Introduction
“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 dot.com 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?
Closing
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
trs.aak5@bell.net
613-270-0005 |
