a decision together with the rest of the directors about whether you’re looking at an apple or a cake. Since it looks exactly like an apple and collectively the board has seen approximately a million apples in their lives, it seems like a simple matter to agree that you’re looking at an apple. But if Alisha – who turns out to be a professional ultra-realistic-apple-shaped cake maker – were on the board, too, she may feel like it’s really important to consider the possibility that you might be looking at a cake that just *looks* like an apple. The rest of the board might decide to go ahead and formally decide that it’s an apple and hold a vote. If Alisha’s not convinced by the apple argument, she may choose to vote against the decision. By doing so, Alisha is expressing “dissent”.

Dissent in boardrooms is actually a really normal and good thing. Running a corporation requires lots of complex decisions, so getting a bunch of smart people to agree on *everything* is mostly impossible. If a board agrees on everything – meaning there’s never any dissent – it’s usually a sign of a bad type of group think where nobody thinks to challenge anyone else or have their own perspective. Or possibly a lack of independence that leads to nobody *wanting* to challenge anyone else or have their own perspective.

Boards are required to keep a record of their discussions, and especially of their decisions. If you ever find your self in a dissenting position on an important decision, it’s probably a good idea to insist that your position be documented in the record (FYI, the official record of a board meeting is called the “minutes” for some reason).

Imagine the board decides that it’s looking at an apple and in the end it turns out to be a cake (oops). Then imagine that Global Apple Spotters Society & Institute (GASSI) sues the corporation for defamation against apples. “Apples are so uniquely beautiful that any misidentification is a blemish on the good name of apples around the world,” GASSI claims. Alisha will be happy that her dissent has been captured in the minutes, potentially protecting her (and maybe even other directors) from any unpleasant GASSI consequences, because you can prove that you had a thoughtful discussion taking multiple perspectives into consideration, despite ultimately making the wrong decision.