Governance Dynamics: Change Driven by Cases and Principles

Why does decision governance change in a firm? There may be new decision situations which would benefit from new rules. There may be decisions which challenge existing governance, requiring it to change. Finally, we may have principles that we want governance to implement, and it does not do it to the extent we want.

In these three cases, change to decision governance is motivated by either the implementation of principles, that is, abstract rules, or from specific cases of decision making. 

The two approaches are different. The approach by principles is less sensitive to new information: if we want governance to be responsive to new cases, we adapt it to cases, based on what we generalize from cases. 

This text is part of the series on the design of decision governance. Decision Governance refers to values, principles, practices designed to improve the quality of decisions. Find all texts on decision governance here, including “What is Decision Governance?” here.

There are other differences. The distinction between these approaches is known in law, and specifically in research on comparative law, where it has been nicely laid out as follows. Below, common law corresponds to governance developed from cases, and continental law to that driven by principles. 

“The tradition of the English Common Law has been one of gradual development from decision to decision: historically speaking, it is case law, not enacted law. On the Continent, the development since the reception of Roman law has been quite different, from the interpretation of the Justinian’s Corpus Iuris to the codification, nation by nation, of abstract rules. So common law comes from the court, Continental Law from the study; the great jurists of England were judges, on the Continent professors. On the Continent lawyers, faced with a problem, even a new and unforeseen one, ask what solution the rule provides; in England and the United States they predict how the judge would deal with the problem, given existing decisions.

These differences in style run through the whole legal system. On the Continent lawyers think abstractly, in terms of institutions; in England concretely, in terms of cases, the relationship of the parties, ‘rights and duties.’ On the Continent, the system is conceived as being complete and free from gaps, in England lawyers feel their way gradually from case to case. On the Continent lawyers delight in systematic, in England they are skeptical of every generalization. On the Continent lawyers operatp with ideas, which often, dangerously enough, take on a life of their own; in England they think in pictures; and so one could continue.” [1] as quoted in [2].

If we want to ensure that decision governance adapts quickly to new information, then it should be possible to challenge governance anytime a decision needs to be made. The problem is that if this challenging is done inefficiently, governance starts being counterproductive, as it does not result in faster and better decisions: in any decision situation, both the decision and the governance are at stake. In practice, this can be handled by ensuring that people with sufficient seniority, who have authority to override governance, are involved, and that only some decisions, those consequential enough by some agreed-upon measures, can give rise to challenges to governance. 

Focusing on frequent adaptation is important, but should not be done in such a way that principles are disregarded. The practical approach is not so much to question principles, but to consider his decision governance is coherent with values that are promoted in the firm. Also, it is important to keep in mind that principles to implement can come from regulatory requirements, and when this is so, it becomes harder to challenge them – we can only challenge how they are implemented in governance.

References and Further Reading

1. Zweigert, Konrad and Hein Kotz (1987). Introduction to Comparative Law. Oxford: Clarendon Press.
2. Porta, Rafael La, et al. “Law and finance.” Journal of political economy 106.6 (1998): 1113-1155.

Decision Governance

This text is part of the series on the design of decision governance. Other texts on the same topic are linked below. This list expands as I add more texts on decision governance.

Introduction to Decision Governance

1. What is Decision Governance?
2. What Is a High Quality Decision?
3. When is Decision Governance Needed?
4. When is Decision Governance Valuable?
5. How Much Decision Governance Is Enough?
6. Are Easy Options the Likely Choice?
7. Can Decision Governance Be a Source of Competitive Advantage?

Stakeholders of Decision Governance 

1. Who Is Responsible for Decision Governance in a Firm?
2. Who are the Stakeholders of Decision Governance?
3. What Interests Do Stakeholders Have in Decision Governance?
4. What the Organizational Chart Says about Decision Governance

Foundations of Decision Governance

1. How to Spot Decisions in the Wild?
2. When Is It Useful to Reify Decisions?
3. Decision Governance Is Interdisciplinary
4. Individual Decision-Making: Common Models in Economics
5. Group Decision-Making: Common Models in Economics
6. Individual Decision-Making: Common Models in Psychology
7. Group Decision-Making: Common Models in Organizational Theory

Role of Explanations in the Design of Decision Governance

1. Explaining Decisions
2. Simple & Intuitive Models of Decision Explanations
3. Max(Utility) from Variety & Taste
4. Expected Uncertainty to Unexpected Utility
5. Perceptiveness & Experience Shape Rapid Choices

Design of Decision Governance

1. The Design Space for Decision Governance
2. Decision Governance Concepts: Situations, Actions, Commitments and Decisions
3. Decision Governance Concepts: Outcomes to Explanations
4. Slow & Complex Decision Governance and Its Consequences

Design Parameters of Decision Governance

Design parameters of decision governance, or factors that influence decision making and that we can influence through decision governance:

• Factors influencing how an individual selects and processes information
• Factors influencing information the individual can gain access to

Factors influencing how an individual selects and processes information in a decision situation, including which information the individual seeks and selects to use:

1. Psychological factors, which are determined by the individual, including their reaction to other factors:
   1. Attention:
      • Attention Depends on Stimuli & Goals
      • Motivated Reasoning: How To Detect And Mitigate Its Risks
   2. Memory:
      • Selective Memory Can Be Desirable
   3. Mood
   4. Emotions:
      • Emotions Mediate Decisions Always and Everywhere
   5. Temporal Distance:
      • Why Perception of Long Term Outcomes Should Be Influenced First?
   6. Social Distance:
      • Increased Social Distance (Over)Simplifies Explanations
   7. Expectations
   8. Uncertainty
   9. Attitude
   10. Values
   11. Goals:
       • Goals: How Goals Shape Decisions
       • Goals: How Goals Form and Change
       • Goals: Factors That Stabilize and Destabilize Goals
       • Goals: Factors Influencing Goal Selection
       • Goals: How to Improve Alignment to a Team Goal
   12. Preferences
   13. Competence
2. Social factors, which are determined by relationships with others:
   1. Impressions Of Others: How They Influence Decisions And How To Regulate Them
   2. Reputation
   3. Social Hierarchies:
      • Social Hierarchies: Why They Matter for Decision Governance
      • Social Hierarchies: Benefits and Limitations in Decision Processes
      • Social Hierarchies: How They Form and Change 
      • Power: Influence on Decision Making and Its Risks
      • Power: Relationship to Psychological Factors in Decision Making
      • Power: Sources of Legitimacy and Implications for Decision Authority
      • Power: Stability and Destabilization of Legitimacy

Factors influencing information the individual can gain access to in a decision situation, and the perception of possible actions the individual can take, and how they can perform these actions:

• Governance factors, which are rules applicable in the given decision situation:
  1. Incentives
     • Incentives: Components of Incentive Mechanisms
     • Incentives: Example of a Common Incentive Mechanism
     • Incentives: Building Out An Incentive Mechanism From Scratch
  2. Rules
     • Rules-in-use
     • Rules-in-form
  3. Institutions
• Technological factors, or tools which influence how information is represented and accessed, among others, and how communication can be done
• Environmental factors, or the physical environment, humans and other organisms that the individual must and can interact with
  1. Detail: Level of Detail Can Influence Probability Estimates

Change of Decision Governance

1. Public Policy and Decision Governance:
   • What is the Role of Public Policy in Decision Governance?
   • Dynamics of Public Policy Development
   • How Does Public Policy Influence Decision-Making?
2. Compliance to Policies:
   • Adapting a Decision Process to Comply with a Policy
   • How a Decision Process Can Create Evidence of Compliance
3. Transformation of Decision Governance
   • Punctuated Equilibrium: How to know if a Decision Process is ready for disruption
   • Policy Windows: What They Are And When They Occur
4. Mechanisms for the Change of Decision Governance
   • Incrementalism: What it is, and when/how to implement it in decision governance
   • Governance Dynamics: Change Driven by Cases and Principles
   • Governance Dynamics: Case-Based Development of Decision Governance