Governance lessons from ‘House of Cards’

The new season of Netflix’ House of Cards has just been released. The success of this series is largely due to its two protagonists, Frank and Claire Underwood.

The key to the success of these bold and powerful characters is their understanding of each other. Both recognize the need for calculated risk-taking – they know when to step in and tell the other that it is or isn’t the right time to take that risk.

Three factors – leadership, diversity and risk – intertwine to great effect in the program. These three elements, as elaborated by Grant Thornton global leader for Tax Services Francesca Lagerberg in her blog just a few weeks ago, are also high on the board agenda for dynamic businesses today.

Within an organization, managing risk requires making tough decisions. Like anywhere else, the best decisions are often those that emerge from vigorous discussions and scrutiny. When people think the same conventional way and decision-making goes unchallenged, cultural weakness can often occur. A case in point is the recent problems at Toshiba, amid which its chairman suddenly resigned earlier this year; this had been attributed in part to governance and weakness of culture where decisions went unchallenged.

Put simply, a diverse set of perspectives is a good thing when it comes to governance, particularly when managing risk. Having a range of viewpoints on risk gives the decision maker a greater chance of spotting the threats. Another important reason for this is that risk does not just pose threats, but also real opportunities.

Perhaps this is also the same thought process used by the Securities and Exchange Commission (SEC) when it developed the new Code of Corporate Governance for Publicly Listed Companies, which now requires a policy on board diversity. This is in support of the value in differences in points of view as they improve the way an organization functions.

The SEC itself pointed out that diversity is not limited to gender but also extends to age, culture, skills and competence. Gender, though, is one of the quickest way to check board diversity. Research conducted by Grant Thornton for one of its 2017 reports found that men and women approach risk, and perceive the likelihood of risk, differently. Contrary to what many might expect, it is the men who see greater levels of risk in their business environments, and are more likely to jump to action on these risks. In comparison, women overall see lower levels of risk when considering aspects of organizational and commercial life, such as political or economic change, and see lower levels of opportunity in these changes.

Neither approach is right nor wrong. What would be wrong is to have risk managed by a team dominated by one point of view – which from a risk perspective, this is, well, plain risky. Research into US and European companies pointed out that there is an optimal level of dissent in organizations since a certain level of disagreement in the chain of command may be useful as it prevents bad decisions from being taken and gives credibility to the accuracy of the decision maker’s orders.

Inclusivity and diversity maximize the ability of Boards and their management teams to govern, foster the right culture and manage risk.

How then can this be improved?

One of the ways is to provide women and young achievers with leadership opportunities that will make them familiar with risk. Nurturing diverse future leaders requires confidence-building early in people’s careers. This is often possible with on-the- job experiences that expose them to the process of risk management.

Also, create a culture where taking calculated risks is part of a successful business strategy, not something to avoid. Creating cultures that clearly communicate the organization’s risk appetite and avoid blaming people can help bridge the confidence gap, and allow people to embrace risk.

This is not, in any way, an advocacy to run companies exactly as House of Cards’ fictional President and First Lady run America. The lengths they sometimes go to in order to get their way have undoubtedly raised a few eyebrows and left a few bodies strewn along the way. But their screen success is down to a team that approaches risky situations differently, and combines those approaches to make an informed decision.

Businesses that can pick up the good lessons from this program will have a strong showing when it comes to effective governance.

Renan Piamonte is the risk management partner of P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory and outsourcing firms in the Philippines, with 21 partners and more than 850 staff members. For comments, please email Renan.Piamonte@ph.gt.com or
pagrantthornton.marketscomm@ph.gt.com. Visit our Website: www.GrantThornton.com.ph; Twitter: pagrantthornton, and FB: P&A Grant Thornton.

As published in The Manila Times, dated on 31 May 2017