By Alan Hewitt
Board members need to be aware of challenges that may affect their companies or the boards themselves. At the same time, boards are facing ever increasing challenges in regard to both regulatory and technology-enabled change.
When looking at these changes the much maligned Donald Rumsfeld comes to mind. At a U.S. Department of Defence news briefing in February 2002, Rumsfeld responded to a question about Iraqi weapons of mass destruction that terrorists might use with:
“ . . . there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns—the ones we don’t know we don’t know . . . ”
Not a clear answer but one that became the basis for a great deal of commentary on the nature and limits of knowledge.
A fourth category was added to create what became known as The Rumsfeld Matrix:
1) Known knowns. These are things we know that we know.
2) Known unknowns. That is to say, there are things that we know we don’t know.
3) Unknown unknowns. There are things we don’t know we don’t know.
4) Unknown knowns. There are things we know but don’t realise we know.
Let me give you a fairly trivial example of the first two cases of Known Knowns and Known Unknowns.
When I took my driving test in the early 70s I had to have a good working knowledge of the Highway Code. I learned it to pass my test and would say that I knew what I needed to know and new it reasonably well. Now some 50-odd years later I know that I still need to be aware of and knowledgeable about what is in the Highway code but I also know that I don’t know in detail what is in the latest version.
The highway code was last updated in January 2022. So I’m aware that the highway code has been updated and I know that it is still important but I don’t know, in detail, what is in it and what has changed. As ignorance isn’t an acceptable defence in law I’m in the position of knowing what I don’t know.
Another example, much more relevant for boards is the newly launched EU AI Act.
Did you know that this act has been passed by the EU? Were you aware that it will apply to all companies, whether they are resident in the EU or not, as long as the companies do business with or in any EU country? Are you aware of the consequences for breaking the terms of this act?
This is a good example of a change that has already arrived but which you may not be aware of. So which camp are you in?
- Known Unknowns — I’ve heard of the act but have no understanding of what’s in it and what I need to do and what the impact could be if I don’t act.
- Unknown Unknowns — This is the first I have heard of the Act and have no idea what it means and whether it’s a good or bad thing for my business
The point I’m trying to make here is that boards have a lot of information that they need to be both aware of and, when and where required, take action on.
How often as part of your regular board meetings do you take the opportunity to update the board on the latest developments? Is the actual board meeting the right time to do that or should board members be kept up to speed between meetings? How do you manage to keep aware of things that are or will be relevant to your board and company?
Maybe the answer lies in finding organisations that are doing this type of thing for you and subscribe to their output. One example which is relevant to the Financial Services industry is the regulatory newsletter created on a regular basis by IQ-EQ and distributed on Linkedin. You can find it here: Regulatory Eye
There will be other feeds relevant to your particular industry and to the issues around Board Compliance as a whole. The London Stock Exchange for example produce regular updates.
So my questions are:
- How do you ensure that you know what is important from a regulatory perspective for your board and organisation?
- Assuming the point above, how well do you know what is required and whether you are taking steps to remain compliant?
The Unknown Unknowns camp isn’t a great place to live, and remember — ignorance is never a good defence, in court or elsewhere.
Please let us know your views.
As for Donald Rumsfeld, he died in 2006 but the jury is still out.
Register here to see a recording of the webinar Boards Don’t Know the Things They Don’t Know with Praxonomy’s Alan Hewitt and fellow London Stock Exchange Marketplace members Donald Waterreus of Board Owl and Philippa Keith of MSP Organisation.
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Alan Hewitt