It’s the governance, stupid

(as appeared in the Globe and Mail, October 5th, 2002)

From stock markets to churches, our faith has been shaken in our key institutions. Better governance is the only answer, says PENNY COLLENETTE, former senior adviser to Jean Chretien.

Governance, governance, governance. New Yorker columnist Malcolm Gladwell’s book The Tipping Point describes that moment when trends or ideas that have been hibernating awake into society’s consciousness, when events come together to “tip” an issue into heightened awareness. Universities rush to establish governance research centres, while law and business schools update their courses on ethics and values. Why is the subject of governance—a term that covers making decisions, setting priorities, allocating resources and resolving conflicts—at that “tipping point” right now? The Western world has survived stock market crashes and the loss of investor confidence before.

The difference this time is that the crisis of trust in financial markets and corporations has dramatically and simultaneously intersected with a loss of confidence in other institutions. Churches are rocked by revelations about clerical abuse, testing spiritual faith; deaths from tainted water in Walkerton, Ont., reminded Canadians that blind faith in any public oversight body is naive; breaches of ethical behaviour by elected officials have deepened our cynicism about government. All this has been compounded by the loss of investor confidence, thanks to a string of corporate scandals ranging from Enron to Martha Stewart, and the roller-coaster ride of stocks such as Nortel.

We must restore faith and confidence in our institutions. But it will take more than seminars and workshops, no matter how well meaning. Teaching good governance demands nothing less than a willingness to embrace change while simultaneously reexamining societal values and ethical norms. Practically speaking, it means no sector can operate in a silo any more; the days of a profession’s or an institution’s self-regulation are very possibly over.

Some are calling for Canada to follow, knee-jerk style, the response of the U.S. Congress which, this year, passed the Sarbanes-Oxley Act to more rigidly regulate corporate disclosure. But legislation is not the whole answer; you cannot legislate good behaviour. I’d like to see Canada look abroad for global models and not automatically adopt the U.S. one.

Change is tough, but we need to find the individual and institutional courage to take responsibility for our misdeeds. This means letting people hear governments and churches apologizing for missteps; it means individual directors courageously taking on management.

Clarity is another value of the new governance. As Nobel laureate Joseph Stiglitz wrote recently in The Atlantic Monthly, “No one could figure out Enron’s footnotes.” What we need now is not heavy-handed securities legislation, but real transparency. Despite everything, I still believe this will best come from the moral suasion of other powerful actors such as shareholder activists and institutional investors.

It’s also clear that the small, socially and professionally interlocked world of corporate directors has to experience a near-revolution. We need social and cultural pressure to widen the circle (perhaps we should look at the European model of including labour representatives on boards).

At the same time, journalists must rethink their attitude. Far too often, they have heaped praise on those who win multiple board appointments, as if these appointments are trophies rather than real responsibilities.

Finding the courage to re-examine values will require active leadership and collaborative thought. The governance issue belongs to all of us—employees, unions, shareholders, suppliers—we all have a stake. Reforming our models of governance is a project that cannot be guarded exclusively by one group or another. It’s distressing to read of business leaders’ insistence that they “regulate” themselves without further government intervention. All professions like the idea of self-regulation, but the past months have proved that there are simply not enough checks and balances in the business world. We are all paying the price.

(as appeared in the Globe and Mail on October 5th, 2002)

Canada should not find it difficult to play a leading role in this new governance era. The rigours of our constitutional debates, of federal-provincial negotiations and of forming the inclusionary aspects of our Charter of Rights and Freedoms, have all forced us to accept the need to compromise and collaborate. And we’ve had thoughtful reports on corporate social responsibility, such as last year’s The New Balance Sheet from former NDP leader Ed Broadbent and publisher Avie Bennett.

We’re also experienced internationally: Led by UN Secretary-General Kofi Annan, and former assistant secretary-general John Ruggie (a Canadian), the United Nations stepped into the governance arena four years ago with its Global Compact initiative—an innovative voluntary learning and network approach dedicated to improving corporate behaviour around the world. Two years later, the Organization for Economic Cooperation and Development, led by another Canadian, Donald Johnston, developed world standards for good corporate behaviour ranging from shareholders’ rights to directorial responsibilities. “These are the standards to apply,” Mr. Johnston said at the time. In other words, Canadians have already given this matter a lot of thought. We don’t need to reinvent the wheel—what we do need to do is point the wheel in new directions. Governance is now a topic in graduate schools; let’s teach its practices—transparency, clarity, honesty, responsibility—as early as high school.

Let’s challenge ourselves. Demand ethical excellence of each other. Think globally. Act collaboratively. Do what it takes to achieve good governance. Penny Collenette, former appointments adviser to Prime Minister Jean Chretien, and a former vice-president of George Weston Ltd., is Senior Fellow at the Center of Business and Government in the John F. Kennedy School of Government at Harvard.