Intervention is not

Past ventures into amalgamating boards and distancing governance has proved that particular route is not the way to achieve progress, says David Watt

orporate governance is a term often used, and more often abused. The underlying principle is that corporate governance should be “the framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in a company’s relationship with its stakeholders.”

In practice, it is that the governing body (the board) in an organisation has in place mechanisms to ensure that what has been agreed to be done is being done – governance is about delivery, not just principle.

In all sectors – private, voluntary and public, the board has a duty to have such systems in place and to receive reports on their effectiveness and progress.

Things can get complicated when external stakeholders try to influence the activities of an organisation – as may happen, for example, with investors in the private sector or government in the public sector. It is always dangerous when such pressures are exerted, as unintended consequences such as altered market profile or increased media scrutiny can adversely affect the organisation and steer it away from its core purpose.

Of course, there will be occasions when intervention is essential to prevent total meltdown, but these are rare and should not tempt politicians to believe that issuing a dictat is preferable to well-practised boardroom consideration and action.

In Scotland, companies like Alliance Trust and Standard Life have had to expend a great deal of time and money to fend off unwelcome interventions from vested interests to protect their chosen strategic direction.

Equally, some universities, independently recognised as worldclass institutions, have recently expended a great deal of energy in resisting Scottish Government attempts to enforce certain strictures on their constitutions and governance.

Now this desire to intervene has emerged in the review of the Enterprise agencies where the early suggestion is to have one “super board”, not four, to oversee more than £2 billion of public funding.

Given the importance of these bodies and their activities, it is hard to see how they can be improved by increasing their size and complexity and it is extremely difficult to see how moving the board further away from the “shop floor” will help them deliver their targets more effectively, or allow the directors to better ensure that they are doing what they are remitted to do – in this case to manage a detailed oversight of significant expenditure in the tens of millions.

Effective boards are all about scrutiny, challenge, and accountability. We all want better public services, a growing economy driven in part by aligned and co-ordinated delivery by the various bodies involved.

Amalgamating boards and distancing governance really does not seem the way to achieve progress – a view based on bitter experience witnessed across all sectors of Scottish civic life. ● David Watt is executive director, Institute of Directors, Scotland