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Governance Watching
April 6, 2015

Trevor Shaw Trevor Shaw CPA, CA, CMC, CQA
Senior Consultant,
Legislative Auditor

“You can observe a lot by watching.” Yogi Berra

While having touched on governance from time to time over a long career auditing government programs, it was time to update myself on the topic and reflect. This is the result for sharing with you.

This article outlines the genesis for governance concern, the domain of governance, useful sources of information, noted developments on the federal scene, some personal reflections, and overall governance issues/challenges.

Context - concern for governance

Over the past few decades there have been more than a few “failures” that compelled efforts to strengthen governance (and/or management) of public and private sector institutions. Failures have had significant tragic human, economic, financial, reputational, social and environmental consequences. Witness for example:
  • Enron and the bubble burst
  • Near collapse of the US financial system in 2008
  • Fukushima nuclear disaster
  • Gulf oil spill disaster
  • Corruption and tax evasion by large European companies
  • Ponzi and pyramid schemes that walk a legal tight rope bilking millions
  • Criminal acts of rape and abuse by people in position of trust.
In Canada we might cite:
  • The federal sponsorship scandal
  • The disappearance of Nortel
  • Lac-Megantic rail disaster and oil spill
  • Scandal regarding the spending of Senators.
Well … why do such things happen? With all the laws, oversight bodies, regulators, inspectors, controls, auditors, experts, training and technologies, how are such things possible? Well, despite all there is, systems and people are never perfect and perhaps all too frequently far from it. And, it’s nothing new, if not trite, to say “power and money corrupts” – but they do.

In respect of the private sector, an insightful article in the October 2014 CPA Magazine (by Yan Barcello a Montreal journalist) observes that large players can run into trouble for any number of reasons – including inertia (and its opposite hypervelocity), strategic myopia and just plain old human folly. He uses a number of cases to make the point including Nortel, Zellers, Kmart, and RIM. He also points to the perspective of Angela Mehta (of Stirling Hoffman) that most companies fail precisely due to a lack of emotional maturity in at least one – usually several – of its key executives.

For example, Barcello points out that in 2000 Nortel had scooped up a start-up network company for $3.2 billion US. Astounding considering the company had only 10 employees, not yet made a sale, and products were still in development. A lot to pay for drawings and potential; apparently not uncommon in an IT and venture capital driven world. He also notes the CEO of Nortel cashed out $135m in stock options just months before the market crash.

Sound all too familiar? One could again ask – where were the directors? They did not hold stock options too – did they?
Governance domain

“Nothing under the sun is accidental….” Gotthold Ephraim Lessing 1772

“God does not roll dice’’ Albert Einstein

At risk of stating the obvious “Governance” is a big subject. It can be viewed narrowly or broadly. At one end of the spectrum, governance can be taken only to relate to what boards of directors do. Various standards or guidance also speak to “governance” over particular domains or functions such as quality control and IT.

Governance is also taken as a comprehensive concept embracing systems of control and accountability and also viewed as an integrative function. An all-encompassing definition of governance is made, for example, by the Organization for Economic Co-operation and Development (source: OCEG GRC Capability Model “Red Book” 2.0 April 2009).

Governance can approach a “theory of everything” encompassing legislative authority to performance measurement, from creating organizational forms and structures to instituting oversight mechanisms, from setting roles and responsibilities to reporting, from strategic planning to ensuring delivery of quality products & services, from setting rules of behaviour to the establishment of audit and audit committees.

It is no doubt true that everything is connected – one way or another one system or process impacts another (for better or worse). Indeed, according to chaos theory the beating of butterfly wings can cause hurricanes (unlikely but possible if conditions are right). Every organization has to be sensitive to risk tolerances and system tipping points as well as control and risk relationships.

Outcomes are the result of laws and systems both in nature and those made by man – we just may not fully understand them, design ours well, or see the connections and manage them as a whole. There are forever competing priorities, objectives and interests to be reconciled and risks to be managed. There is also the matter of silos. Being in control requires a lot more than hard-wired controls.

In short, governance is both simple and complicated.

Some sources of information

There is a lot of guidance available of potential use to directors and managers alike. Here are some sources along with a few items noted of particular interest (for me at least). This list should not be taken as exhaustive and complete. I tapped these sources in my research along with others.

Chartered Professional Accountants (CPA). CPA Stores has publications on risk and governance (much of which is by the legacy CICA). Some 160 items were found searching on “governance”. Noted are:
  • Guidance for Directors followed by a series of “20 Questions” Directors should ask. This are for governance in general as well as not-for-profit organizations and Crown-corporations. They address a variety of topics such as:
    • Governance assessments
    • Fiduciary duty
    • Strategy and planning
    • Long term performance
    • Codes of conduct
    • Executive compensation
    • IT security
    • Human resources and compensation committees
    • Climate change
  • Guidance on Control – Criteria (1995 model)
  • Various seminars, webinars, workshops and e learning packages.
Institute on Governance (IOG). Founded in1990 and located in Ottawa, the IOG mission is to be the pre-eminent, independent Canadian source of knowledge, research and advice on governance and its continuous improvement. This applies to governance in the public sphere, both in Canada and abroad…seeking a public sector that is more responsive and accountable and improved public policy outcomes. The Institute has been giving particular attention to indigenous governance. Among their work is:
  • The Governance Continuum
  • Distributed Governance
  • Consequences on Governance of Restraint
  • Cutting edge governance
  • Policy alignment
  • Shared back office
  • Crown Corporation Governance
  • Preparing Government for the Data and Information Needs of the 21st Century
  • 2014 Survey of Public Opinion on Public Governance in Canada
  • Discussion paper on A Risk Lens on Governance

IT Governance Institute & ISACA. This institute was established in 1998 to advance international thinking and standards in directing and controlling an enterprise’s information technology. It is aligned with the Information Systems Audit and Control Association (ISACA) that has over 35,000 members in 100 countries. The Institute offers symposia, research & case studies to assist enterprise leaders and boards of directors in their IT governance responsibilities. ISACA offers the Certified Information Systems Audit (CISA) designation and the Certified Information Security Manager (CISM) designation. Notable is the CobiT Framework covering IT governance and control over IT processes.

International Organization for Standardization (ISO). I am sure most are familiar with this body that issues standards in many fields. Noted is the pending new ISO 9001:2015. It is intended to expand and elevate ISO 9001 from a quality management system (QMS) to a business management system. ISO 9001 certification appears to be taking on new meaning.

Snippets from the Canadian federal public service scene

“The worst form of government is a democracy; save for all the rest”. Winston Churchill.

My journey came across notable bits related to governance on the federal scene in Canada. Imperfect as it may be, the system is working:

  • Blueprint 2020 is the latest change/transformation initiative for the federal public service.
  • A recent article in the Canadian Government Executive Magazine outlines ten tough challenges for 2015:

1. The dangers of a tired mantra
2. Balancing budget with citizen expectations
3. Pushing evidence-based performance
4. Pay equity: two steps forward, one step back
5. Where’s the innovation framework?
6. Why organization identity matters
7. Engaging today’s young professionals
8. Can we capitalize on innovation labs?
9. How has service consolidation (with staff cut backs) effected the frontline?
10. Can we improve online presence?

In addition to the above, some voices are raising questions about the survival of results based management in being labelled as onerous oversight in a time of deficit reduction.

All these might be argued as not critical governance issues or a governance matter at all. Even so, they are indicative of what is on the minds of public servants and, in the collective, are of concern. For me, items 2, 3, 9 and 1 resonate in particular.

  • “There’s no one talking about revisiting the principles of a non-partisan professional public service.” Janice Charette, Clerk of the Privy Council, February 2015.
  • The Privacy Commissioner of Canada was not invited to appear before the Parliamentary House Committee (now just wound up) considering Bill C-51, the Anti-Terrorism Act, 2015. He did make a submission. As part of the submission and among other things he:
    • Says the Bill exacerbates gaps in existing oversight and review mechanisms for the entities listed in Schedule 3 of the Bill. The list is made up of 17 entities including, for example, the Canada Border Services Agency (CBSA), Canadian Security Intelligence Service (CSIS), Communications Security Establishment, Department of Public Safety and Emergency Preparedness, RCMP, Citizenship and Immigration, DND, CRA, Department of Finance, and the Department of Health.
    • Endeavors to enhance oversight in the area of national security in consort with Bill C-51 noting that 14 of the 17 listed entities that will receive information for national security purposes are not subject to dedicated independent review or oversight.
    • Suggests extending the jurisdiction of one or more of the existing review bodies to include the 14, or creating a new expert review body with horizontal jurisdiction to review the lawfulness and reasonableness of national security activities.
    • Makes recommendations to:
      • Ensure that the agencies are subject to independent and effective review by an expert body and by Parliamentarians,
      • Remove impediments for information exchange between existing review bodies, and.
      • Amend the Privacy Act to allow for judicial recourse in cases involving collection, use or disclosure of personal information.
  • In a recent special report the Information Commissioner says there is a pattern of obstruction and delay in accessing government information. She makes 85 recommendations for changes to the 1983 Access to Information Act.
  • The Taxpayers’ Ombudsman was created in 2008 mandated to identify and review systemic issues and emerging trends related to the Canada Revenue Agency service to, and treatment of, taxpayers. The Ombudsman resigned in mid-2014 and a competition has not yet filled the position.
  • The Treasury Board Secretariat of Canada continues to evolve its Management Accountability Framework – a model and process for monitoring the quality of management within federal departments and agencies and is also in process of revamping (streamlining) central policies that are multi-layered.
  • This spring the Auditor General of Canada expects to table his report on the audit of Senate spending.
Some reflections

Some reflections arise from doing the research.

Governance & failure. From time to time it is good to remember that the Titanic was thought unsinkable. Words of Galileo are also worth remembering “All truths are easy to understand once they are discovered; the point is to discover them.”

When failure occurs, most everyone affected wants to know why and prevent future occurrences. Dealing with the fall out of adverse events while at the same time recognizing and dealing with systemic weaknesses is no trivial matter. This especially when penalties and legal liability are at play and careers are at stake. As one mentor put it - no one wants to hear the “S” word.

Events such as those mentioned earlier as well as changing realities have spawned waves of “reform” or “renewal” or “transformation” aimed at improving governance and/or management, including public administration. Even if these do not succeed as well as intended, the important thing is effort is made. Continuous improvement and adaption are necessary for any organism to survive and thrive.

No doubt there have been failures unseen and truths yet revealed. No doubt there are future failures in the making as we speak. No system is perfect or can fully compensate for human frailty. One key governance question is how well will they fail.

Managing risk takes professional engineering and due diligence (asking tough questions and doing the homework) for an organization to be in control and achieve its goals efficiently and effectively while avoiding undesirable events. But you probably already know this.

Governance & management. The varying definitions or understandings of governance may lead to confusion - when is something governance and when is it management? Does this matter and is it important to maintain a distinction between the two? From an organizational point of view it probably is important to keep boundary and a healthy tension between the two. If there is trespass between domains, conflict and dysfunction will likely arise. Just who has looked into this as a real issue or not, I do not know. It could be interesting.

This gives pause for further reflection.

Governance & change. From an individual manager’s point of view a differentiation between governance and management is likely an academic question. What is likely more relevant is their particular responsibility, authority, resources and accountability are clear and aligned (in reasonable balance/tension). We might call this the “RARA” factor.

Based on my experience, RARA is not always both clear and aligned (in healthy proportion and tension) in large complex organizations such as government. For one, performance measurement is a relatively new art, but is advancing. The relationship between inputs, outputs and outcomes (results) is not easily made and there is difficulty measuring and attributing results to what a particular program does.

While each RARA element may be adjusted (resources in particular) at any one time, altering all four elements in an orchestrated way is not easy during a change initiative. Keeping all four in mind and linked by design would be a challenge for any one of governance, management, control or accountability. This especially if an organization is trying to engender innovation, creativity, empowerment, risk taking and the like. Some organizations do not lend well to significant change and by their nature are risk adverse and highly error sensitive... and rightly so.

As a mentor said…if you really want to change culture or improve performance in a significant way…talk alone and shuffling org boxes will not do it… you have to change key systems, processes and practices. Most important is getting the right set of values and incentives. This is hard work. Of course you need a plan but anticipate there will be turmoil, barriers, criticism, uncertainty, setbacks, and unintended consequences. Such is the burden of leadership.

The pendulum of central and decentralized control swings back and forth while change in organizational structures is common and continuous. The federal landscape is punctuated from time to time by such mantras as “let the managers manage”, “do more with less”, or “do the same for less”. The eternal question is where and how. Which brings us to the next reflection.

Governance & public debt & deficits. Canada is one of the few countries that produces consolidated financial statements for the federal government. But many Canadians are likely unaware of the Public Accounts of Canada, let alone read them. They are very thick and the numbers very big. At March 31, 2014 the federal debt stood at $890 Billion, total spending for the fiscal year was $276B, and an annual deficit came in at $5.2B.

The bulk of government spending (and accumulated deficits and debt) is the result of statutory based spending (i.e. required by law instituted by elected politicians – Parliament over many years). This includes transfer payments accounting for 61% ($168B paid to people and other governments) and about 10% ($28B) for interest on the public debt. The remaining 29% ($80B) is for operations (payroll and other costs) of all ministries and Crown corporations, including the military.

Just as perspective and fun with numbers you could hypothesize cutting operating costs of all of the federal government by one third and it would still take 100 years to pay off the national debt (all else constant). Likewise, eliminating the entire federal public service and the military and what is saved in personnel costs ($45B) would only represent 16% of total annual spending. But reduce personnel by 10% and a $5B deficit becomes surplus; playing well as good governance for the day.

But just how much discretionary spending can be trimmed before cutting muscle and bone and impacting citizens? Sorry, no magic answer. In any society or venture there are many needs to be met and there can never be enough money. At the same time, we prefer hearing solutions and not problems or disappointments.

Now comes a matter deserving much more attention than can be given here.

An advantage of the private sector is that it has bottom line measurement. Governments do not (save perhaps elections). In the domain of public service figuring out where a $1 is better spent has never been an easy task with calls for results based management, performance measurement, program evaluations, and evidenced based decision making.

At the core, public servants give advice and take marching orders from ministers. When asked to re-allocate resources and/or find funding for new or unplanned needs while at the same time cutting budgets and continuing to do daily business, the pressure of doing so can be enormous. Do not be surprised professional public servants crash and burn. Among senior managers 14+ hour days are not uncommon and the Blackberry is never turned off. Of course this happens in the private sector too. All to say that maintaining a healthy work force is a vital governance concern everywhere, including the federal public service.

In the delivery of government programs what is the propensity or tolerance for “doing less with less”? What are the incentives for dealing with inertia and entrenched interests or disappointing stakeholders (internal and external) when taking things away or changing the way an organization does business in order to meet new and pressing needs? Axing or significantly reducing programs (even those that have outlived their useful life) is seldom popular. It’s easier letting things fade away or cutting evenly across the board than using a scalpel or turning organizations and programs on their heads.

All to say the social contract between Canadians and their government is infinitely complex and profound. Changing the contract in any significant way requires extraordinary statesmanship supported by a strong professional public service. It would also likely require extraordinary times and much elevated citizen engagement.

Governance at this level is a whole other thing.

Governance & transparency. The age of the internet and instant communication will enhance transparency and accountability everywhere. Everything can come under an instant microscope. This is good and should serve the interests of governance. The problem is information overload and whether information is complete and accurate. Being the first to get the news out is not always a good thing. Thoughtful and responsible journalism will hopefully continue playing an important role in all of governance.

Governance issues

There are no shortage of issues. Among the overall issues or challenges that surfaced from my searching follow:
  • The need everywhere is maintaining trust among stakeholders and restoring it when lost.
  • Thinking long term - keeping the long term interests of an organization in mind and ensuring decisions from top to bottom and side to side accord its values and purpose.
  • Getting beyond the bottom line and stock price as pre-eminent and singular indicators of corporate success - bringing social responsibility and sustainable development into the board room and giving them more than lip service. (see footnote*)
  • Standing guard against the follies of man – ego, greed, arrogance, narcissism, conflict of interest, wishful thinking, denial, deceit, gamesmanship, spin doctoring, poor communications, and lax oversight. This means ensuring the right directors and senior managers are in place and ensuring problems and issues get put squarely on the board room table. The three monkeys do not belong.
  • Being assured that systems for control are in place, working and continuously improving.
  • Keeping pace with change and finding best practices – the challenge in a rapidly changing global world is knowing where to look. This is a full time job let alone implementing best practices.
  • Reviving the attention and weight given to financial statements (balance sheets and income statements) when assessing the value of business enterprises.
*Footnote: For a full appreciation see the 2012 Report of the United Nations Secretary-General’s High-level Panel on Global Sustainability: Resilient People, Resilient Planet: A future worth choosing. ISBN 978-92-1-101256-9

Who has the greatest governance challenge?

From watching the news and documentaries, my vote would be the Catholic Church, specifically Pope Francis. In the wake of scandals (financial and otherwise) and in face of shrinking numbers and many highly decentralized and disparate organizations around the world, his is the task of transforming the church and restoring trust in the Holy See. He has taken steps. For one, he has replaced all members (cardinals) but one of the board overseeing the Vatican Bank and for the first time it recently published an annual report.

What’s your vote?


Governance is both simple and complex. Guidance is available from a number of sources. There are issues and challenges everywhere. And, governance is not for the faint of heart or the unprepared. For me it is about ethics, values, leadership, solid systems, and the pursuit of greater good. The journey continues as I hope does yours.

Thank you for your kind attention. Hope you enjoyed the reading. Comments are invited.

Trevor Shaw