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The Core Purpose of Governance

 

No longer in Kansas | The game of balance | The core purpose | The social question | A very difficult task

 

Governance is one of the buzzwords of the day, although it has been ticking away in the background for much longer. But in the post-Enron/Worldcom/etc. world, it suddenly has been thrown into sharp focus. Sleepy governors and laid-back directors have been shaken to the core by the pounding reality of their core responsibility, which is the focus of this article.

No longer in Kansas

Things come in threes. Around the same time as Enron and company hit the end-stops, the dot-com boom went bang and 9/11 shook the very heart of the Western world. Although we are now climbing out of that deep millennial hole, it will stay with us for a long time. No longer does the predictable growth of the 80s and 90s make easy money the focus of many happy investors. Even the traditionally cautious pension funds have taken a terrible battering.

And with overall responsibility, many boards and governors were found sleeping at the wheel. Not that we should be too hard on them. Everything seemed to be going so swimmingly well. CEOs were reliably leading companies into unswerving growth, and a governor would be slapped back for daring to stay the hand on the throttle.

But we are no longer in Kansas, Toto. The world has changed and probably for the foreseeable future, which is effectively forever. Which is where those who claim governance as their profession should always have been looking.

The game of balance

One of the tricks of governing countries that has been learned across hundreds of years of wars and hard experience is to have a system of checks and balances. The dual chamber system of the UK Parliament curbs some of the more foolhardy notions of the lower house, making the law-making body more cautious and thoughtful in its machinations. The Presidential system used in the USA and elsewhere adds another layer of caution.

And yet governing boards and management teams, who should have been playing balance, have either played on the same side, plotting the future hand-in-hand together, or the board has held back in fright from disturbing the confident plans of their wayward charges. Perhaps also they fell foul of that classical management trap of not wanting to criticize the people they appointed, for fear that it would adversely reflect back on themselves.

The core purpose

The core purpose of the senior management team of a company is to build value and to grow the company. To do so is to take inherent risks. But like asking a fish about water (water? what water?), when you have had your head inside a business plan for long enough, you lose sight of the risks involved. You become emotionally involved. You become the passionate leader that all those books and seminars told you that you should be. Motivating the troops and leading the charge.

The purpose of governance is not to stop all such passionate plans. But it is to look at them with a cooler head and a longer-term view. It is the job of boards of governors to look beyond the medium-term vision of proud leaders to possibilities beyond. Their core purpose, no more and no less, is to assure the very survival of the company.

The social question

A question that often gets leveled at governors is one of social responsibility. Where should the company stand on social and environmental questions when the cost of such laudable actions seems like a burden that their competitors may not be shouldering.

Again, the long view looms into sight. If social and economic affairs are not considered, then entire economies and ecosystems (both biological and economic) may collapse. The wisdom that is part of the governing job must now be brought to bear on this thorny question, and again a balance must be sought. Nobly impaling the company on green issues is as foolhardy as black-hearted ignorance. If you do not survive, you will not be remembered and you will not get to fight for the social question again.

Governors also have a broader game to play, in which they can have far-reaching effect. By casting a wider net and interacting with governments and others (including competitors) for whom the sustainability of our very way of life is of deep concern, they may snag the elusive ecological eel. Acting together, they can influence processes of standardization and legislation, both national and international, that lead to a system where their grandchildren and beyond can live, work and play as they in their time have done.

A very difficult task

A very difficult task, indeed. To pull on the brakes of a speeding applecart risks upsetting the whole load, yet not pulling may be a greater risk. Managers must manage, as they say, and when held back they may rail and rant at what seems to be a bunch of risk-averse old fogies. And they may be right, at least to some degree. But if the result increases the probability of longer-term survival, then so be it.

The knife cuts the other way also, of course. A company that is over-cautious may well get left behind or cut out of new markets. Competition is a harsh game and survival to play in the next round is the first reward. Governors must also, of course, take note of this fact.

And in some cases, companies find themselves in a cleft stick. To hold back is to risk losing the race. To push forward is to risk the unknown. The risks of both may be unknowable, and in some cases both may be a path to failure. Governors are human too, and companies have natural births and deaths. When the time comes, the game is sometimes to leap hopefully into the dark, knowing that at least you have discharged your duties to the best of your abilities.

 

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