What is this thing called governance?

Any reasonably complex entity - typically one that involves interactions between people - faces a challenge:  achieving desired outcomes, and maintaining some sort of integrity, in a complex world that challenges the way you want to do things, what you want to achieve, and perhaps even your very existence.  It might start when you're just a small company. You get family members involved. Do they share your vision for the company?  Would they always act as you would act?  Or would they see different possibilities and ways of doing things.  And who would be right?  Perhaps they might understand better how to achieve your vision, and need some space from your controlling mechanisms to be able to demonstrate the validity of their ideas.  Perhaps there is a family renegade who you thought would contribute well to the company, but is turning out to be something of a risk, and potential embarrassment.  He's got irresponsible, but clever and cost-saving, ideas about how to dispose of the company's waste, for example.  Governance is all about running a ship that manages these sorts of complexities, seeks the "right" outcomes, has focus, and is directed in its efforts. When decisions are made, there is commitment to their implementation.  When objectives involve contributions from different parts of the company, and perhaps also external parties, there is coordinated effort.  Everyone pulls together.

On a grand scale, these are the problems that are faced by large corporations and governments. And you can see that governance is something that can always be improved on, and there will be all kinds of mechanisms for ensuring good governance. Large corporations, with operations spread across the world, with offices that may actually meet up with one another comparatively rarely, dealing with different local communities and cultures, will face particular problems with governance. Chief executives will come and go, each will articulate a vision for the times, and try to marshal the forces of the organisation around the vision.  And people are becoming a little weary of these visions, which often seem to come and go, and change with the weather.  People are increasingly looking for governance that is anchored in values, and fundamental principles of good conduct.

Governments, of course, have the same problem, but spread over a much wider sphere of interest.  Whereas the activities of a corporation may, at least superficially, be confined to, say, producing fast food for public consumption, a government has all kinds of objectives, and its guiding principles must be fundamental if they are to have any kind of unifying value.  Modern political parties are, can we say, unholy alliances of all sorts of diverse interests, each with some degree of electoral appeal.  The job of leaders in government is to ensure that the government acts and speaks with one voice, even if not always that of the leader.  And of course, the challenge extends beyond the political arm of government to its administrative arms - the various departments, ministries, agencies, programmes, and so on.  The challenge is to get all these bits working together in a coherent way.  Or, at least a way that is stable, and provides opportunity for making some gains that can be recognised and give you a chance of being elected next time around.

Seen in these terms, we have become a little jaded about the idea of governance.  We know it's important, but really achieving anything like it always seems to be a big ask, and we settle for a version of governance which is all about minimising harm, damage, or embarrassment. Governance becomes more about audits, transparency, and blame trails, rather than the vision of a united coordinated and principled effort.  It needn't be this way.

Good governance

Natural ecosystems have a kind of governance that we can learn from.  We can see that a healthy forest, for example, has a "job"  to do in terms of taking CO2 out of the atmosphere, storing it in  the leaves of its plants, and making the food available to animals that live within it.  It also has the job of producing oxygen, for the use of animals that live within and beyond the forest, and of producing a regulated supply of water to downstream ecosystems, which would get wiped out if the water came down as catastrophic floods.  So how does the forest make sure that each of its component ecosystems does just the right job?  How do the stream margins and soil ecosystems within the forest know how much water to retain and delay rushing to the streams, in order to deliver the regulated flows that the stream ecosystems need downstream?  Obviously the forest doesn't issue printed instructions to its "subordinates", and have any really explicit control mechanisms.  Somehow the subordinates know what they have to do, and just do it, following the laws of nature.   Effective, and good, governance has to be achieved in much the same way.

The drive to achieve good governance in the public and private sectors has seen development of a huge array of regulatory mechanisms, including codes, guidelines, standards, monitoring, audits, rating systems, disclosure regimes, and so on.  We know they are well intentioned, but we also know that meeting these requirements can be onerous, and distracting, often counterproductive, and we are not sure that they are all effective in producing the outcome of "good" governance. This "good" governance is more than about being what you want to be as a company, behaving how you want to behave, and achieving what you want to achieve.  Increasingly we are seeing good governance being measured in terms that focus on the public and common good. Good governance, then, contributes to, nurtures, respects, and supports the common good.

Why good governance is difficult

Without going on to much about it, we have to acknowledge why good governance is difficult.  We could list 101 rocks on which good governance founders, but we can mention a few.  The first is that societies, governments, and businesses, exist as a series of entities each concerned with its own needs and problems, and often their own language.  The language differences may be related to jargon, techno-speak, social class, or even values, and they contribute to the world often functioning as a series of poorly-communicating silos. Decision-making is fragmented, and uncoordinated.  There are inadequate control or feedback mechanisms that ensure the necessary coordination happens.  While there may be acknowledgement of the need to achieve through networks of interactions, and delegated authority, decisions and goals end up being compromised.  And, of course, there is ongoing change happening all around, so that ideas about what is appropriate, or good, or effective, or strategic, or whatever, are continually changing.  And the people change, too.  Just when you think you've got a good relationship going with a key partner, their leader moves on to another challenge, and you're back to where you were.

Governments used to achieve what they needed to achieve by doing it themselves. Now, the drive for greater efficiency has seen many of the functions of government dispersed through agencies or various other third parties, through society and the economy.  So, governments face a very real governance challenge in modern society.  Some would argue that the less government the better, and the sooner everything runs on autopilot the better.  While we might conceive of circumstances where that might just be possible (i.e. when everyone is deeply committed to agreed, sustainable principles of the common good), the reality is that will take some time to achieve, and we have to deal with an imperfect world of conflicting values, some of which may be opposed to the common good, and to the requirements of sustainable development.

And so we have failures of governance.  We have the Enrons, Lehmann Brothers, the WorldComs, the General Motors, the Chryslers, and goodness knows how many others.  Financial companies where greed had become a way of life, manufacturing companies that failed to see the misalignment between their business and the greater good.  We could see the US Securities and Exchange Commission or any regulatory arm of the financial system as an example of a  failure of governance.  Then we have the failed states, the split states, or states that have never been accustomed to functioning as a coordinated entity.  Closer to home, we have cities like Auckland, paralysed by the inability to get agreement on development directions and priorities.  All because of a lack of clarity on what constitutes the common good, and what is required to achieve alignment to it.  

It has been customary to see these failures as failures of accountability, and the blame game is rife. That is not to see the real problem, which is to define what it is that all these entities are accountable for and to.

Achieving accountability of collaborative networks

Today's governance problems have been defined as the problem of how to achieve accountability of collaborative networks.  We have this physically or psychologically dispersed set of public or private sector entities all doing their own thing, responding to the world as they see it.  How can we ensure that these networks are accountable?  The public is fed up with the inability to hold anyone to real account for major systemic failures, or for systemic underperformance, that have led to real losses and suffering.

Accountability is so often presented in negative terms that it is difficult to see how a more positive, constructive view might emerge.  The idea is predicated on a lack of trust, a scepticism, and a lack of faith in human nature, that we need systems and processes to ensure that governments, corporates, and other entities deliver what is required of them in ways that respect the public good.   Perhaps this is well-founded, perhaps not.  Let's explore what we mean by accountability and what it might mean for the collaborative, headless networks of chooks that we most often are concerned with today.

Experts in governance and public policy talk about three main forms of accountability - financial accountability, which is accountability for the proper use of resources;  managerial accountability, which is accountability for programmes and processes; and finally, outcomes accountability, sometimes referred to as political accountability,  concerned that the right outcomes are pursued and achieved.  So a chief executive, for example, is required, through a variety of mechanisms, to be accountable in all three ways, and the company's Board is responsible for demanding that appropriate governance and accountability mechanisms are up to the task.  The balance of responsibilities and accountabilities between CEOs and Boards varies internationally and within countries, as does the view of Board's responsibilities - some seeing them as primarily responsible to shareholders (e.g. NZ, UK and USA), and others to a wider group of stakeholders (perhaps more common in Europe and Asia).   

At a minimum, senior management and directors can be held legally to account for negligent behaviour of the company, with concerns often focusing on sexual harassment, health and safety, criminal behaviour such as fraud and corruption, and failure to observe legal requirements regarding issues such as employment equity, tax, environmental concerns.  It seems the minimum may often be as far as it goes, however, and even this may not be achieved.

Beyond this all is unclear, and in a state of change.  Accountability of collaborative networks has been regarded as an oxymoron.

At heart, however, accountability is about communication, between those responsible for actions, and those whom the actions are intended to serve, or who are affected.   The current forum for that communication, as far as business is concerned, is primarily the Boardroom, but it is becoming increasingly clear that relying on directors to provide the required pressure for accountability is overly optimistic - even with increasing use of independent directors. So, companies need to engage in a process that brings communication with stakeholders - i.e. with their collaborative network, in  order to identify the outcomes and factors that they are willing to be held accountable for.  The trouble is, this dialogue has been seen to be as a recipe for chaos by companies more accustomed to the comparative simplicity (and perhaps also, intellectual safety) of a focus on shareholders and financial performance.   While there are guidelines and standards for dialogue with stakeholders, and indeed, identifying the principal stakeholders with whom to engage, the whole process can rapidly become unmanageably complex, with the company at risk of being held "accountable" for issues which may predate its existence or presence in the local community or which relate to aspirational goals which the company has never bought into.

The answer lies in recognising the difference between accountability and responsibility, and the benefits of an approach that errs on the side of responsibility.  Fundamentally, there is a need for organisations to be much more aware of the range of effects of their activities, and of the wider potential for positive involvement and engagement in the future of communities and ecosystems.  The Creative Decisions NZ2100 sustainability model provides a way of approaching these discussions, and identifying accountabilities. The key advance in the model is the way it encapsulates what we can all agree on.  And so it provides a launch pad for collaborative networks to develop shared and complementary goals aimed at sustainable development.

Accountability and social responsibility

Effective accountability requires clarity on objectives, appropriate and adequate arrangements to achieve the objectives, arrangements that are appropriate for the executing party or organisation, and transparency and understanding of the consequences of success or failure to achieve the objectives. 

Social responsibility looks beyond the immediate objectives of the company or organisation.   It asks two questions: firstly it asks how the company's core objectives are being achieved, and how this affects stakeholders. Under this banner, it seeks to minimise and eliminate detrimental impacts.  This philosophy has limited capacity as a basis for accountability, however.  It is essentially based on a negative view of the company's interactions with stakeholders:  stakeholders are groups who bring problems that the company has to solve, and sometimes, as long as the company remains unmoved in its interpretation of its core business and duties to shareholders, these solutions can seem to be quite elusive.

But the second question that social responsibility asks is, how can the company's objectives be aligned better to the needs of society and to ecosystems? What synergies are there to be had?  How can the company or organisation better serve the public good?  This is a much more positive view of social responsibility that is capable of eliciting creative thinking about new ways of doing business, and more effectively marshalling the resources of the collaborative network.  With this approach, the organisation can  identify compelling goals that give it a greater sense of contributing to and being part of the community.  The opportunities are there to build increased trust, a more stable and proud workforce, and reduce costs of interactions with stakeholders - especially pre-empting costly confrontational situations.   All that is required is a requirement to put the public good at the top of the organisation's priorities.  Anything less than a front line commitment to advancing community and environmental well-being flags that the company is potentially at odds with the community.

Accountability is now an area of major innovation.  Everywhere, we can see examples of companies and organisations taking a broader, positive, view of their role in the community. Collaboration is seen as a positive way forward, rather than as a daunting challenge necessary to achieve organisational objectives.  Sustainability is becoming the umbrella under which these collaborations can flourish.  We see organisations embarking on ambitious social and environmental projects.  All of this is culture-changing, and builds communities who understand and see the benefits of a social responsibility approach.  Compliance is secured through collaborative, participatory governance, and motivated more by positive performance than fear of being caught out as negligent.  The idea of accountability is itself changing.