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Prof. dr. Frank Kunneman is an expert in corporate governance. Frank has been publishing and lecturing on this subject for decades and he leads the VanEps Kunneman VanDoorne team that advises on this subject. Do you have a question about corporate governance? Send it to governance@ekvandoorne.com and perhaps your question will be discussed in this blog!

Nosebleed

No, it’s another one: we’re talking about Ben’s nosebleed here. We have two grandsons. James is four and Ben is two. Obviously, Ben wants to be able to do everything that James can do. Including jumping off the couch. As if he were a kamikaze pilot, he throws himself on the floor. He is completely confident that he will fulfill this feat unharmed and just as heroic as his brother. This is true in his mind, but unfortunately his body doesn’t want to cooperate. The nosebleed leaves him crestfallen. Not because of the injury, but because of the fact that his unwavering faith has been betrayed.

What to do as a (grand) parent? I can’t stand watching Ben trying to jump off the couch, because I’m afraid he will hurt himself. I try to distract him with another game. He’s not interested. I put pillows on the floor. Pillows are for little boys, says his big brother. So that doesn’t work either. I offer a cookie (now I’m putting his teeth at risk!). He gobbles it up and then jumps anyway. What to do?

We’re talking about risk management here. Assessing chances and consequences. Risk management means that you have to assess the risk that an undesired event will happen and then handle it in the most effective manner. The risk can be calculated by multiplying the estimated likelihood that an undesirable event will occur by the degree of undesirability of the effect that the event is expected to produce. That sounds more complicated than it is (as is the case with all nonsense that ‘experts’ will try to sell to you). This is what it boils down to: when there’s a great likelihood and there are major negative effects: don’t do it! When there’s not much chance that it will happen and there are few negative effects: just go for it!

Unfortunately it’s not that simple. His father estimates that there’s less than 50% chance that Ben will fall flat on his face when he jumps off the couch. His grandfather (me) thinks that the chance is greater than 50%. His father sees the undesirable consequences (a nosebleed) as a positive life experience and something that is surmountable. His grandfather would rather break off his own nose.

There are three things that I would like to say about this. First of all, if my son was the management board and I was the supervisory board, it’s up to my son to determine what will happen. He decides whether or not it’s okay for Ben to jump. All I can do is give him advice and even then I shouldn’t overdo it (as all grandparents know).

Second, older people are by definition inclined to base their thinking on their past experiences. That is both their strength and their weakness. The strength is that you know what can happen, because you’ve experienced it before. The weakness is that the world is constantly changing and that your experience of cause and effect will not necessarily be relevant (any longer) in the new world. Before you know it you are preventing things from happening based on your (by now outdated) experience. Each member of the Supervisory Board must remain very well aware of this effect at all times. So sometimes you should just keep quiet and not intervene.

Finally: risk management is not about avoiding risks, but about assessing risks and taking appropriate action. It comes down to being able to effectively assess the chances of good outcomes and bad ones. If you always act defensively and also perform your supervisory duties in that way, you obstruct all positive developments. That’s fatal, both for businesses and for people. Therefore, my son is undoubtedly right. The life experience (not everything that my big brother can do, I should be able to do immediately as well; taking a plunge into the deep is not always without danger) is more important than the possible injury in this case. A nosebleed can be stopped. A coward will languish in a corner.

This column is also available in Papiamentu. Click here to download a pdf version.

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