Governance and Risk: A Synopsis for 21st Century Reformers

By Bruce Piasecki, Founder and chairman, AHC Group


A big clear book, Governance and Risk, sums up the domain and predicament we still face since the 2008 financial crisis well. This George Dallas book, published by McGraw Hill, and weighing in at 598 pages, still defines the essence of good corporate governance in practice. I pay close attention to this book, and re-read parts of it before my Board of Directors meetings.

This Dallas governance book starts:

“According to an old folktale, a traveler from the city once toured a rural countryside during a driving rainstorm, and came upon a farmer sitting contentedly in his house with the rainwater pouring through the roof. The city gentleman asked: ‘I see your roof is leading, why do you not fit it?’ The farmer looked at the visitor form the city with surprise and annoyance, and said: ‘Well, right now it is raining too hard. And when the sun is shining, it doesn’t leak.’…..“If we replace the rain”, Dallas continues, “with corporate governance failures, and if we replace the complacency of the farmer with the historical attitude of many corporate managers, and shareholders about corporate governance, we see one of the roots of the governance problem that has become increasingly visible in markets around the world.”

Good governance is noticeable when you experience its benefits. Bad governance, like half backed definitions by any court on pornography, is often neglected by the complacent. Unnoticed by boards and executives, the deep roots of this form of waste or incompetence or market deception grows into risk, financial lost, and perhaps the entire demise of the organization as we say with Enron and others in my book Doing More with Teams.

Good governance is ever present, the interplay of diverse board members, executive staff, and the organization at large. One take-away in watching the recent manipulation by Elon Musk of Facebook makes me, and others, hedge our ownership if his outstanding stocks and think perhaps his firms cannot survive without him. That impressive survival of a cult of leader type I call “half governance.”  Investment in this type of top heavy firm comes with historic risks of great magnitude. John Elkinton and many others talk about how the outside world is like a continual wave of pressure on bad governance, as is the knowing press. My work talks repeatedly about how the realms of business and society are osmotic, active, relentless.

There is a concept at play that I feel outdated called “the risk premium”. This is the way investors typecase/estimate the risk of peer industries, say oil or gas stocks as a lump sum, or say aerospace, or high tech. That common valuation variable now misses the new nuance of 24/7 news cycle and constantly more vigilant ESG reporting.

I may be in the minority, but I feel the risk premium bets are completely dated in the contemporary timing of public disclosures where firms can be spotted and cleansed without waiting for formal board meetings, by the internet and the slap of a single well publicized court. Here think of the billion dollar deception by the West Coast firm accumulating lies that it had a new quick dip stick process for taking blood. It rise and fall from bad governance was fast. The entire medical ecosystem, from giant clients like Merck and giant pharmacy distributors like our client Walgreens Boots Alliance, probably knew from the start this Silicon Valley boast very unlikely. Yet bad governance is not discerned without a village of scrutiny

For ten years, in confidence, my firm ran a private benchmark of massive companies on Sarbanes-Oxley Act, from the 107th Congress ( 2020). From that experience, our teams learned the when you improve booking your risks in science based ways, and when you improve your business reporting to stockholders on environmental, social and governance risks you are avoiding bad governance practices.



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