Finance
Although the word governance is suddenly being heard in just about every business community these days, the concept has been around for a long time. But governance has taken centre stage largely because of such recent and widely publicised scandals involving the likes of Enron and WorldCom. The once complacent “powers that be” are suddenly sitting up straight in light of these business fiascos. Now that their eyes are open to the global realities before them, they have begun to accept their responsibilities. They should have been awake long before now.
Where Did the “Good Times Roll” Off To?
As the expression goes, all things come in threes. Think Enron, the crash of the dot-com boom, and 9/11. It seems these events happened one right after the other, and the very core of the Western world was shaken. Although our psyches are now on the road to recovery, these blows will haunt our memories for a long time to come. The “good times” of the 80s and 90s’ rapid growth have rolled off into the horizon, and have taken the smiles of happy, make-easy-money investors with them. Even traditional, “blue chip” pension funds have not been spared the damage of business trickery.And where were our responsible and trusty leaders when disaster struck—three times? Asleep at the wheel. And despite the mess that ensued after these catastrophes, we were surprisingly forgiving of their negligence. After all, everything seemed to be going so well. Chief executive officers (CEOs) were steadily steering companies into unwavering prosperity and seemingly endless growth.But the party is over now, so to speak. The world has now changed, and we can’t go back in time. We can only roll on forward and start over again.
A Game of Checks and Balances A system of checks and balances, as we have learned over the course of several centuries, wars, and cold, hard experience, is one of the fundamental tools a government needs to lead a nation. The United Kingdom Parliament’s dual chamber system manages to keep in check some of the more foolish ideas the lower house puts forth, which makes the legislative body more careful and thoughtful in its plans and in its actions. The United States’ presidential system, and those systems like it elsewhere in the world, adds another layer of caution.And yet the leaders we rely on, those who should have been aiming for balance, have either played along with the plotters, or they turned a blind eye for fear of disrupting the firm plans of these wayward managers. Or maybe they simply did not want to censure the people they empowered to make decisions, lest they be caught questioning their own judgment. The Centre of Reason A company’s senior management team is charged with the task of building value and creating company growth. Doing so requires taking risks. But management, in formulating business plans to achieve the goals laid out for it, can become prone to losing sight of those risks. Emotions can overrule reason as management becomes passionate about its plans—the kind of passion that managers have always been told they should have.The purpose of governance is not to squelch the passion managers feel for their projects. Governance is there to serve as a reminder to take a look at the long term view. After all, management must remain the centre of reason in order to ensure the company’s very survival. A Question of Social Responsibility The question of social responsibility is another concept that governing bodies have been struggling with. Why should the company shoulder the costly burdens of (and form policies on) social and environmental issues, when it is conceivable that its competition may not be considering doing the same?Again, one must consider the bigger picture. If social and economic affairs are not taken into account, whole economies and ecosystems may cave in on themselves. It is in instances such as these that leaders must put forth the wisdom they are deemed to have. And again, balance must be sought. Mowing down a company on green issues is as unwise as black-hearted ignorance. If a company does not survive, it will not be remembered, and it will not get the chance to step into the social question arena again.Governors have even larger matters to focus on; matters in which their decisions can have sweeping effects. By interacting with other governments and leaders for whom maintaining our way of life is of serious concern, governors may catch the elusive ecological eel. Together, they can make an impact on national and international processes of standardisation and legislation that lead to a system where their descendants can live, work, and play as they in their time have done. A Daunting Endeavour A daunting endeavour, to be sure. Slamming the brakes of a speeding car may give us all whiplash, yet racing carelessly on may put us at much greater risk. Managers must continue to manage, but if they are constantly hindered and hampered at every turn, they may seethe with resentment at what seems to be a lot of stodgy, risk-averse old-timers. And these managers, to a degree, may be justified in their frustration. But if this is how businesses must operate in order to ensure survival, then so be it.Yet, the knife cuts both ways. A company that is too careful or conservative may well lose its ground in the market space, or risk being shut out of new ones. Competition is always fierce, and surviving is always the primary goal of any company. Governors must remember this.And so is the quandary most companies find themselves in today. Be too cautious, and risk losing the race. Take chances, and risk the unknown. Neither has appeal, as either one can lead to failure. Governors are people too; and much like people, companies are born, and they die. Sometimes the game requires a leap into the darkness, knowing that you have done the very best job you could
