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Alex Todd’s Interview Talking Points for: Trust Across America Online Radio Show hosted by Jordan Kimmel – G_C_.com [prototype]
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Alex Todd’s Interview Talking Points for: Trust Across America Online Radio Show hosted by Jordan Kimmel

Alex Todd’s Interview Talking Points for:  Trust Across America Online Radio Show hosted by Jordan Kimmel

1. The Road Less Traveled to Trust: My Trust Enablement journey from CompuServe to IBM and systems for online trust

I first became aware of the trust enabling power of digital social networks when I launched a couple of software products on CompuServe in 1991, several years before the Internet became popular.  I discovered that I was able to get acceptance for my new products faster, at a higher price point, with lower marketing costs, and fewer returns selling online in CompuServe discussion forums than by using traditional direct mail and telemarketing methods.  I was therefore not at all surprised when I learned of eBay’s success on the Internet a few years later.  Then about 10 years ago, while with IBM’s security and privacy consulting practice, my role was subject matter expert in public-key infrastructures (or PKI for short), a sophisticated system for enabling trust in cryptographic keys used to encrypt (or scramble) electronic information (systems used by the military, governments and financial institutions).  I felt much could be learned from PKI systems about the drivers for trust in any environment.  My efforts to extrapolate the core principles behind PKI led to the development of the Trust Enablement Framework that I have been testing, refining and applying to many areas of business (leadership, collaboration, sales and marketing, public relations, online social networks, electronic commerce, supply chain management, risk management, and business strategy) for the past decade.  These initiatives have allowed me to gain new insights into prevailing conditions for trust in business.

2. Trust Enablement: A risk management innovation – aka. Risk Management 2.0

I was excited about the possibilities for applying a systems-based discipline to diagnosing and designing conditions for trust, and saw an opportunity to formalize a new management discipline that would be complementary to risk management; whereas risk management is all about protecting what you have, Trust Enablement is all about getting what you want.  You can think of them as being the defensive and offensive lines of management (analogous to football).  In fact, I was really surprised that this void still existed in academia and management, especially because enabling trust creates far more value than managing risks.  In fact, it is quite easy to make a business case for improving trust by simply showing how it increases the volume, velocity and value of business transactions.  Making a business case for a risk management initiative is actually very difficult, because you have to assume that a risk event will occur, something that is by definition uncertain and hence, counter intuitively, a much softer measure than trust.  To this day, I find myself wondering why this is so.  Why would we continue to invest hundreds of millions of dollars in a risk management discipline that continues to fail us by repeatedly missing systemic risks, the impact from which is orders of magnitude greater than any isolated risk.  Trust and risk are actually very closely related.  You can therefore also look at Trust Enablement as being Risk Management 2.0 that inherently addresses systemic risks.  It does so by, in effect, turning traditional risk management inside-out and looking at risks from the business stakeholder’s perspective.  So Trust Enablement, or Risk Management 2.0 is in essence “reciprocal risk management.”  This may turn out to be the simplest way to introduce trust considerations into current business practice, as an improvement to an existing discipline that is already budgeted and well funded.  However, my experience has been that the risk management community is notoriously risk averse and the culture is not conducive to trusting, which inherently requires the acceptance of risk by making oneself vulnerable to others (the business stakeholders).

3. Beyond the Religion of “Good” Corporate Governance:  To the Science of Strategic Corporate Governance

When I used my Trust Enablement framework to analyze corporate governance best practices, I was looking for some indication that richer conditions for trust were associated with aspects of business performance.  I was delighted to uncover a correlation between richer conditions for shareholder trust and stock valuations, and surprised to concurrently find corporate governance styles associated with various other aspects of business performance.  I wrote about my findings in an article entitled “Corporate Governance Best Practices: One size does not fit all” that has been widely republished, most recently by The Singapore Accountant.  You can download a copy of the article from my web site, TrustEnablement.com.  Since then I have analyzed the corporate governance styles of more than 5,000 publicly traded companies in the United States and have found that a sample portfolio of those exhibiting the strongest indicators for one specific style generated a total return of 14% for the 4 year period from April 2006 to April 2010, which is huge considering the Russell 3000 was flat for the same period and the best performing Russell index only produce a 2% cumulative return.  Given the magnitude of this unrealized market value, I am now exploring opportunities to create Corporate Governance Investment Funds based on this screening method.   The overriding premise is that appropriate corporate governance practices can create fertile conditions for business that facilitate performance improvements aligned with strategic priorities.  Moreover, I believe that the most evolved corporate governance practices help management sustain value creating business activities by continually adapting to changing business conditions.

4. Beyond Performance-based Strategic Corporate Governance:  To Aspirational Corporate Governance Principles and Policies

This brings me to my chapter on corporate governance best practices that I contributed to the newly released Robert Kolb Finance Series reference book, entitle “Corporate Governance: A Synthesis of Theory, Research, and Practice”, published by John Wiley & Sons in October of this year.  In the chapter, I Introduce the Aspirational Corporate Governance (ACG) framework that highlights the critical considerations needed to design a board’s structures and practices for sustaining the value creation activities of the business.   ACG is founded on three principles:  1. Requisite Organization that requires board directors to have a higher cognitive capacity than management in order to be able to add value; 2.  Requisite Variety that requires boards to leverage multiple sources of input when relying on critical information that informs their choices, and specifically inputs from their strategic stakeholders; and 3. Adaptive Capacity that requires boards to strike an appropriate balance between empowering stakeholders and tying their own hands, which allows them to organically adapt to changes in the business environment.  In the chapter I show that ACG is consistent with OECD’s principles for good governance, but that national principles and institutional best practices tend to increasingly diverge from this ideal.

5. GovernanceCommittee.com

I conclude my chapter on corporate governance best practices by calling on governance committees of corporate boards to assume a leadership role in transforming corporate governance practices, because, whereas the board is responsible for directing the activities of management, the governance committee is responsible for directing the activities of the board.  In fact, I believe that if stakeholder trust is to become a valid business consideration and Trust Enablement is to become a legitimate management discipline, the mandate to make that happen must come from the board, under the direction of the governance committee.   I am now developing a peer support network and resources web site exclusively for corporate directors who serve on their boards’ governance committees, in order to help them assume a proactive leadership role in evolving their boards’ corporate governance structures and practices.  You can review the work in progress (currently only a prototype) and participate in the site’s design and development by visiting the GovernanceCommittee.com web site.

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