Panel on Global Governance
Royal Roads University
February 23, 2004
Emergence of a new meaning
When I started putting some thoughts down on paper about “governance” I went first to my Canadian Oxford Dictionary to check the definition. I saw there that it was “the act or office of governing – so far so good – and that it comes from “Middle English derived from Old French.” It was evident that I would have to probe my own memory for more depth, and more utility.
I recalled that “governance” originally was primarily related to the world of business and corporate affairs. The corporate hierarchy, the role of CEO and CFO and relationship to the Chairman of the Board were the sorts of things one thought of as “governance.” And in that model, there may have been passing references to shareholders but it seems to me they were deemed incidental to the “big picture.” During that time the term “governance” was essentially value free in its meaning. One did not invoke “governance” in response to something – it just was.
But then we started seeing “governance” being raised at conferences, in the business media, and in internal management discussions. By then, the term was carrying a patina of value. One invoked the “governance” word when there was some sort of problem. And in early days, the problems were usually around issues of collaboration, decision-making and delegation. Very soon, other matters came to be installed under the governance rubric: they included stakeholder communications, client relations and employee participation.
One said things like “We need to focus on our organization’s governance to ensure we have the right players at the table when that decision comes up.” While “governance” was broadening and deepening as a corporate issue, we were yet to see it in the common public vocabulary. And it was not yet appearing on performance balance sheets. It was still a benign term. There was no hint that the day would come when just uttering the word “governance” would ring bells at many levels, and in a very wide range of domains. That day is now.
Nowadays the governance word fills the media – all the media. No longer concerned with the dull and dry of organizational hierarchies and reporting relationships, governance came to assume a sort of moral and legal tone, where organizational probity was something that “good governance” was supposed to be concerned with.
There was one more shift in meaning when “governance” came to be linked with performance excellence. Then – which is to say now, people think of “governance” as the appropriate way that organizations – of all sorts – ought to be behaving. And importantly, performance expectations were not limited to organizational interiors, and those who had a right – conferred or assumed – to comment on performance, were a much different range of “stakeholders” than was ever imagined.
Governance on the Web and in the News
If you want to see just who is talking about governance today and what is being said about it, you can follow in my footsteps and use the Fountain of Contemporary Knowledge – otherwise known as “Google.”
There I found – right on the first page of hits:
(1) Corporate Governance.
Enhancing the return on Capital through Increased Accountability.
Since 1995 the Corporate Governance site at CorpGov.net has facilitated the ability of institutional and individual shareowners to better govern corporations, enhancing both corporate accountability and the creation of wealth.
(2) European Governance – A White Paper – Commission of the European Communities
Why this paper now? The EU says people either distrust or are not interested in institutions and politics. “The Union,” they say is often seen as remote and at the same time too intrusive.” The EU notes tat this conflicting view exists while people at the same time “ expect the Union to take the lead in seizing the opportunities of globalization for economic and human development. And in responding to environmental challenges, unemployment, concerns over food safety, crime and regional conflicts.”
(3) The World Bank Group: Governance and Anti-Corruption
The World Bank views good governance and anti-corruption as central to its poverty alleviation mission. Consequently, there are many units throughout the World Bank Group working on hundreds of governance and anti-corruption activities.
(4) The Centre for the Study of Global Governance.
We understand global governance not as government but as a minimum framework of rules necessary to tackle global problems guaranteed by a set of institutions including both international organisations and national governments.
(5) The Institute on Governance – based in Toronto. Its web site is based around certain “knowledge areas”:
Aboriginal Governance; Accountability and Performance Measurement; Board Governance; Building Policy Capacity; Technology and Governance; Youth and Governance; Values, Ethics and Risk.
And in the News……………
In the past several months, the corporate world has reeled as scandal after scandal brought business firms to their knees. But these failures are far more profound than previous enterprise failures.
At one time, corporate failure caused damage to be sure, but that damage was felt most heavily on direct and known stakeholders. In today’s globalized economy, corporate influence is very broad, and corporate failure can be devastating. Even a tremble can cast thousands out of work – which is what we are going to see this year in the global garment industry. A factor we need to be sensitive to then is what stakeholder means in a global economy. If we are to talk about “governance,” we need a sense of who are the “governed.”
1. Shareholders, employees and direct dependents. In past time, those hurt by downturns might have chalked up their losses to a vagarious market. Today’s stakeholders are less easily satisfied. They expect good management, and they are expecting answers when things do not go well. And when things go poorly, they are demanding action. They are unwilling to stand by while executive compensation continues to spiral to the heavens, and they are not at all reluctant to call the police when there is suspected wrongdoing.
2. Public agencies including national and local governments and regulators. Corporate failure and corporate crime can inflict serious damage on the public institutions that house, and monitor their activities. We are now seeing a much closer watch on corporate activity, and significant entrepreneurship limits being defined.
3. Indirect dependents. Multi-national corporations operating in a globalized economy can affect the lives of literally millions of persons, many of whom – at the best of times – exist at or below the poverty level. While they may be powerless in that corporate world, their cause is being taken up by a very large number of governmental and non-governmental organizations who are urging a new business ethic.
Today I believe there are two pressing and visible governance issues. One is integrity in corporate governance, and the other is global sustainability. They are tightly related. The global corporate agenda is under continual pressures to not only “get its governance” under control, but additionally to adopt new governance models that will recognize effects and inter-dependencies, and the need to achieve wider, more beneficial results than simple bottom line improvement.
Stakeholders insist that both private firms and public agencies have a social responsibility and a requirement for ethical behavior. And the agencies who have a monitoring role in both the public and private domains are demonstrating far less tolerance for self-interest, and a great deal less reluctance to demand jail time for those who forget they have responsibilities beyond their own comfort.
In 2002, the US passed the Sarbanes-Oxley Act which SEC Chairman William Donaldson called “the most important securities legislation since the original federal securities laws of the 1930’s.” According to Irwin Stelzer the “act aims to improve the accuracy and reliability of corporate disclosures by, among other things, requiring corporate chief executives to certify, personally, the accuracy and reliability of their companies’ financial statements.”1
Today, “sustainability” in business is taken to mean socially responsible organizations that practice good citizenship, including sound social and environmental performance. It is not entirely clear whether business is subscribing to these new definitions, or even whether the language and models of business can easily accommodate such a paradigm shift. Lynn Stout of UCLA’s School of Law says that economics as a discipline does not contain the altruistic elements needed to ensure honour in business. Let’s hope professor Stout is wrong.
In the global economy we can no longer easily distinguish between “nation” and “business enterprise.” Business governance is not independent of government. Global enterprises may deal on a daily basis with dozens – if not hundreds – of government jurisdictions. And on the public sector side (if we can indeed still speak of “public-private”), public institutions have responsibilities that go far beyond meeting their traditional mandates that involved the provision of services to a defined constituency.
A perfect example of this particular issue is to be found in the agricultural sector regarding GM – or generic modification, also known as transgenic crops. Growth in genome-related biotechnologies is accompanied by a growing concern about increasing health and life quality disparities between rich and poor and peoples of the North and South.
The World Health Organization is urging that attention be paid to a more equitable benefits distribution from biotechnology, suggesting a global dialogue to link genomics and health. Some health observers say attention needs to be paid to “Southern” maladies such as HIV, malaria and tuberculosis as was done regarding dengue fever where great successes have been realized..
Despite the fact that sustainable governance makes good sense, and can even be profitable, we are seeing indicators now that suggest self regulation is not working.
Lisa Whitehouse in Global Social Policy (December 2003) speaks of the demise of “corporate social responsibility” and the emergence of something called ‘corporate citizenship” that will be more negotiated and partnered. In the time to come, local and global governance could be something that will involve more and more people. The risk here is that motivation and opportunity might be overtaken by cost and complexity.
The global corporate and not for profit community had hoped that self governance would make sure that everyone worked for a better world. After all, it not only was a good thing, it made financial sense to be a good corporate citizen. Markus Krisel, director of Morgan Stanley Private Wealth Management says “It is becoming more and more widely recognized that sustainability is a value-added factor.” Morgan Stanley and Germany’s Ockom Research gathered data that showed positive financial performance correlated with high sustainability activity of 602 companies from the Morgan Stanley Capital World Index. In a 2003 study, more than 80% of U.S. CEOs said “good corporate citizenship helps the bottom line.”
It appears that what is needed are come common definitions, some agreed to rules, and some proven methodologies if we are to get governance in a globalized world right. It is not going to be easy. But we have useful models. The EU White Paper on European Governance offers readers ‘Five principles of Good Governance” that provide us with some good material on definition and rules.
In my view, these principles are often what one speaks of as desirable outcomes from effective organizational Knowledge Management. Interestingly, in the text accompanying each of these principles, there were references made to relationship management. And relationships is where many in Knowledge Management, CRM and OD are now focusing their attention.
Perhaps the governance movement – if we can call it that – will be the driver that not only establishes new goals, from the level of the individual to that of the world itself, but also surfaces the methods and frameworks that we will need to get us there. That pressing need may be the driver we have been looking for that will break down the cast iron stovepipes that divide the discipline of organizational management. If that’s a possibility, then governance needs our undivided attention.