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AIST series: Trustee Mindset | Due Governance

We presented on culture and the Trustee Mindset for the 2018 AIST Thought Leadership Series

We have included some additional content to what we presented below:

Before we jump right in to discuss what is the 'perfect' Trustee culture or mindset, let's look at the big picture.

We're all used to dealing with complicated questions.  But scientifically, there is a difference between the meaning of 'complicated' and the meaning of 'complex'.  And it all comes down to whether there is control over the outcomes.

Tides are governed by the laws of physics.  If you understand those laws well enough and can gather enough information, you will be able to make some very firm statements about future tide levels.

Financial markets on the other hand are complex systems.  Market participants influence the system from a bottom up perspective - but there isn't a rigid top down structure to control the outcome.  It is not possible to gather more information or understand the laws of economics better to make predictions on par with the Tide Timetable.  

In fact, if we expect financial markets to behave as though they abide by some rigid laws of physics, we will get ourselves into all sorts of trouble.

So in this environment, culture becomes critical.  In this Thought Leadership series we work through the different elements that Trustees can use to dramatically improve the investment culture.  Hint: It's got nothing to do with knowing more about investments.

Element 1: The Inquiring Mindset

In this section we provide a wide range of ideas both from our own experience and from governance experts such as the Australian Institute of Company Directors (AICD).  

The Inquiring Mindset

Element 2: Overcoming cognitive biases

In order to properly exercise an inquiring mindset there are a range of cognitive biases that need to be dealt with.  In this guide we set out some practical ways to manage these.  

Overcome cognitive biases

Element 3: Balancing rigour & complexity

Detailed checklists are invaluable for navigating through a complicated system such as an aircraft cockpit.  However financial markets are not just complicated, they are complex systems.  This means that there is usually no one right answer and the best option is subject to change.  We have prepared this guide as a starting point and to provide some inspiration for balancing a rigorous process with the understanding there may be no one right answer.  

Rigour and complexity