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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.
TRANSCRIPT
Matt Voiceover
Welcome back to Sound-Up Governance. Back in episode three, I introduced you to my good friend Lisa Oldridge, who suggested this time that I introduce her as a strategy and governance and whatever seems interesting advisor, which pretty much sums it up. Her firm is called Fulcrum Advisors. Lisa has a depth of knowledge and expertise in strategy, operations, investing, research, startups, et cetera, et cetera, and it's a really good thing that instead of being an arrogant jerk about how great she is, instead, she's got this super fun and adventurous rogue spirit. I wanted to reconnect with Lisa because a lot has changed in my own perspectives about corporate governance over the past year or so since we recorded episode three, I just needed a valued ally's perspective to make sure I haven't gone too far off the beaten path. So I started by asking Lisa for some guidance on how not to mess up too badly when giving advice on governance stuff.
Lisa Oldridge
So part of the work that I did with Fulcrum was to I got really involved in this movement 51. And moving 51 is the sister organization of The51.
Matt Voiceover
The51, with which Lisa has been involved for years is super cool. Here's how they describe themselves. "The 51 is a financial feminist platform where current and aspiring investors, particularly women, and gender diverse individuals come together to democratize access to capital for women, and gender diverse founders."
Lisa Oldridge
And it was this amazing project where there was a cohort of 20 founders, seed pre-seed founders, all women, and there was a curriculum that I got to get really in the weeds with it. So developing a curriculum for founders sort of soup to nuts assume that they're gonna go into their first raise. And so what is it that you need to do in terms of, you know, figuring out what your structure is going to be, figuring out what your strategy is going to be. And this, you know, when you, when you when you think about those terms, and you bring it down to seed and pre-seed level, it's like whack a mole, right? Everything sort of gets cooked up into this pitch deck. So anyway, over the course of the 19, sessions, we have these amazing other sort of experts come in and act as sort of mentors within the within the sessions, and there would be like a lecture, and then there'd be like a lab where they actually tried it out. And the word that keeps coming to mind, and I did the governance piece, the word that keeps coming to mind is the idea that we were giving these people permission. Right? So if you think about, if you think about governance, from the perspective of pre-seed, or a seed, or someone going into their series, A, it's kind of like the last thing on their mind. And it's the thing that it's like, you know, it's almost like looking forward to your first colonoscopy, you're going to do your, you're going to do your Series A round, and you're gonna have somebody waving a checkbook and going "I want a board seat." That's the time where you start to worry about the sorts of Big G governance things, right, it's the stuff that the lawyers wants is this, it's the stuff that your accountant wants to see. And right and the data room, and then you ended up getting this investor director that gets plugged into the organization, whether or not the right fit. So whether it was, here's how you can role play with a super crappy term sheet - had a lot of fun with that, right? Here's how you can also think about your talent strategy, which includes ad hoc advisors, which includes maybe more formal advisors, and then ultimately, thinking about the posture that you might have with governance. Yes, the supply chain is important. And yes, you're constantly you know, your cash fundraise gonna peter out. And yes, you want to write, make sure that like, there's all these other things that these these founders wanted, but it was like, permission to go, "you know what? You don't actually have to take what you're given in terms of the individual, because half the time, they don't know what their role is." And in some cases, it was kind of transformational. It was like, okay, so you can drive a truck for your strat strategy, but you kind of know you're going in this direction, and you kind of know what you do know. And you kind of know where your gaps are. And so you can go to this VC going, "it's fabulous that you want to invest. Here's where we think we're going, here are our gaps. This is the skills matrix, these are the attributes that we're looking for. This is where my weakness is, this is where we need sort of help in different things, be it you know, accessing international markets, or understanding how SAS ramps up, etc, etc. So if you've got someone in your organization, right, that fills that persona, bring it on!" And it was even just having that, "you mean you can ask?" Damn right! Which is kind of why I've joked with you before, like when I do the when I when I do my governance for one on one, because I think it's super sexy, and I think it's like an enabler, instead of something that makes your life more miserable. I start with a picture of Mon Mothma because she's the coolest, right? The word permission, I think is something that doesn't get talked about in terms of enabling the individual. Like, you can kind no refund this, the idea is that you're making good decisions. And there's so many people that mean well. But, you know, there's so much bad performance. The positive skew to performance among all companies, not just teeny tiny venture capital companies, but all the way up to the biggest organizations. The positive skew that we portfolio managers see to be completely normal, whereby, you know, don't time the market, don't try and pick stocks, etc, etc. because by and large, your return is going to come from a very small proportion, right. And that's just that's a foundational tenet of portfolio management. But if you think about it, every single one of those stocks that underperformed has a bunch of directors at the helm thinking that they're doing the right thing, overseeing it. They're actually overseeing underperformance.
Matt Voiceover
Okay, that was a fun adventure. Let me just take a sec to re emphasize some of what Lisa has just told us. What's missing from the world of corporate governance is the feeling of permission to, well, do stuff. Anything, really, that's different from the status quo, or what's thrust on you, whether you're a founder trying to negotiate with early stage funders, or whether you're a big listed company trying to satisfy the proxy advisors, you have permission to try unconventional stuff to make the decisions you need to make, just like Mon Mothma would do. Speaking of rebellion, part of why I wanted to talk with Lisa is that there's this weird, so called anti-woke capitalism thing happening in a segment of our little governance community. What's Lisa's reaction?
Lisa Oldridge
First of all, I think this reluctance to kind of catch up with where things are going is probably fear based. And, you know, there's, there's the super obvious, and I'm not going to get, I'm going to resist the temptation to get all kind of soapbox-y about it. But there's, you know, there's, there's a demographic in business that has, you know, grown up in a world where value was largely tangible. And whether because of moves in diversity, or moves in that shift, which is gargantuan, to intangible asset value, that demographic, like the whole kind of "business of business is business," was losing power, right. And there's a shift like, things that were taken for granted that if you take care of business, and you take care of shareholders, and, and so on, then things will work out and there's almost like this. It's more than a false dichotomy. It's more like a false topology.
Matt Voiceover
I'm just going to interject here for a second to say that I love, "it's more than a false dichotomy. It's a false topology." It's a brilliant expression that I'll now commandeer whenever I can. It's also perfectly applied in this case. Sorry, back to Lisa.
Lisa Oldridge
I've been accused of being both too much of a capitalist and too woke. Right? So I can take the side of this. You know, you can you can come from the like "the world is FUBARed If we don't sort a whole bunch of stuff out, be it, you know, climate and supply chain and so many other things, right?" And so the more kind of stakeholder capitalist perspective would be, the place where you have the big lever is in business, because it's the allocators of capital, that if you really sort of, that's, that's where you can kind of shift the needle, you know, shift the needle or move things to where you're optimizing for societal things as well. But But that's also a bit of a that's also taking the perspective, I think, that there's this sort of like this sum zero continuum, right? It's not it's actually, you know, if you look at if you look at material and decision useful sustainability metrics, and you can hear that you can hear I'm a fan of, of what's going on with the ISSB and SASB and that kind of thing, like finally, we're starting to get stuff that actually is relevant, I think, to disclosure on the bottom line, I have a tough time with all of the metrics, you also I think, share my perspective on how governance ratings aren't great
Matt
Sorry, yeah, my bad,
Lisa Oldridge
Your bad. It's okay. I forgive you.
Matt
Let me react for a second to something here that the this fallacy that it's a zero sum system. Because it is... This is I think the piece that I find the most obnoxious about the whole thing is this strident position taking, right? So I'm going to give I just did an obnoxious little rant that I posted a video up on LinkedIn, like just before we talked. Because I've been thinking I've been thinking about the industry around arts and, and sort of amplified by the artist and or the actor and writer strikes and imagining myself on the other side of the table, thinking somehow it makes sense for me to try to extract more short term money out of art at the expense of the creation of art, when my entire business is art, right? The only thing that I exist to do is cultivate art. But no, you know what, let's stop that. Because I'm not extracting enough money out of it. And even the idea that we might replace art with AI is nonsense, because AI needs art to create art. You know what I mean? Like, none of it makes any sense. And the fact that people can sit back and say, "You know what? This makes sense to me. It's about return to shareholders." And you're like, "Are you sure, like, really? If you take five seconds and think about this, it still makes sense to you?"
Lisa Oldridge
Even if you even if... I agree with you, there's actually this, there's, I'm going to share it with you later. But there's my one of my favorite New Yorker cartoons from years and years ago, like I literally think it was in like 19...it was when I was working in a wine store and some guy came in with a T shirt on. And it was a picture of like a stickman business guy. And then there was a stickman artist, and the stickman, artists had a canvas and the stickman artist had half painted the stickman business guy. And the caption was, "will you give me a grant so I can finish my art?" And then on the canvas of the half finished businessman, it said "fucking assho." You gotta think you need this up. I found it again. Gotta love the web. I found it again. You can you can even take like, if you even wanted to take the capitalist like the full on like, the non inclusive role of capitalism perspective. It doesn't hang together. Right? Like, if you look, I did a little prep to make sure I have my facts right. But if you think about like, if you put your accounting hat on, right? Because we both have accounting hats...not. But if you think, okay, enterprise value is book value, plus the book value of the debt. Right? And if you track over the course of time, the the way the relationship between enterprise value and book value over time, there's always been a gap, right? Like market value has always been more enterprise value has always been more. It's completely blown out in the last 15 years, right in that book value is significantly smaller than enterprise value. And I think if you look at the most valuable companies out there, it's like there's 75%, or more intangible assets. Think about Apple think about Amazon, for example, Amazon is not the value of the stuff that they have in inventory in their warehouses and the bricks and mortar and the right? And so if you think about it, and I think I think at last, the last time they did, it was like 16 point 2 trillion of intangible assets have been disclosed. Only a third of that is actual value on the books. And so if you think about what all the other stuff is, like, what else creates value? You've got things like, Okay, well, what's the, what's the organization's customer relationship? Obviously, their brand? What is their reputation like? What is their trust among their suppliers, and so on and so forth? Right? And remember, this is how this is how the shareholders are, like, this is what they're seeing to be the value of this organization. What is their innovation culture like? What is what is their IP perceived to be in their ability to continue to write to generate this IP? These are non financial metrics, right? That are that are causing it anyway. And so if you take it back to this idea that, well, we need to also take care of the stakeholders, as if it were a sort of a trade off. It's a false dichotomy, like the topology has shifted, and the trade offs are not where they used to be. And if you're not worried about what your brand value is, or what your stakeholders are seeing, because now guess what the externalities are priced and every single shareholder stakeholder rather has in their hand, and ability to affect it. So you can you can be the most hard nosed, "I'm all about shareholder value, be it long term, short term, etc." Well, if you're not taking care of all of those heretofore unpriced, externalities, and also influencers of your market value, you're gonna drive the stock into the ground, and that's a genie that's out of the bottle, right? Whereas before, I mean, you can be cynical and say that, while some of those externalities, be it, you know, polluting or creating emissions or not treating a community well, I mean, it didn't really get into the, like, if you were only focused on profits, it didn't really affect your access to capital.
Matt
I wonder how much we should even be paying attention or just ignoring because what we're partly talking about or what we were inspired to talk about this by is a reaction to work that was put out by the basically the highest profile organization that that represents or should represent the interests of Corporate Directors. And they're out there saying, we need to care about climate change. And we need to be socially responsible. And we need to care about Indigenous reconciliation, and we need to care about, you know, and, and, and, and. Right? So it's not like the mainstream hasn't caught on to this stuff. There's just this weird voice from very powerful, or potentially influential, certainly very... voices people are used to hearing from and taking seriously. Should we just ignore it? Is that the solution?
Lisa Oldridge
Yeah, it's very tempting. I mean, to be to be super cynical, demographically. It's a problem it takes care of itself. Sorry. That's, you know, I think that's the I think that the you know, the I know what report you're talking about. I think it's a shame that the, the the argument for why you would take care of the lead all of these things, doesn't connect back to the business case when it's so clearly does, right? Like, if you start talking about the concept of shared value, you're automatically going to incent like,
Matt
This is not the business case they're interested in. The shared...they're not interested in that business case. I don't think
Lisa Oldridge
As soon, as you say, Yeah, soon as you will use, what I'm doing is I'm saying that I'm Yes. It's it's very tempting to just, you know, not dignify with a response, some of this like, right? But I think it's actually a shame that the conversation is around this, again, this, you know, the concept of sharing value or thinking about other stakeholders, it sort of presumes there's this finite amount of value that has to be divvied up among more, right? And as the numerator goes up, then the, then the answer goes down, whereas it doesn't accurately account for the dependencies, right, like, right, the interdependencies in a complex system. And I'm not always trying to bring things back to the business case.
Matt
Kelly Shue is a researcher at Yale. Finance professor. And she did this very recent, she did this great research, where she basically found that, like her, she, I heard an interview with her where she said, You know, when, when someone described to me what people were trying to accomplish by divesting from what they call brown firms or polluting firms. I thought about as like, well, from everything we know about finance research, it should have the opposite impact of what people think it will. So I'm going to study it. And that's exactly what happened is if you starve them of cheap capital, they pollute more. And so then,
Lisa Oldridge
Or if you start that you starve the system, you starve the system of capital then any of the innovation. And the market signals to improve. Because unfortunately, I mean, if you're talking specifically about energy, this is not this is not a it's a gigantic sector, but it's not a sector that exists primarily in you know, market answerable, democratic sort of, yeah, so there'll be a vacuum, it's gonna go elsewhere. Anyway. Divestment. I mean, I think some people see divestment as a way to sort of, you know, I'm going to take my ball and play elsewhere, because you just don't get it is super naive,
Matt
Right. And even if it's even if it's just intended as a virtue signal by a fund or something, it's if there's only signal and no virtue, then it's a problem.
Lisa Oldridge
Well your ratings are all really good.
Matt
Right! Exactly!
Lisa Oldridge
There therein lies the whole problem with like, I don't know, I think I think you and I've joked about this before, like with the whole ESG frameworks and ratings and that sort of thing, like the next time. Every single time you hear someone talk about it, it's like, "it's such an alphabet soup." And what we've done then is decided to come up with this framework to simplify it. It's more soup letters. Anyway.
Matt Voiceover
Don’t you love when you get to chat with someone whose cynicism is so well aligned with your own? OK that’s not fair, Lisa’s not being cynical but rather very thoughtful and compelling. Still, I think an important part of what Lisa and I are talking about here is just more of that “permission” thing. We have permission to ignore the cranky folks who can’t see that it’s not a zero-sum game and permission to try new ways of adding value to our companies and the world. And so on. Then we got to talking about my old nemesis of thinking of corporate governance as an exercise in box-ticking compliance. Lisa had this interesting idea of intentionally de-emphasizing the compliance-y status quo so that it becomes just a starting point. I’ll let her explain.
Lisa Oldridge
Maybe the place where you get the most alignment if you wanted to sort of go along with the momentum is to to relegate it. The body of knowledge that exists, relegate it to its proper position of these are the basic skills that you need to practice that have nothing to do with...
Matt
Doing it well,
Lisa Oldridge
Right? Nothing to do with doing it well, and by the way, you may not be using all of those. I think that that's so that would be a way to sort of, yeah, I use the word relegate deliberately. You know, there's a ton of it, but really shrinking it down, and putting it where it belongs in its box of like, you need to know how to do this stuff. But the... sorry, the other thing that I was gonna say, too, and I think the place that gets really ignored is the power of the leadership on the board. So not the verb that is the board exercising its duties and...right? I think that there's so little done on board chairs, because they do whether deliberately un-deliberate or non deliberately, subconsciously, they design the board. I'm being mentored because I'm a board member on a right, and I've got a mentor, and like, speaking with this person about some of the things that they have done in the past, where it's like, "you know, I figured that in the next six months, there was going to be this big, horrible situation, and it was going to be very polarizing on so on. And so what I needed to come up with in the meantime, was like a practice thing, for example, just so that I could observe the board, get their teeth into it and kind of come out on both sides and then work through it."
Matt
That's radical.
Lisa Oldridge
That kind of that kind of wisdom to say, predicting that this is going to be a gong show, and it's going to be really important that we get it right. But I'm not sure if I've got that culture at the moment, right? Like that kind of foresight.
Matt
But that's also a radical thing, the idea of, because I try to it's, I try this the same language, which I love is "practice." Right. But we don't think of if I take the practice as a, you know, sports metaphor, we think of the boardroom as always game time. Never practice time.
Lisa Oldridge
Yeah, yeah, yeah.
Matt
And but in between, it's not like we've got all this time together, where we can practice, you know what I mean? So like, you have to, you have to try to use some of your board time as practice time. Or else how do you get good? So, I love that.
Lisa Oldridge
This is a late stage director who's moving out because they want to spend more time with their, their grandchildren. I was just like [mind blown sound], right? like, that, in one conversation has given me I think a lot about going from being a director to you know, what skills and blind spots do I have? You know, even just personally because you know, me I'm like an idea bazooka, don't...not a lot of follow through with it. You know, how do I how do I, because I almost feel like on some level, there's a maturation that happens in a director and I don't mean time-based or anything somewhere like this. There's a there's transcendental kind of movement that has to happen, where you become aware of all of these things, or you start to be able to and, and the cool thing is, those chairs are not the ones leading the conversation, right? Like you're supposed to be the one that sits back and they're, they're doing a mind meld on different... Anyway, whatever. It's yeah, so cool. That's that's what gets missed, because it's not up to it's not up to the corporate secretary to make sure that the directors are functioning well. And it's not up to the and the self awareness that you would need in a board that's a disaster, to hire someone to help them be not a disaster like that doesn't. That doesn't work.
Matt
Yeah, it's, again, I think that this is going back to the, well everybody takes every part of it way too seriously, while also not 100% knowing what doing a good job means. So we're taking nothing seriously. We're taking "insert, you know, who knows what, here" seriously
Lisa Oldridge
Yes, yes, yes. They take the Yeah, it's like they go through the they go through the motions and take it. I'm really over overly stereotyping or painting too broad a brush, though, they take it all very seriously. Or we take it all very seriously, except the thing that you should be taking seriously. And that is, how am I conducting myself? How am I interacting with people? And how am I surfacing the optimal outcome for these decisions?
Matt Voiceover
This just felt like the right way to wrap up this episode. It's a reminder that we all evolve as people, as leaders, as directors, and that as we evolve, there's kind of one fundamental thing that's an overlay on the impact we have, or don't. What am I, the individual human being in the boardroom doing, on purpose, to empower the group and it's decision making? It's a completely different question, than "how am I going to deploy my knowledge and expertise?" or "how am I going to make sure we follow all the rules?" Thanks to Lisa Oldridge for being super fun and smart and for, "it's more than a false dichotomy. It's a false topology." And thanks to you for listening. Send me a voice memo or email to soundup@groundupgovernance.com if you have any ideas or comments or complaints or questions. Oh, and we're now releasing the archives of Sound-Up Governance on mainstream podcast platforms if you prefer to listen that way. If you do, please don't hesitate to leave a review and spread the word. It really does help. Catch you next time.