Governance Cares About Legitimate Decisions, Not Lucky Ones

Most people judge decisions by their outcomes. If a bet pays off, we call it right. If it fails, we call it wrong. Governance lives in a different world. It asks a harder question: was this decision legitimate at the time it was made?

A legitimate decision may still produce a bad outcome. An illegitimate decision may still get lucky. Governance is about the former, not the latter.

“Right” versus “legitimate”

In everyday language, a “right” decision is one that delivered the best outcome relative to the goal you set.

• In investments, the right decision is the choice that maximizes return for a given risk.
• In risk planning, the right decision is the one that minimizes loss exposure.
• In operations, the right decision is the one that moves the metric you care about most.

Governance, especially in fiduciary roles, uses a different test.

A legitimate decision is one that:

• was made within the decision‑maker’s mandate,
• used reasonable information and analysis for the time,
• respected duties of care, loyalty, and prudence, and
• can be explained and defended to an informed outsider.

Legitimacy is about process, duty, and explainability. It is not about whether you guessed the winner.

This is one of the central themes in You’re Always in Court: sooner or later, someone will look back at what you did and ask whether a reasonable person, in your position, could defend it.

Subjective “right” and objective “legitimate”

“Right” is always anchored in someone’s goals and preferences:

• For a growth investor, “right” may mean maximizing upside, even with volatility.
• For a retiree, “right” may mean capital preservation, even at the cost of return.
• For an executive under pressure, “right” may mean hitting this quarter’s number, even if it stores up risk.

Each of these actors can describe very different choices as “right,” and all can be internally consistent. “Right” is subjective: you pick the objective and judge success by how well you hit it.

Legitimacy is different. In the legal and governance sense, it is objective in the way that matters:

• The criteria are defined in advance (mandates, policies, statutes, case law).
• Multiple reasonable observers can apply the same criteria.
• Their assessment is not about your personal goal; it is about whether you met the standard of conduct for your role.

You and I might disagree about whether a particular risk was “worth it.” But we can still agree on whether:

• the decision stayed within the written investment policy,
• foreseeable risks were identified and weighed,
• conflicts were disclosed and managed, and
• the reasoning was recorded and reviewable.

Governance shifts the primary question from “Did we get what we wanted?” to “Did we meet the standard we owe?” That is what makes legitimacy the anchor.

Why defensibility matters more than hindsight

In the real world, many important calls are made on instinct. People build up pattern recognition. A CEO or portfolio manager’s “gut” can be a genuine asset.

The problem is not intuition itself. The problem is inexplicability.

If you cannot reconstruct how you got to a decision:

• you cannot separate an honest failure under uncertainty from negligence or bad faith,
• you cannot show that you considered obvious alternatives, and
• you cannot persuade others that you took your role and duties seriously.

Fiduciary roles — trustees, board members, senior officers — are not hired to be lucky. They are hired to be defensible. That means their decisions must be:

• traceable back to information they reasonably could have had,
• consistent with established policies and mandates, and
• documented well enough that a later reviewer can follow the reasoning.

A purely “gut” decision may have a high success rate, but if the basis for it never leaves the decision‑maker’s head, governance has nothing to stand on when something goes wrong.

The Bitcoin trustee: a profitable breach

Consider a stylized example.

In 2010, a private individual puts a significant share of their savings into Bitcoin. With hindsight, that looks like a spectacularly “right” decision in outcome terms. It produced life‑changing returns.

Now imagine a trustee of a family trust, with a written mandate to invest prudently for the long term, diversifying risk across asset classes. That trustee takes trust assets and makes the same concentrated bet on Bitcoin, at the same time, with the same eventual profit.

From a pure outcome perspective, both decisions were “right.” From a governance perspective, they are worlds apart.

For the private individual:

• They are taking risk with their own money.
• They are free to define “right” as aggressive speculation.

For the trustee:

• They are taking risk with someone else’s money.
• They are bound by duties of prudence, diversification, and mandate.
• They are expected to behave like a reasonable trustee, not an early‑stage speculator.

It is entirely plausible that:

• the trustee who bet on Bitcoin and won could still be found in breach of duty, and
• a trustee who built a diversified, conservative portfolio that later suffered losses could be found to have acted legitimately.

Outcome does not retroactively cleanse process. Governance cannot allow “but it worked” to be a defense.

Governance as the floor, not the ceiling

Part of why governance often feels “inefficient” is that it optimizes for legitimacy, not for the fastest path to upside.

• It adds steps: approvals, documentation, conflict checks.
• It insists on process: meeting minutes, risk assessments, recorded dissent.
• It demands explainability: why this option, on what basis, with which trade‑offs acknowledged.

That “inefficiency” is not a bug. It is the cost of making decisions that:

• can survive scrutiny years later,
• distinguish honest error from negligence, and
• protect beneficiaries, shareholders, and counterparties from idiosyncratic risk‑taking.

You can think of it this way:

• “Right” decisions, in the popular sense, are about moving forward — seizing upside.
• Legitimate decisions are about not falling below the minimum standards for care, integrity, and prudence.

Governance defines and defends that floor. In a well‑run system, people still use judgment and intuition. They still take risk. But they do so inside a structure that makes their choices legible and defensible.

When you are a fiduciary, your first obligation is not to be the person who always calls the winner. It is to be the person whose decisions, win or lose, can stand up in court — real or metaphorical — as legitimate.