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Governance Reimagined: Organizational Design, Risk, and Value Creation / Edition 1

Governance Reimagined: Organizational Design, Risk, and Value Creation / Edition 1

by David R. Koenig


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Product Details

ISBN-13: 9780470598788
Publisher: Wiley
Publication date: 05/08/2012
Series: Wiley Finance Series , #583
Pages: 234
Product dimensions: 6.20(w) x 9.10(h) x 1.00(d)

About the Author

DAVID R. KOENIG is the Chief Executive Officer of The Governance Fund Advisors, LLC, and the Chief Investment Officer of Ram Investment Advisors, LLC. He works to discover hidden value in companies based on their corporate governance. Koenig has a long history of work on governance and risk management, having served as the chair of the board of directors of the Professional Risk Managers' International Association (PRMIA) from 2002–2005; as the lead risk management executive at three companies; and as an entrepreneur, having successfully launched multiple for-profit and nonprofit organizations. In 2010, he was chosen as a winner of the inaugural Management Innovation eXchange's M-Prize competition for his idea—Risk Capital as Commons: Distributive and Networked Governance. In 2008, he was bestowed the Higher Standard Award by PRMIA, that organization's top honor. Koenig has also published numerous articles in popular and academic journals and is an editorial board member of both the International Journal of Services Sciences and the Journal of Risk Management in Financial Institutions. He has been a featured speaker at over seventy events on four continents.

Table of Contents

Acknowledgments xvii

Introduction RE: Governing xix

Sources of Wealth xx

Perceptions Matter xxi

Keep Doing What You Do . . . xxi

And Keep Doing It Well! xxii

PART ONE Creation and Evolution: The Source(s) of Wealth

CHAPTER 1 Understanding Value, Values, and Value Creation 3

How Much Is that Duck in the Window? 3

Are We Acting on Our Beliefs? 7

Economics and the Creation of Value 9

Only One Equation, I Promise 11

Notes 14

CHAPTER 2 Systems and Networks in Our Lives 15

Secret Agents 15

Systems Theory 16

Network Theory 19

Notes 24

CHAPTER 3 The Dynamics of Self-Organizing Groups 25

From Small, Unconnected Beginnings 26

Hops, Skips, Jumps, and Luck 28

Risk, Success, and Failure 29

The Game of Evolution 30

The Meaning for Organizations 33

Notes 34

CHAPTER 4 The Emergence of Complexity Economics 35

Two Schools in Conflict 35

What’s Wrong with Traditional Economics? 36

Building an Economy 39

The Bounds of Rationality 41

Not so Timely or Stable 42

The Role of Networks, Evolution, and Social Interaction 44

What’s Next? 45

Notes 46

PART TWO Looks Matter

CHAPTER 5 The Enterprise and Those Who Influence Its Value 49

Keystones, Value, and Systems 49

The Organization’s Social Network 50

Customers 51

Investors 52

Executive Leadership, Employees, and Contract Workers 52

Board of Directors 53

Suppliers 54

Creditors 56

Regulators 57

Analysts 58

Retirees 59

Case Study: Iceland and the Credit Crisis 59

How We Look Affects Our Value 60

Notes 61

CHAPTER 6 Our Human Behavior 63

Voices in Behavioral Economics 64

The Value of Utility 65

You Decide 66

What Are the Chances of That Happening? 67

Run for the Hills 67

Dragging an Anchor 68

I Could Lose How Much? 68

And Just When Would I Get That? 69

Everywhere, Biases 70

I Care about You 73

Our Evolving Thoughts 74

Notes 76

CHAPTER 7 The Human Reaction to Risk 79

The Perception of Risk 79

Processing Risk 83

Quantification as a Coping Mechanism 85

Looking to the Experts 86

Lessons for Governing our Organizations 87

Notes 87

CHAPTER 8 Social Amplification and Tipping Points 89

At the Threshold 90

Getting Tipsy 92

Walking on Air 94

Letting Out the Air 95

The Social Amplification of Risk 95

Case Study: The Madoff Affair 98

Probability and Impact Are Not Enough 99

The Real Impact 101

Notes 102

CHAPTER 9 The Role of Trust in Networks 103

How Do I Trust Thee? Let Me Count the Ways . . . 104

Embed with Trust 104

Trust Me and Do as I Say 105

If Only You’d Cooperate 108

Does Our Relationship Need to Be This Complex? 109

I Understand That You Need More Space 112

How Can I Ever Trust You Again? 112

Trust and the Potential of RiskManagement 114

Trust and Value 114

Notes 115

PART THREE Not Everything Is Dead in the Long Run

CHAPTER 10 Value Revisited 119

A RandomWalk across Midtown 119

Oh, the Possibilities 121

What’s the Value of This Journey? 125

Utility Functions 127

Fat Tails, Utility, and Value 127

Parallels to Organizational Life in Systems 128

We’re Positively Skewed! 129

Note 130

CHAPTER 11 The Role of Resiliency in Creating Value 131

Resilience 132

Brittleness 132

Single Points of Failure 132

The Path of a Problem 134

Threats to the System 137

Loss Avoidance Revisited 139

Becoming Resilient 140

Notes 141

CHAPTER 12 The Things That Motivate People 143

What Motivates Our Behavior within Organizations? 144

Do Incentives Even Work? 145

Management by Objectives 146

Darley’s Law 147

Risk-Sensitive Foraging 150

Free Externalities 151

Management of the Commons 152

Notes 152

PART FOUR The King Is Dead

CHAPTER 13 The Governance of Risk 157

Risk and Risk Management 157

The Profession of Risk Management 159

Defending the Goal 161

Problems in the Box 162

A Regulation-Sized Goal? 164

Stress Tests, Scenario Analysis, and ANTs 165

Managing the Midfield 167

Setting Up the Offense 168

A Venture Capital View of the Organization 170

A Portfolio View of the Enterprise 171

Overall Governance of Our Organizations 174

Notes 174

CHAPTER 14 Networked and Distributive Governance 177

The Role of the Board 178

Principal-Agent Relationships 179

Key Duties of Board Members 180

The Carver Method 181

Ends and Means 181

Nested Policies 183

Board-Chief Executive Relationship 184

Extending the Model through Subsystems 186

Bringing in the Network 187

Corrupting Powers of a Unitary Board 188

People in Our NetworkWho Care about Us 189

Rolling It Out through the Organization 191

The Impact of Governance and Transparency on Trust and Value 192

The Integration of Networked and Distributive Models 193

Summary 195

Notes 195

CHAPTER 15 Economic Governance 197

Markets and/or Hierarchies 197

Cities, Organisms, and Organizations 200

Management of the Commons 202

Risk Capital as Commons 205

Bringing It Together 206

Notes 206

Conclusion: The Re-Governing Opportunity 209

Glossary 211

About the Author 219

Index 221

What People are Saying About This

"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’s (now PwC’s) Financial 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

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