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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.
Matt VO
Welcome back to Sound-Up Governance. This is obviously a little bit different for those of you who are watching it. This is the first time that we've done an episode of Sound-Up Governance that also has accompanying video. And the other thing that's different about this is that I'm kind of the subject of the interview. This time, I had been thinking about the recent launch or at the time upcoming launch of the fourth season of One Minute Governance and realized that I kind of wanted to say some stuff for myself. And I was thinking of who could interview me that might have a little bit of a different perspective than a lot of the other interviews that I do out there. And the first person I thought of was my partner in Ground-Up Governance stuff, Nate Schmold, and so Nate and I got together, and we talked about a whole bunch of things. In fact, I learned a lot too. So welcome to episode number 30 of Sound-Up Governance, featuring me interviewed by Nate Schmold.
Nate Schmold
I think, yeah, well, we were chatting about some way to give it maybe give me give me some context just again. So I'm making sure my tone is correct on what the purpose of this is, when I'm asking these...
Matt
So, I have, I have several platforms through which I express myself. One of them is the one we work on together, called Ground-Up Governance, which has a podcast, as you know, called Sound-Up Governance. Another one is a separate podcast called One Minute Governance, which happens to have a fourth season upcoming in a few days. And I am awful at optimizing the cross promotional potential of my multiple platforms. And it occurred to me, "Hey, maybe this is one of those opportunities with a new season starting on One Minute Governance to do some cross promotional stuff." And I said to you, "don't you think it might be an interesting idea for me to be interviewed on Sound-Up Governance as one of these cross promotional things?" And you said, "Yes." And then at the end of that conversation, we decided that you would interview me, and here we are.
Nate Schmold
Yeah, and I mean, so the whole premise, it sounded super cool to me. And yeah, I'm coming at it with a little bit of a little bit of naive anxiety that the questions that I'm going to ask you are ones that you've heard 1000 times and answered 1000 times, and no one will ever actually hear this, because you decided that it would be better to just be interviewed by someone in the subway lineup.
Matt
And it is funny, because and there's a reason why Nate feels this anxiety because it was the only thing that I said I was worried about when it came, right? When we were talking
Nate Schmold
Yeah it's like what I zeroed in on.
Matt
Yeah, the only thing I wanted was, I was like, "everybody's heard me say this stuff a million times. I just want someone different to interview me so that they don't hear me say the same stuff over and over again." But I'm not actually that worried about it. I think this is going to be fun either way.
Nate Schmold
Okay, well, let's, let's start right off then. So question one, if corporate governance was a rainbow... No, I'm just joking. That's, I mean, I could go down that line. But I didn't think about that. So that would be completely off the top.
Matt
I am recording video for the first time for Sound-Up Governance. I may not release it, but but people would be I think interested to see the expression that I made when you started that question. Also, I probably should have organized my microphone so that it's not blocking my face in the camera, but whatever.
Nate Schmold
It's all good. Okay, well, If corporate... Okay. You are the CEO. You are the CEO of a major company, you're going into a boardroom to pitch a merger of Reallie Steilish Clothing and Banana Puree Industries Incorporated. You have a superpower to control one variable, one condition about the physical space of the boardroom before you enter it. And you let's say you don't know, you don't know anyone in the room. What do you choose to modify? And how? This is the probably the silliest question, because I think,
Matt
No, I like it. I like it. So I'm gonna, I'm gonna answer some, I'm going to avoid answering your question at first, and then I'll answer your question, because part of my avoidance is because I'm not sure yet. So I'm gonna say something else, while I'm trying to think about what... so the actual condition that I would probably want to change is the fact that the CEO is going in and trying to pitch something instead of socializing the idea in advance, especially given that the room is full of strangers. So that see I, as CEO, am kind of introducing a bit of a hostile tactic here by, you know, you'd have to have a, this would be an illustration of hubris to go into a room full of strangers who are your bosses and try to convince them of something this significant. But if we're talking about let's say that this is all in good faith instead of what I just described. And if I really, let me change the wording, and instead of say, trying to pitch it, if I really wanted to learn more from this group of hopefully smart and engaged people, I would probably... the layout is the first thing that because I have an actual I have a hang up about boardroom layout that I've talked about before, but I'll be maybe a little more articulate about it here. And I'd be curious for your feedback, too. Is when I think about all of the innovation that's happened in The way that we lay out spaces from, you know, where people work that have evolved from like factory floors to, you know, open concept to cubicles to work/play to hoteling, to whatever. Not that any of these are great, but at least we try stuff. Or if we think about classrooms that you know, used to in a university used to always be auditorium style, but now you see all kinds of different funky stuff, and the deployment of technology and service of, of like engagement and interaction and that kind of thing. And then still, every boardroom is the same stupid thing that it's been since 1820, like rectangle, or oval or whatever with like, someone at one end, who makes a presentation, it's basically the drawing you made of the board room, that's the headline of, and that's really what board room layouts are. And I don't think 90% of people engage well in that space. Right? We can, we can kind of make eye contact with everybody, I guess that's one advantage. If other conditions are right, we can hear each other well. But there's very little sort of social opportunity there. There's no privacy, right? So we don't get there's like, don't get to just sort of like have a quiet conversation and bounce ideas off each other. There's too many people at the table for everybody to be able to get time to express themselves. So I think I would, the first thing I would do is think about how I'd want to lay out the room or a few different ways I might want to lay out the room and, and be very specific about the types of conversations I wanted to have. And then and then be like, Okay, I want to talk about a for that conversation, we're gonna go into small groups, and then for B will like go into pairs, and then for C will go out for a walk in the woods outside or whatever it is, and just sort of think about how the literal layout might facilitate the types of conversations I want to have. I don't know, do you feel that too? Like when you're in a room, like the layout matters? I feel like it does a lot.
Nate Schmold
Absolutely. Yeah. And I think the, like the boardroom, like we've even had meetings at at work where, you know, that's the format. And you know, we're like a scrappy, you know, like a scrappy, kind of like, push the boundaries game company. And when we have a meeting, it's it's almost like it, it's almost like a it's like a comfort to like, get everyone around the boardroom. And it's like, "okay, look, everyone we're doing something official now. This is like the this is the board meeting time." Where everyone's, you know, you it's almost... It encourages people to be quiet and not participate, honestly, because the format is like, Okay, well, there's a person there at the front. And there's a screen that we're looking at, and this is, you know, this is quiet time, we're just here to like, we're in like the grownup version of a classroom.
Matt
It's that's exactly the grown up thing is such a weird element of it this like, "Okay, now things are serious." Now that we're in this room, it's serious, no more screwing around everybody. And that's like one of the main failures, I think of boards is the lack of willingness to screw around a little bit like there's zero experimentation. It's unbelievably like staid and formal and somber. And it's like, well, how, how is anyone supposed to be, like, as useful as possible under those conditions? I don't, I don't understand. Like, because when you're sitting around that table, and maybe this isn't you, but I bet you other people on your team feel this way. Just like dreading that moment when the person running the meeting is like, "okay, Nate, it's your turn to talk now. Say something brilliant." And like, it's awful. It's an awful feeling.
Nate Schmold
Yeah, yeah. Or even even if it's like, you know, just like a general sort of open call for feedback, then it's like, you don't want to be the person to speak up because then it's like, now all the pressure's on you and you have like an entire room full of people facing you. And it's like, "time to be smart. Here we go."
Matt
Right and no, isn't that and so when nobody says anything, that's bad. But there's gonna be someone who gets like, they it hits that point where it's so uncomfortable that no one's saying anything that someone will just make up the smartest thing they can think of just to fill the silence. And this also I hate that I hate it. It happens everywhere.
Nate Schmold
Yeah because then it's like the value of, the value of the time is sort of like forgotten. And it's almost like the format becomes the important part. And just the fact that you went through the motions and did it. But you kind of walk away from it going like, "well, what... What was the point of that?" It didn't didn't maximize the potential of that.
Matt
100%
Nate Schmold
Crazy. Well, have you have you, Like, what have you seen in terms of, like formats for boardrooms? Like, what's the most? What's the most interesting layout? Or the most interesting setting that you personally have actually, like, you know, for sure happened and was successful?
Nate Schmold
Yeah, none. So I'll tell you about one that I've heard of, I'll tell you about one that I've heard of. And then I'll tell you about a commitment that a board I worked with made to do something that I can't verify if they've done or not. Okay, so I heard about an organization that did a, they had a board meeting, or like an offsite or something during COVID. And they needed a space where they could be sufficiently physically distanced from each other. And so let's imagine they called a hotel and said, "We need a big room. And we need the furniture to be laid out in some way that we can have at least six feet between us and so on." And so what the hotel did was, the furniture they had at their disposal was like the combination chair desk things from high school, on wheels. And so they laid it out in a matrix so everybody could be equally distanced from each other. But what the, what ended up happening was people because it was on wheels, they would spontaneously reconfigure, to suit the conversations that they needed to have. So maybe in small groups, or a circle, or whatever. And I'm not saying let's leave it all up to spontaneity, although that is kind of fun. But if your, if your furniture was easily fungible, then you could work into your agenda, okay, for this part of the meeting, we're going to move things around so that it's like this, and this other part of the... like, so you don't have to literally move furniture, you just roll your chair over. So I like that idea. And I know that happened in the real world. There's the organization that I worked with that I wanted to mention that they...I sometimes put, I sometimes put organizations through an exercise where I frame a question something like "imagine it were a criminal offence to lay out your board room like a normal boardroom. And, further, it had you had to change the layout at least once per meeting, or else you go to prison. And so what are the first two different layouts that you'd want to try?" And what you have to do is you have to give them examples. So they know that it's not just like, "well what's left? A triangle?" Like, because people's imaginations are so stunted by the fact that every single boardroom is the same so that it's hard for them to imagine it differently. So you give them examples, like, you know, you could, it could be as mundane as small groups in a circle, and as ridiculous as a roller coaster, or the moon or whatever, it doesn't matter. Whatever two things you'd want to try, let us know. And at the end of one of the conversations I had with an organization, they decided that the layout wasn't the thing that was really bothering them, it was the fact that they never moved. And they were just like, "You know what, sitting in these chairs for six hours, and getting a 10 minute break here and there is the worst. We hate it. We need to move." Let's like make a point of doing a walk and talk. Or even in fact, they also learned that most of them like yoga. So they're just like, maybe we can do yoga sometime. This is like it's pretty sophisticated organization, right? And they're just like, "oh, we like yoga? Okay, well, let's do yoga at our board meeting." And I'm just like, "Yes! Yes! Try it. See. It might you might hate it. But what if it is, like magic?" Right? Who knows? It's that sense of experimentation again. But I don't know if they did it.
Nate Schmold
Okay. But yeah, I think that's I mean that from our conversations. That's what I get like, that's the you know, when we were talking about the board room? I think my was it for the board room definition on Ground-Up Governance, which was the moon? Or they were on the
Matt
Oh, yeah, exactly. Yeah, I think it was boardroom.
Nate Schmold
That was basically the extreme of the Yeah, that's the extreme of, yeah. You know, the, your idea of shake it up. And I think that and trying and trying something in itself, the practice of that being something that could dislodge or open up new possibilities, whether or not the actual thing works or not. It's just like that philosophy of trying.
Matt
Yeah, exactly. And like, I like that you use the word practice. Because if we take that literally, like, we have to practice, or else, we're bad at it, right? Nobody's born good at this stuff. So let's practice and assume that we're going to be bad for a while and not worry about it and not be like, "Oh, that was bad. Let's never try that again." It's like, well, that's like saying, I really want to be a hockey player, but I was bad the first time, so I'm never going to try it again. It's like, well, yeah, you know, you really thought you're going to be good at it the first time?
Nate Schmold
Right. Cool. That's, that's Dang. is...to completely go off on a tangent, I was gonna give a story about a thing. But this isn't my interview. So I don't want to
Nate Schmold
I want to hear story story. No tell story, I can always edit it out if I don't like it.
Nate Schmold
Yeah, edit this out, this is more of a conversation between you and I at this point. that the... something that struck me as kind of cool. Probably the most engaged I've ever felt in a meeting, especially in a meeting with, I think, you know, 30-40 other people at one time. So in the setting, that many people in a room, it would have been super easy to sit back and not be involved and just sort of be a listener or like a fly on the wall of like, let's see how this goes. It was in Alt-MBA. And the thing that tripped me out was this was a meeting. I mean, it wasn't a board meeting, like we weren't discussing, like an important thing, but like an important business thing, or whatever. But it was a zoom call, you know, like, so this setting, I mean, honestly, something that I typically dread with work stuff is zoom calls with multiple people where I mean, it is super easy to just check out and, you know, keep your mic muted. And as long as nobody calls on you. It's like, easy to just kind of, to show up and be there. But this practice that they had, which was it was always questions being asked. There was no... never seemed like there was an agenda. Like there was a topic of what we were trying to learn about from each other. And what we were trying to learn about in terms of like, you know, what, what was the point of this call? Why are we all together? What are we talking about? But then from that point on, it became just a question being asked, and then silence. And it started off with the silence being the awkward part. And that's where it's like, you feel like, oh, "do I need to? No one's turning their mic on and saying anything. Should I be the one who does that?" And it's still silent with how is nobody talking right now? But we would just sit there in silence. Sometimes for like, 10-15-20 seconds with no one's saying anything, just looking at the little pictures of people's faces and knowing that they're all thinking the same thing. Like, "should I turn my mic on?" But then someone would, and they'd have this brilliant idea that they would share that seemed like it came out of nowhere. And then you get like, you get this feeling of like, just magic from the confidence that they had that, you know, the bravery that they were the one that undid their microphone, and then all of a sudden, somebody else as soon as they were done, somebody else's mic would come on, and they'd have an amazing idea that would follow up on that. And it like, that silence and that like openness to just be uncomfortable and to allow that discomfort to like, soak in, get everyone out of it. And then to the point where it almost felt like I'm pretty sure like everyone in the room had talked. Like everyone in the room had volunteered to hop on the mic. And it's that was trippy to me because it was it was like a Zoom call. You know, there's no there's literally like that screen with just a bunch of windows on it. There's no yeah, it was this this I think, okay. So silence. Silence was the furniture of that of that scenario.
Matt
No, I love it. I love it. And I love that. Like, I couldn't tell from your description if this silence was intentional or if it was just allowed.
Nate Schmold
It was absolutely intentional. And we I was actually one of the major things that we did learn about as like actual prompts and in our writing and stuff like that is how to use silence as like a as a way to move forward and to give space to those ideas to come out. And like, yeah, there because there was a few times even talking to some of the leaders, you know, we would do one on ones every once in a while. And I remember being in one of the chats with them. And there was literally a moment where, yeah, there was like an awkward silence. And then all three of us, and this was in like a much tighter Zoom call with just the three of us. And all three of us just looking at each other's picture on Zoom, not saying anything, starting to like smile and laugh, because it's uncomfortable. But then like, relaxing your shoulders, and it's still silent. And I swear to God, like there was one, one call or it went on for like a minute. And then it was, it's just like, it's, it's something that we don't naturally experience because we're sort of like, taught to fill these spaces up with like to make sure that we're proving that we have something to say where, you know.
Matt
We're also, we reward those people who, who speak up the most quickly and loudly. Right? They're the people who end up getting the most praise. Often, they're the ones who end up getting the better jobs and that kind of thing. And it's like, well, in a lot of cases, we're rewarding somebody for being stupid fast. Right? And I'm, I'm completely with you where it's like, well, it's a lot easier not to be stupid if you don't if you're not worried about being first. Right? And so I love that I'm gonna I might steal that I'm gonna think of a way to incorporate that into my stuff.
Nate Schmold
Right on. Tangent change. Another question. Is good corporate governance costly? Like financially?
Matt
Oh, that's, yeah, okay. No. Is that a good enough answer?
Matt
No. It costs nothing. No, let me give you I'm gonna give you two sides to it. So if you already have, like, let's say, you've already got a board. Let's say you're, let's imagine you're actually just sitting in your boardroom during a board meeting. And you're just going through your normal stuff. So what we're talking about is, does it cost any extra to go from normal to good? The answer's no. Right? Because all the for me, good governance is just that it's just being intentional about the conditions. So how, what does it cost to start being intentional? Zero, right? It just costs a question or a like, change in mindset, or whatever. But let's imagine for a second that we decided, you and me, that one of the conditions that really mattered, for our decision making was that we needed the world's largest diamond. And otherwise, we don't have the conditions we need to make an important decision. And my question is, like, well, how much should good governance cost? Right? What's it worth? And like, it's probably worth more to most organizations than other things they spend money on. And maybe another way to put it is what's easier to, or what's more costly to lose: money or good governance? And I think good governance is probably more costly to lose, and it's also usually pretty easy to get more money. So the short answer is no. And the long answer is well, so what if it is expensive? It's still probably worth it.
Nate Schmold
Yeah,
Nate Schmold
Right? Well, I think that's so this is kind of another question and this is honestly just me being naive asking like how, how do you measure the results of good corporate governance and how do you attribute those results to the good corporate governance like is that is are there systems for that or the like?
Matt
No. This is the this is the chase that I spent the first 20 something years of my career on which is okay, well let's make good governance measurable in some way so that we can seek a connection between it and financial results. Like that's if you look up in Google Scholar or whatever "corporate governance" and get all the scholarly research on corporate governance. It's basically trying to connect some definition of good governance, some really narrow definition of good governance like, "Oh, does the board have a lawyer on it? That's how we're measuring good governance. And let's see if there's a connection between that and financial performance." And it's really interesting that that's the journey that like, every single scholarly paper that I know of on corporate governance is an attempt to make these connections between some really measurable thing defined as good governance, and some measurable result, like profitability or share price or whatever. And then they pretend that they found some causal relationship between having a lawyer on the board and increased share price. But you and I, if we, if we sat back and asked the question, "How could having a lawyer on the board possibly increase share price?" We can't actually imagine that connection, even though the data might seem to show a causal relationship. If we actually imagine how that could be possible in the real world, we come up with nothing. There's like, there's no, there's no reasonable explanation. So getting more substantially to the question, you're asking if we want to try to criticize I know, this isn't what you're trying to do. But if someone were to try to criticize my definition of good governance - intentionally cultivating effective conditions for making decisions. They wanted to criticize it by saying, "Well, how could you possibly connect that like, you can't you don't know how, what the outcomes are. Or if you can't connect it to results, it doesn't matter." And I'll say, Well, I mean, really, what we're talking about is a decision, right? The inputs into a decision, there's no such thing as a decision that we know the result of before we make the decision. Can't exist, right? There's no decision to be made, if we already know what's going to happen afterward. So basically, what what you'd need is like a multiverse to be able to connect good governance to results, because we'd not only have to say, "we're pretty sure this led to good results." We'd also have to say "it led to better results than every other possible path we might have gone down, but we didn't. So we don't know." So I'm being a bit annoying here. I think that if there's anything that I would want to say about the potential to connect governance and performance is, if we like that definition, if we're being really intentional about about cultivating great conditions for decision making, we've got all the best information at the right time in the right ways, or the best information we can we've got the right people in the room, skills, expertise, varied and and divergent perspectives and we've got, nobody's uncomfortable, nobody's too angry, nobody's too distracted all that stuff. Then I would like to think that the probability of a bad result is lower. But I'd also have to say that there's no such thing as like good governance can't overcome bad ideas. So like, let's say that we're that we've come up with some really dumb product. And we've you and I have been invited to be on the board of a company that try it that's trying to figure out how to, to make this product work. We do our best, and it fails. That's not bad governance. That's just a bad idea. And that's different. So that's a long way of answering your question. There's a shorter way of answering it, which is, I don't know, really. I don't think you can connect governance and performance very directly.
Nate Schmold
No, but it sounds like, yeah, that makes a lot of sense like that. You can pinpoint things that areas that you can try things out, and you can pinpoint obvious problems and solve them. And the assumption is, yeah, you're working towards an improved situation, so...
Matt
Yeah, if we made a, if we made a decision that turned out to be bad, and we just left it, and said, "Oh, well, whatever, we don't care." Then...as long as we did, even if we did that intentionally, it's fine. But we'd probably say, "Ooh, shoot, that was a bad decision. Why don't we cultivate effective conditions for figuring out what to do about this?" Right? So it's a journey, it's less about, "did we achieve this result?" and more about "what are we what's the nature and shape of the journey in service of making decisions?" I don't know if that sounds really nerdy and woowoo but I still believe it.
Matt VO
And that brings us to the end of part one of my chat with Nate. And really this was only a two parter because the conversation was too long to fit into one episode. So tune in next week for episode 31 of Sound-Up Governance where we'll pick up right where we left off. And in the meantime, as always, if you have any comments or questions or complaints or suggestions, email them to soundup@groundupgovernance.com. See you next week.