Governance Reimagined

92Walking on Air 94Letting Out the Air 95The Social Amplification of Risk 95Case Study: The Madoff Affair 98Probability and Impact Are Not Enough 99The Real Impact 101Notes 102CHAPTER 9 The Role of Trust in Networks 103How Do I Trust Thee? Let Me Count the Ways . . . 104Embed with Trust 104Trust Me and Do as I Say 105If Only You'd Cooperate 108Does Our Relationship Need to Be This Complex? 109I Understand That You Need More Space 112How Can I Ever Trust You Again? 112Trust and the Potential of RiskManagement 114Trust and Value 114Notes 115PART THREE Not Everything Is Dead in the Long RunCHAPTER 10 Value Revisited 119A RandomWalk across Midtown 119Oh, the Possibilities 121What's the Value of This Journey? 125Utility Functions 127Fat Tails, Utility, and Value 127Parallels to Organizational Life in Systems 128We're Positively Skewed! 129Note 130CHAPTER 11 The Role of Resiliency in Creating Value 131Resilience 132Brittleness 132Single Points of Failure 132The Path of a Problem 134Threats to the System 137Loss Avoidance Revisited 139Becoming Resilient 140Notes 141CHAPTER 12 The Things That Motivate People 143What Motivates Our Behavior within Organizations? 144Do Incentives Even Work? 145Management by Objectives 146Darley's Law 147Risk-Sensitive Foraging 150Free Externalities 151Management of the Commons 152Notes 152PART FOUR The King Is DeadCHAPTER 13 The Governance of Risk 157Risk and Risk Management 157The Profession of Risk Management 159Defending the Goal 161Problems in the Box 162A Regulation-Sized Goal? 164Stress Tests, Scenario Analysis, and ANTs 165Managing the Midfield 167Setting Up the Offense 168A Venture Capital View of the Organization 170A Portfolio View of the Enterprise 171Overall Governance of Our Organizations 174Notes 174CHAPTER 14 Networked and Distributive Governance 177The Role of the Board 178Principal-Agent Relationships 179Key Duties of Board Members 180The Carver Method 181Ends and Means 181Nested Policies 183Board-Chief Executive Relationship 184Extending the Model through Subsystems 186Bringing in the Network 187Corrupting Powers of a Unitary Board 188People in Our NetworkWho Care about Us 189Rolling It Out through the Organization 191The Impact of Governance and Transparency on Trust and Value 192The Integration of Networked and Distributive Models 193Summary 195Notes 195CHAPTER 15 Economic Governance 197Markets and/or Hierarchies 197Cities, Organisms, and Organizations 200Management of the Commons 202Risk Capital as Commons 205Bringing It Together 206Notes 206Conclusion: The Re-Governing Opportunity 209Glossary 211About the Author 219Index 221

this post-financial crisis period. The book begins and maintains a focus throughout, just where it should: on the motivations and drivers of people, and groups of people, making risk/reward decisions big and small. It is a book that will benefit anyone involved with designing or managing an organization, no matter what the focus of that enterprise." -- Michael A.M. Keehner , Columbia Business School Adjunct Professor, Board Member Oppenheimer Holdings "A fast-paced, informative, witty and eminently readable guide. Governance Reimagined provides an excellent road map for creating organizations that use larger, freer collaborations to transform how we think about our work and about the value we give and get from each other -- a way to better fulfill your mission and unlock the full value of your organization. Anyone building or managing a for-profit, charitable, political or even social organization will benefit from David's perspective on governance." -- Jean Hinrichs, former Chief Risk Officer, Barclays Global Investors and Lecturer, Haas School of Business, UC Berkeley "David Koenig provides a fresh call to action in this comprehensive and stimulating discussion of organizational design and risk governance. His enthusiasm and straightforward style makes the wide-ranging illustrations drawn from economics, complexity science, behavioural finance, systems and network theory both easily accessible and stimulating as a different way to think about governance. A thoughtful work for those involved in leading and managing organizations in today's world." -- Ruth M. Whaley, Member, Board of Directors, Nuclear Electric Insurance Limited, Principal, Barset Consulting LLC "David Koenig has masterfully broken down the complex components of governance and risk and challenges us to rethink our governance framework. This excellent book dares to break old governance models and re-govern with flexibility, and inclusivity, while bringing empowerment to all stakeholders." -- Jennifer R. Sawyer, Principal, Rebound Enterprises and Sustainer President, Junior League of Minneapolis "There are two sides to this book that make it extremely valuable. First, the book presentsenlighteningexamples that illustrate the nature of risk which are unmatched by technical texts. Second, it addresses the major issue of governance in its relation to risk - unlike many of the classic texts that debategovernance without a focus onthis criticalrelationship - most notably in financial firms. The variety of approaches taken by David makes the book immediately relevant - once you start reading, you cannot stop untilreadingthe end.Professionals will immediately absorb the substance. Academics will find the variety of approaches and the examples unique. Students will gain a new perspective on governance and risk. This is a bright text that readers willhighlyappreciate." -- Joel Bessis, Professor of Finance, HEC Paris and author, Risk Management in Banking "David Koenig is equally at home explaining what subtle factors drive you to buy an apple, for example, as why complex organizations can break without warning. What's amazing, however, is how he weaves common sense with thorough academic knowledge to create a rich fabric that will enable readers to use governance for what it was intended: Creating value." -- Jon Lukomnik, Managing Partner, Sinclair Capital, Executive Director, IRRC Institute, past Deputy Comptroller, City of New York, and Co-author, The New Capitalists "This is an excellent book -- David Koenig has presented some very important and complex ideas in a simple manner and is a must read for board members and managements. The ideas of networked and distributed governance, along with the management of risk capital as commons are very powerful. These ideas are important for corporations, governments and non-profits that must be accountable for profits, people and the planet and be more sustainable. The current crisis has exposed weaknesses in governance that need to be fixed, so this book comes at a very important time, not in a negative sense but in a positive, forward looking manner. " -- Saurabh Narain, Chief Executive, National Community Investment Fund "Governance Reimagined is brilliantly simple to understand. The relevance to today's corporate boards and C-suite executives who have gone through the worst period of economic turmoil in nearly a century jumps out at the reader in every chapter. The author's risk management background, combined with a philosopher/psychologist's eye for understanding how human's operating in clusters and individually make decisions sets this book apart from all other economic, finance and risk management books. Every board member and CEO who worried over unfathomable explanations of what can or did go wrong in an organization needs to read this book." -- Allan M. Grody, President, Financial InterGroup Holdings Ltd, founder and retired Partner-in-charge of Coopers & Lybrand'sFinancial Services Consulting Practice; adjunct professor New York University Stern Graduate Business School; Editorial Board Member, Journal of Risk Management in Financial Institutions "David Koenig lives and breathes governance and in this book he presents valuable perspectives along with contemporary examples that illuminate his innovations. The book is full of great citations and current situations spice up every chapter. He connects the entire governance social network, including potentially conflicting groups, and demonstrates how establishing appropriate missions and values complemented by diversity, a collaborative open culture and transparent governance process will improve chances for healthy long term success and increased enterprise value. Governance Reimagined is a great read that does not disappoint. It should be required reading for senior corporate management and boards. " -- Mark C. Abbott, PRM, Managing Director, Head of Quantitative Risk Management, Guardian Life & President, Buy Side Risk Managers Forum