Governance Reimagined : Organizational Design, Risk, and Value Creation

by Koenig, David R.

• ISBN13: 9780470598788
• ISBN10: 0470598786
• Format: Hardcover
• Copyright: 2012-05-08
• Publisher: Wiley

Summary

A timely guide for companies needing to grow equity and human capital after the recent economic turmoil Most organizational leaders only partially understand the factors that affect the amount of value created by the activities of their organization and thus greatly under-deliver on the potential to achieve their objectives and serve their target audiences. Re: Governing has been written to fill in the missing pieces of this puzzle. It will help put your organization on the path toward re-governing, or redesigning how it works, to unlock its hidden value. Page by page, it will show you how to generate new and better processes and improve the value of those processes by altering the external perception of their risk. Addresses various issues that affect corporate value, from management and systems theory to governance science, risk management, and traditional finance Reveals how to recognize internal processes and external events that affect value creation Highlights how to create resilient organizations that generate greater value from their processes Re: Governing offers corporate leaders a new way to think about value, and will help you understand some of the factors that destroy value within organizations. It is an important book for these dynamic economic times.

Author Biography

DAVID R. KOENIG is the Chief Executive Officer of The Governance Fund Advisors, LLC, and the Chief Investment Officer of Ram Investment Advisors, LLC. He works to discover hidden value in companies based on their corporate governance. Koenig has a long history of work on governance and risk management, having served as the chair of the board of directors of the Professional Risk Managers' International Association (PRMIA) from 2002–2005; as the lead risk management executive at three companies; and as an entrepreneur, having successfully launched multiple for-profit and nonprofit organizations. In 2010, he was chosen as a winner of the inaugural Management Innovation eXchange's M-Prize competition for his idea—Risk Capital as Commons: Distributive and Networked Governance. In 2008, he was bestowed the Higher Standard Award by PRMIA, that organization's top honor. Koenig has also published numerous articles in popular and academic journals and is an editorial board member of both the International Journal of Services Sciences and the Journal of Risk Management in Financial Institutions. He has been a featured speaker at over seventy events on four continents.

Table of Contents

Acknowledgments	p. xvii
Introduction RE: Governing	p. xix
Sources of Wealth	p. xx
Perceptions Matter	p. xxi
Keep Doing What You Do …	p. xxi
And Keep Doing It Well!	p. xxii
Creation and Evolution: The Source(s) of Wealth
Understanding Value, Values, and Value Creation	p. 3
How Much Is that Duck in the Window?	p. 3
Are We Acting on Our Beliefs?	p. 7
Economics and the Creation of Value	p. 9
Only One Equation, I Promise	p. 11
Notes	p. 14
Systems and Networks in Our lives	p. 15
Secret Agents	p. 15
Systems Theory	p. 16
Network Theory	p. 19
Notes	p. 24
The Dynamics of Self-Organizing Groups	p. 25
From Small, Unconnected Beginnings	p. 26
Hops, Skips, Jumps, and Luck	p. 28
Risk, Success, and Failure	p. 29
The Game of Evolution	p. 30
The Meaning for Organizations	p. 33
Notes	p. 34
The Emergence of Complexity Economics	p. 35
Two Schools in Conflict	p. 35
What's Wrong with Traditional Economics?	p. 36
Building an Economy	p. 39
The Bounds of Rationality	p. 41
Not so Timely or Stable	p. 42
The Role of Networks, Evolution, and Social Interaction	p. 44
What's Next?	p. 45
Notes	p. 46
Looks Matter
The Enterprise and Those Who Influence Its Value	p. 49
Keystones, Value, and Systems	p. 49
The Organization's Social Network	p. 50
Customers	p. 51
Investors	p. 52
Executive Leadership, Employees, and Contract Workers	p. 52
Board of Directors	p. 53
Suppliers	p. 54
Creditors	p. 56
Regulators	p. 57
Analysts	p. 58
Retirees	p. 59
Case Study: Iceland and the Credit Crisis	p. 59
How We Look Affects Our Value	p. 60
Notes	p. 61
Our Human Behavior	p. 63
Voices in Behavioral Economics	p. 64
The Value of Utility	p. 65
You Decide	p. 66
What Are the Chances of That Happening?	p. 67
Run for the Hills	p. 67
Dragging an Anchor	p. 68
I Could Lose How Much?	p. 68
And Just When Would I Get That?	p. 69
Everywhere, Biases	p. 70
I Care about You	p. 73
Our Evolving Thoughts	p. 74
Notes	p. 76
The Human Reaction to Risk	p. 79
The Perception of Risk	p. 79
Processing Risk	p. 83
Quantification as a Coping Mechanism	p. 85
Looking to the Experts	p. 86
Lessons for Governing our Organizations	p. 87
Notes	p. 87
Social Amplification and Tipping Points
At the Threshold	p. 90
Getting Tipsy	p. 92
Walking on Air	p. 94
Letting Out the Air	p. 95
The Social Amplification of Risk	p. 95
Case Study: The Madoff Affair	p. 98
Probability and Impact Are Not Enough	p. 99
The Real Impact	p. 101
Notes	p. 102
The Role of Trust in Networks	p. 103
How Do I Trust Thee? Let Me Count the Ways …	p. 104
Embed with Trust	p. 104
Trust Me and Do as I Say	p. 105
If Only You'd Cooperate	p. 108
Does Our Relationship Need to Be This Complex?	p. 109
I Understand That You Need More Space	p. 112
How Can I Ever Trust You Again?	p. 112
Trust and the Potential of Risk Management	p. 114
Trust and Value	p. 114
Notes	p. 115
Not Everything Is Dead in the Long Run
Value Revisited	p. 119
A Random Walk across Midtown	p. 119
Oh, the Possibilities	p. 121
What's the Value of This Journey?	p. 125
Utility Functions	p. 127
Fat Tails, Utility, and Value	p. 127
Parallels to Organizational Life in Systems	p. 128
We're Positively Skewed!	p. 129
Note	p. 130
The Role of Resiliency in Creating Value	p. 131
Resilience	p. 132
Brittleness	p. 132
Single Points of Failure	p. 132
The Path of a Problem	p. 134
Threats to the System	p. 137
Loss Avoidance Revisited	p. 139
Becoming Resilient	p. 140
Notes	p. 141
The Things That Motivate People	p. 143
What Motivates Our Behavior within Organizations?	p. 144
Do Incentives Even Work?	p. 145
Management by Objectives	p. 146
Darley's Law	p. 147
Risk-Sensitive Foraging	p. 150
Free Externalities	p. 151
Management of the Commons	p. 152
Notes	p. 152
The King Is Dead
The Governance of Risk	p. 157
Risk and Risk Management	p. 157
The Profession of Risk Management	p. 159
Defending the Goal	p. 161
Problems in the Box	p. 162
A Regulation-Sized Goal?	p. 164
Stress Tests, Scenario Analysis, and ANTs	p. 165
Managing the Midfield	p. 167
Setting Up the Offense	p. 168
A Venture Capital View of the Organization	p. 170
A Portfolio View of the Enterprise	p. 171
Overall Governance of Our Organizations	p. 174
Notes	p. 174
Networked and Distributive Governance	p. 177
The Role of the Board	p. 178
Principal-Agent Relationships	p. 179
Key Duties of Board Members	p. 180
The Carver Method	p. 181
Ends'and Means	p. 181
Nested Policies	p. 183
Board-Chief Executive Relationship	p. 184
Extending the Model through Subsystems	p. 186
Bringing in the Network	p. 187
Corrupting Powers of a Unitary Board	p. 188
People in Our Network Who Care about Us	p. 189
Rolling It Out through the Organization	p. 191
The Impact of Governance and Transparency on Trust and Value	p. 192
The Integration of Networked and Distributive Models	p. 193
Summary	p. 195
Notes	p. 195
Economic Governance	p. 197
Markets and/or Hierarchies	p. 197
Cities, Organisms, and Organizations	p. 200
Management of the Commons	p. 202
Risk Capital as Commons	p. 205
Bringing It Together	p. 206
Notes	p. 206
Conclusion: The Re-Governing Opportunity	p. 209
Glossary	p. 211
About the Author	p. 219
Index	p. 221
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