In our last two blogs, we discussed the origins of the world Governance, the difference between Governance, Leadership and Management. We discussed the evolution of Governance from the 20th Century and to where Governance finds itself today.
Will the Fourth Industrial Revolution create waves great enough to breach the bureaucratic seawall which has built up over the last two centuries?
The Fourth Industrial revolution is epitomised by the integration of the physical with the digital. Technology is engrained into our businesses and our personal lives. As a result, we have access to a flood of data, delivered at lightning speed. Businesses need to be flexible and agile to create strategies and deliver on them to meet the shifting needs of the world.
We are also seeing a far greater focus on broader stakeholder populations. ESG is a critical performance metric for business, tied into our climate crisis as well as the growing awareness of the impact of business on our broader social environment.
Most organisations are still governed and managed on bureaucratic principles– particularly in terms of hierarchical layers of authority. However, we are seeing a shift away from the impersonal approach to recognising the strength in our humanity (particularly against the efficiency of robotics and AI). There is a growing awareness that businesses need cultures built on transparency and trust rather than blind adherence to rules set by “superiors”, the importance of data (information) in informing decisions, and the empowerment and accountability of the individual, rather than the “role”.
We have also seen rapid shifts in ways of working – with the catalyst being the pandemic and lockdowns. The gig economy is tearing down another tenet of bureaucracy – the “job for life”. People are now selling their skills, not their time, recognising that businesses require a more flexible skill base rather than a rigid set of repetitive processes and deep specialisation.
Yet we are in a period of significant uncertainty, and it is still to be seen how we come out the other side – economically as well as philosophically.
Shaping new decision-making structures
Since the emergence of the concept of “Governance” the predominant organisational structure has been bureaucracy.
In a bureaucratic organisation, decision-making is controlled by a strict set of rules based on hierarchy. Authority is delegated down the hierarchy dependent on position in a command-and-control environment. There is no scope for challenge or engagement due to depersonalisation.
Governance is therefore often equated with bureaucracy as few have experienced decision-making outside of a bureaucratic environment. We saw this with the original definition of “corporate governance “, the system by which companies are directed and controlled, which was of its time back in 1992, some thirty years ago.
However, the definition of Governance I gave at the outset, is “the exercise of authority and decision making”. There is no determination of the style in which authority of decision-making need to be taken to constitute governance. If we look back to the origins of word as being to steer or to navigate – this would seem a more fitting approach to governance for the current age rather than control.
Decision-making should be undertaken by those best placed – with most information and experience – not just based on hierarchy of roles.
But decision making has to go hand in hand with accountability. If you take a decision, you are accountable for it. Similarly, if you do not take a decision and should have done so, you are still accountable for your actions.
Encouraging accountability needs removal of fear in an organisation, which is again contrary to the bureaucratic doctrine. Interactions need to be personal.
But why is this important?
Bureaucratic structures lead to slow decision making, often by people less well informed as it is based on roles not individuals. There is also a predisposition to hide behind governance structures such as committees. For organisations to flourish in the Fourth Industrial revolution where speed is of the essence, organisations need to ensure that their decision making structures are shaped accordingly.
The role of Culture in good Governance
Effective Governance requires that the right people, get the right information at the right time to make the right decisions. Some of those most critical decisions will be about setting and implementing strategy.
In bureaucratic organisational structures the right people are decided by roles and hierarchy. However we are now seeing a shift to looking at who should be making which decisions. For instance, operational decisions often need to be taken quickly. This should be driven by management not governance.
Strategic decision-making should also be considered carefully. Do the right people have the right information? This is where governance structures come in. Strategic decisions are having to be taken more and more rapidly in a fast moving environment. Just look at Nokia or Blockbuster for examples where strategy did not keep up.
Governance is also about implementation of decisions including strategy. In a bureaucratic organisation this is largely achieved through command and control. The decisions are passed down the hierarchy and the workers are told what to do with little opportunity to add their insights and experience or an understanding of the bigger picture. Is the right information being fed into strategic decisions. Should communication be all one way? And probably more importantly – should it be?
This is also where culture comes in. In bureaucratic organisations, authority sits with a role not an individual. Decision making pathways are often complex, so it is difficult to decide where the buck stops. People look to rules to figure out whether they can have a say or make a decision. This engenders a culture with a lack of personal accountability, driven in part by a lack of empowerment and a lack of trust. These are also elements that create a “fear culture” through a lack of psychological safety, as brilliantly explained in Amy Edmondson’s book “a Fearless Organisation”.
The cause of a number of recent significant corporate failures, such as VW Dieselgate, can be traced back to a lack of psychological safety that meant that those with the knowledge and information that could have prevented the crisis did not feel able to speak up, therefore the decision makers did not have the right information at the right time to make the right decisions. Culture caused a governance failure.
And this is where this series ends for now.
We have placed governance in context, formed an understanding of what it is (and isn’t!), discussed why we view it the way we do and shone a light on its role in building an effective and successful organisation, alongside Culture and Strategy.
As we face a future of continued disruption and transformation, we need to remember the roots of the word Governance and its purpose in steering the ship of the business, navigating the treacherous waters of the economic seas and reaching the optimal destination for stakeholders of the business.
Our mission at Kuberno is to give governance a good name. We’re your pilots in navigating governance complexity.
Transformational governance that supports your board in building an agile and sustainable business.
Kube, our global entity management platform, is central to our mission, ensuring you and your teams have the right technology to deliver agile governance.
For more information, a demo on Kube or to sign up to In The Kno, contact us on firstname.lastname@example.org.