Governance

This is a big topic. Here, I want to cover just a few key aspects of governance that may be of practical use to families and corporations. It starts with this amazing book:

The Pragmatist's Guide to Governance: From high school cliques to boards, family offices, and nations: A guide to optimizing governance models, by Simone and Malcolm Collins

The book is an excellent introduction to the concept of governance, why it’s important, how it’s dysfunctional, and how to fix it. It applies to corporate succession as well as families. The dedication reads:

We dedicate this book to every rich idiot who condemned future generations of their family to political infighting and mediocrity by refusing to think through the consequences of their estate’s governing structure.

Futarchy

Robin Hanson, an economist at George Mason University, came up with the idea of Futarchy, which is putting your money where your mouth is when it comes to making decisions. He advocates the use of prediction markets to “tell the future,” inform decisions, change behavior, and govern institutions. I even use it within my family with my boys. I highly recommend reading his paper, looking up his work, and understanding his concepts. Here’s an interview I did with him a few years ago:

Thinking in Bets

Annie Duke’s book Thinking in Bets helps us approach the world in a way that is very different from our subjective judgment. Annie presents a set of skills anyone can develop for modeling the world. She gives practical exercises and advocates setting up groups of like-minded people you can work with to improve your skills.

Social choice

Social and public choice is a broad term for voting and making group decisions and implementing “the will of the people.” The most important thing you can understand about social choice is that we tend to do it in about the worst way possible, and the way we vote largely determines who and what gets elected. Most societies have some version of primary and voting structure similar to that of the United States. There are variations, but fundamentally most of these systems suffer from the same set of flaws: they are not designed to put good people in office or good rules in place. They are fundamentally flawed. Many systems are practically guaranteed to put the wrong person in office — the person who’s an excellent fundraiser and campaigner, the person who games the system.

In most systems, the goal of any political strategist is to swing the swing voter. Today, they use sophisticated software and social media to count and swing each voter one by one. This has led to an arms race that makes it more and more expensive to run, thereby empowering the incumbents and their social-media teams. The amazing film on this is The Great Hack, which tells the story of Cambridge Analytica and how they swung many elections for profit:

Also, many systems can be disrupted by a “third party spoiler,” who comes into a close race and captures enough swing voters to determine the result of the election, though it isn’t him/her.

One scheme I think is worth considering is called range voting. There are other systems, there are critiques of range voting, but I think it helps to read about range voting to understand the problem and one smart way to fix it.

I hope these ideas and resources help families set up better governance structures. We consider governance to be a critical part of any future planning portfolio.