Overcoming the cult of governance
The governance obsession has spread throughout government and community organisations.
Aotearoa seems to me to be overgoverned in many important respects. And worse than that, ineffectively governed. That might seem odd coming from someone who has been in a wide range of governance roles over a long period. But the more experience I have the more I doubt the universal efficacy of the role.
Whether it is a start-up, a community organisation, a government agency or whatever it may be, there is an immediate inclination, even compulsion, to appoint a board. It’s what we do here. Sometimes it might be appropriate but the immediate assumption that it is an essential aspect of running anything effectively and efficiently is simply wrong.
Part of the problem is simply assuming that everything should be run like a business. The model of operating any activity which dominates our thinking is the commercial model. This prevails despite the overwhelming evidence that the commercial model, for all of its strengths, very often fails and more often is a vehicle for shifting costs and appropriating benefits.
There is risk in all human activities. It is natural that we try to take advantage of upside potential or risk and limit the occurrence and impact of the down side. We have an illusion that appointing a board is effective risk management but there is not much evidence of this happening and more than a little where even “good governance” does not manage risk all that well.
The model of governance that we have derives from what have been called “agency” issues. In business the perception is that investors in the equity and debt supporting the business cannot simply trust the managers to do the right thing for those interests. Hence a board is there to monitor and direct the management in accord with those interests. Interestingly such boards are appointed by and accountable to the equity investors in the first instance. In practice debt investors protect their interests contractually and typically much more effectively than equity.
Debt investors may just be tougher and smarter.
As board practice has evolved a much wider set of responsibilities for directors has been established by law and social expectation. But it is a very moot point as to whether such wider interests are most effectively represented in business practice by a board. In matters such as safety, cybersecurity, environmental compliance and others a commercial board often lacks expertise and, given the range of such issues, is likely always to lack expertise. As enterprises get larger and more complex the likelihood that even the most diligent board has genuine depth of knowledge and power to direct decreases. So even in the commercial context we may doubt whether the old model has it right.
Directors and their organisations try to deal with this. By training and good practice models an effort is made. But time and time again we see enterprises whose boards appear to meet these practices, and to have senior and experienced composition, fail to meet commercial objectives or compliance when unusual pressures arise. Some of this is to do with the fact that economics trumps governance, but some also comes from a model which is not well suited to the tasks. Typically enterprises spend excessive time in collecting information and reporting to boards to great cost, often limited effect and with clear distraction from hands-on management of the real issues. Rather than agents of accountability, boards often drift into becoming agents of protection and obfuscation. Protecting their own interests and those of the management they are close to. And that is just in the commercial world.
The governance obsession has spread throughout government and community organisations. Some of it is frankly ludicrous.
Most such boards are simply excuses for more meetings, more reports, with no real clarity on purpose or accountability. At best their powers are often simply advisory. They become mechanisms for delay and prevarication amongst management who spend time gaming them as much as being accountable to them.
This is not always wrong in itself – elected representatives probably should hold direct accountability and authority without these intermediary boards. You can add your own names, but we can all think of boards at various government levels that could be removed without pain and significant gain.
When I look objectively at business or community organisations now I find very seldom indeed that the addition of a board is really in the best interests of the activity. Usually more decisive and accountable management is the key, along with flexible and genuinely expert advice as required. Leaders, not governors.
Recently I had the opportunity to meet with young people from a range of sectors. As is all too common, they were interested in how they might progress in a “governance career”. I hope I managed to put them off. I always try.
People with real skills, energy and passion are better applying those directly than pretending to “govern” others.
Rob Campbell CNZM has an extensive background in trade unionism, business leadership, governance and public service. He is chancellor of AUT, and the chair of Ara Ake and NZ Rural Land.