Principles of Good Corporate Governance
From the above examples,we can draw some conclusions and formulate a short set of rules regarding best corporate governance practice.All the“goodies”,to a great degree,abided by these rules.All the“baddies”to a large extent ignored them.The principles underlying these rules are:
（1)Ethical approach—culture,society;organizational paradigm.
（2)Balanced objectives—congruence of goals of all interested parties.
（3)Each party plays his part—roles of key players:owners/directors/staff.
（4)Decision-making process in place—reflecting the first three principles and giving due weight to all stakeholders.
（5)Equal concern for all stakeholders—albeit some have greater weight than others.
（6)Accountability and transparency—to all stakeholders.
Hence,with due respect to Milton Friedman who is quoted as believing that the social responsibility of business begins and ends with increasing profit,we contend that running the business successfully is not simply about market domination and shareholder value.And best corporate governance practice is not simply about a battle between distant,disloyal institutional shareholders and greedy directors but about the ethos of the organization and fulfilling its clearly agreed goals.These goals may be set by the entrepreneur who starts the business,but they are accepted by allparties as beinghigh-minded and ineveryone'sinterests.Thisis notwithstanding the fact that some parties have bigger stakes and some benefit more than others.And,of course,different parties want different things from the company.There has to be,therefore,a process of identifying the different needs and, as much as possible,harmonizing them.This is the starting point for the smooth running of the business.Once dissonance in the common goal creeps in the danger of the standard of corporate governance deteriorating rises steadily.
Clearly external regulation can only play a limited part in ensuring that such a deep-seated and beneficial culture as that described above exists.Equally clearly, however,the task of ensuring this desirable state and adhering to best corporate governance practice belongs to the various stakeholders,who can and should, through their proper participation,and bring this about.
Golden Rules
This section explains the view of best corporate governance practice and the holistic approach by which we believe an organization can ensure that a state of good corporate governance exists,or is brought into being if its existence is uncertain.It takes the view that there is an over-riding moral dimension to running a business and that the standard of governance will depend on the moral complexion of the operation.Hence the approach developed is based on the belief that:
The business morality or ethic must permeate the entire operation from top to bottom and embrace all stakeholders.Best corporate governance practice is an integral part of good management practice also permeating the entire operation,and not an esoteric specialism addressed by lawyers,auditors and sociologists.
The principles of this approach are therefore framed in relation to the conventional way of looking at how a business should be properly run.
This approach recognizes that the interests of different stakeholders carry different weight,but it does not,by any means,suggest that those with a major interest matter and the rest don't.On the contrary,best corporate governance practice dictates that all stakeholders should be treated with equal concern and respect.
For obvious reasons,although the methodology we will propose involves taking major stakeholders into greater account when formulating strategy,it is designed to generate all round support because of the fact that every stakeholder,no matter how small,is given the opportunity to express a view,through the continuous monitoring of stakeholder perceptions.It is key to the approach that organizations truly respect the minority interests.Like the spirit of the US constitution,the approach can be said to embrace liberty,equality and community,but like the US economy,it aspires to produce the most powerful and effective result in the world.
Best corporate governance practice
The regulatory approach to the subject would regard governance as something on its own,to do with ensuring a balance between the various interested parties in a company's affairs,or more particularly a way of making sure that the chairman or chief executive is under control,producing transparency in reporting or curbing over-generous remuneration packages.This in deed is what the Cad bury recommendations and the subsequent reports and code are all about.However,we regard this as much too limited a view of governance,and hence of best corporate governance practice.The essence of success in business is:
·having a clear and achievable goal
·having a feasible strategy to achieve it
·creating an organization appropriate to deliver
·having in place a reporting system to guide progress
There are many websites and publications advising on how to do this,and of course,this is what is described as good management.
Best corporate governance practice is about achieving the stakeholders'goal, and delivering success in an ethical way.Hence it follows that it must entail a holistic application of good management.To demonstrate the totality,and the need for a holistic approach,we present below an illustration showing the pressures on a large organization.
Pressures on a company
It is important that a wide perspective is taken when considering corporate governance because we cannot emphasize too strongly our belief that good management practices will deliver good corporate governance.Compliance with checklists of regulations and codes,in the setting of bad management or a lack of commitment to good management,will not deliver good corporate governance.The longer term consequences of this externally-applied regulatory approach will be a progressive introduction of more and more rules which are held in less and less regard,and which produce less and less effect.
The result benefits neither business nor its customers,and has only served to spawn a growing industry of specialist advisers in corporate governance and lobby groups.It has also failed to prevent more and bigger corporate failures.So while the most of the provisions of the various Codes of Conduct could certainly be considered best corporate governance practice—or at least good corporate governance,if they are imposed externally and not truly bought into by every part of the company and its stakeholders,and monitored effectively,there will always be those who try—and succeed—in hiding from or bending the rules.
As Professor George Bain once said to us,the big advantage of the shareholder model in management terms is the simple goal it presents:maximize shareholder value.No such simple target attaches to the stakeholder approach,and yet without a clear goal,management faces an impossible task in trying to do its job properly—what exactly is its job?
In our experience of working with and observing management over the past thirty years in all kinds of situations,from the leaders of some of the largest companies in the world to the owner/managers of small entrepreneurial businesses, a general rule stands out.The governance,the goals and the strategy of a business must be compatible,and there must be congruence between the expectations of the various interested parties.Clearly,in defining best corporate governance practice, this means that:
（1)There is a common view as to the ethic by which the business is conducted.
（2)The views of all interested parties are taken into account when deciding the goal.
（3)An appropriate weighting is given to those views to arrive at a conclusion as to how to achieve the greatest good.
（4)A strategy is formulated to attain the chosen goal which takes account of the likely behavior of the various interest groups.
（5)An implementation program is drawn up which makes the necessary organizational arrangements to fulfill the strategy and to protect the interests of the various stakeholders.
（6)The implementation program includes reporting systems which ensure transparency and regular feedback on matters which affect them to the various stakeholders.