Juicier than Sex
So far, we have written Pragmatist’s Guides to life, sex, relationships, and crafting religion—yet no topic has gotten us half as excited as governing structures. You might be thinking: “Wait, what? How could governing structures be such a juicy topic?”
This will be doubly true if you have read our previous books and know the types of topics that get us excited. How could governing structures be offensive and controversial enough to get these two fired up? Well, buckle up.
Unique and interesting governing structures exist at every level of society, from companies to family offices, religions, online forums, middle school cliques, and family units. Once you start scrutinizing common types of governing structures, you’ll be astounded by the proliferation of horrible design and adverse incentives. By understanding these flaws, not only can you build better governing structures and more aptly navigate those that are already in place—and we say this with an entirely straight face—you could create something of a “Governance Bomb” and take over the world in just a couple centuries, starting with something as trivial as a family office.
There is nothing dry about governance theory. By delivering essential (but boring) fundamentals with ruthless succinctness, we will spare you from the tedium of academic polemicizing and spend the lion’s share of this book exploring the scintillating, fascinating, and messy parts of governance theory.
In this book, we aim to help you understand why governing structures exist as they do, show you how to navigate governing structures, and—perhaps most interesting—empower you to construct optimal governing structures for specific environments. Smart governance is not just for companies, but also for family offices, countries, nonprofits, and even friend groups.
If you would prefer to consume this book in audio format, visit http://pragmatist.guide/GovernanceAudio to request a free audiobook copy.
As Critical as Communication
Any group of people expected to work in a synergistic fashion needs a system that structures their interactions. That system is “governance.”
Governance is not a new concept; it existed from the moment Crog, our pre-verbal, mammoth-hunting ancestor, signaled to his hunting buddy Lud to move around it into a more favorable position, which Lud did without complaint because he understood Crog to be dominant to him in their tribal structure. While communication allows us to transfer an idea from one mind to another, governance allows people who may not have the same ideas to work as a group. Without governance, communication is rendered largely irrelevant.
Consider the radical advancements in communication humankind has made over the past 150 years. We have leapt from the invention of the telegraph to an age in which people in developing countries walk around with devices in their pockets that grant access to all human knowledge at the tap of a button. As other domains have made leaps and bounds, governance has only managed to inch forward a few centimeters. Though a few brave souls have experimented with novel governance models, today’s average organization is still governed by structures nearly identical to those which dominated a century ago. Almost no single innovation would have as much impact on human output as a large update in governance, yet the resources devoted to governance research are trivial in comparison to its potential impact.
An optimal governance system achieves a set of goals for a collective of individuals while combating sources of waste, such as resource misallocation or a failure to check damaging and exploitative behaviors. Think of a governing structure like a machine: In a machine, “waste energy”—energy that enters the machine but fails to directly contribute to its end goal—is released in the form of heat (e.g., heat generated from friction or the heat of an energy-inefficient light bulb).
In a state-level governing structure, heat that arises from friction takes the form of wasted money, which can be used as a very rough proxy for lost productivity. In an inefficient governing structure, we see money burning off the system in the form of lawyers (due to laws needing paid interpretation and implementation), corruption (due to a misalignment of the government’s participants and the government itself), due diligence costs (created by the difficulty to ascertain the value of a thing), etc.
In a large corporate bureaucracy, this friction may manifest as forms filled in triplicate, unnecessary positions, time spent generating reports that nobody really reviews, work and institutional knowledge gains not being communicated between teams, and so on. Money that burns off a poorly governed system is just a proxy for productivity, man hours, and brain power that could have been applied to productive efforts serving the group’s mission. Optimal governance reduces friction within the system, increasing groups’ wealth and productivity.
In other words, governance determines how the work of 10 people is transformed into the work of a single unit. Bad governance—normal governance today—turns work that could be achieved by four people into work that requires a team of 10, whereas spectacular governance can empower a team of four to achieve the typical output of a team of 20. The quality of governance within a system is the factor by which all other effort within that system is multiplied. Here’s the beautiful thing: At least within small case models, that factor is objectively measurable (though governance structures should also be judged based on their longevity and their fidelity to their mission statements and purpose).