Balancing power, policy and principles in corporations

errors.
These systemic errors originate from simple realities that people make mistakes, yet fears of tackling organisational politics create a natural reluctance to challenge the status quo. It is also true that people tend to make decisions and strategies best suited to their own personal strengths, but not necessarily good for the organisation.
Yet, corporate governance reforms have tended to focus on changes in power, rather than changes in decision making policies.
Corporate governance’s focus on power emanated from traditional theories such as the management hegemony and agency theories. These theories assumed that senior management had greater responsibilities for corporate leadership and decision making.
It was presumed that the board was only responsible for hiring, monitoring and firing senior management. Shareholders’ role was premised on firing non-performing board. This gave rise to the question of de jure and de facto, basically to ask, who had the power or responsibility, “at law” and “in practice”?
In trying to trace corporate failures, earlier corporate governance reforms concentrated on power imbalances and belief that senior management had too much power. Hence prescriptions such as separation of the role of chief executive officer from that of a chair and management performance audits, were provided to even out power.
It is true that power imbalances contribute to corporate failures. However, unsound judgments and decisions that are left unchallenged and uncorrected over a period of time are the silent killers of corporations.
Instead of owning up to simple human mistakes in strategy and decision making and quickly correcting such mistakes, organisational behaviour tends to gloss over errors and pretend that all is well. Distinguishing between a good and a bad decision would require that one delve into company politics, which most people dread.
Obvious reasons are that people do not want to risk losing their jobs or just rocking their comfort zones. The result is creation of unstable and unhealthy cycles of silence and crises, which when they erupt, bury the whole organisation.
These cycles are compounded by political difficulties at senior levels. Policies, which come from successions over time of silence and glossing over, are elected for the comfort of individuals. In those situations, personalities not principles become the focus of decisions and strategies.
Personalities also interfere with decision making processes. In such situations, probing personal agendas may also become necessary and this leads to uncomfortable confrontations.
Changing CEOs and boards without carrying out reality checks and accurate diagnosis of corporate governance problems only stock piles, crises. Unsound decisions should be questioned. The Harvard Business Review on Corporate Governance, refers to a case involving one America Piccadilly Cafeterias, a family owned chain of restaurants.
In this case the company had built a strong customer base, founded on a strategy of high quality home style cooking. Later on, the CEO decided and convinced the board to adopt mass production inorder to cut costs. The new strategy was quickly adopted and implemented without piloting it.
The chief finance officer, James Bennett, questioned this new strategy, but did not receive a response. Bennett quit. A little later, profits plummeted and the board fired the CEO and re-hired Bennett as the new CEO. He quickly reversed the strategy and restored the customer confidence.
However, the issue here is not about quitting, but rather the creation of an organisational culture which identifies and quickly corrects mistakes. Principles not personalities are the pillars to such an organisational culture.
When constituent membership is guided by principles, errors in judgment can easily be revisited and corrected. Principles mark out trails in decision making processes, which in turn allow both the old and new leadership to identify mistakes and correct flawed policies.
Just as democratic governance does not work without the participation of citizens, decision making processes for sound corporate governance require full and active participation of main corporate constituencies. These constituencies include the directors, shareholders and senior management as primary contributors to the process.
When each of these parties is clear of what his or her role is, if each of these parties is proactive and confident to voice out viewpoints, then the decision making process becomes better effective. False consensus or the “do as I say” attitude, have no place in effective decision making processes.
Corporates are struggling under heavy burdens of egotistic corporate behaviour and policies. This does not do corporate governance any good. Promotion of debate and giving voices to all constituents, introduction of new ideas, knowledge or information as well as provision of new perspectives are what create good governed corporations.
Surely, if corporates have suffered and some died, under the heavy weight of some corporate behaviour, then it should take a new and different corporate behaviour to raise that company from the dead.
Personality traits within constituencies also determine the quality of policies decided on. For instance charismatic personalities are gifted people. Charisma endears lots of people, however, the focus is on the individual leader.
Charisma often leads to inflexibility, inflated egos and spin over substance. It is also said that charismatic executives tend to suppress individual thinking and leadership development in subordinate teams. Leaders with charisma tend to create a culture of followers rather than companions. A follower would say, “I do not even argue with him anymore because I always lose.”
The book, “Hitler and Churchill-Secrets to Leadership” by historian Andrew Roberts draws interesting analysis on, for instance, what is leadership? What are the secrets of the phenomenon by which one person can lead millions — sometimes to salvation, sometimes to destruction?
It is said that Hilter exuded an almost super human charisma or gifting, On the other hand Churchill’s strengths were in his communication skills, but had very little charisma. In fact he was hated by many. It is said that Hitler left people captivated and in wonder of what next incredible thing Hitler could do. Churchill made people feel they could achieve something incredible and left people with an “I can do” attitude.
Governed corporations call for collaboration. This could be reflected even on board meeting agendas — how much time is allocated to discussing future strategies rather than past performances? How boardroom procedures encourage debates without fear or favour?
Are policy proposals evaluated? Is criticism expected and allowed within meetings and corporate behaviour? Are dissenting voices listened to or crushed? Some organisations appoint designated critics for each major policy decision, inorder to ensure that all questions that must be asked have been tabled before a policy is adopted.
The need to balance power, policy and principles in creating governed corporations, makes it interesting to watch how the World Bank presidential race will turn out. The three bank candidates (now only two remaining) provide outstanding and varied representations of personalities, power and policies.
Ngozi Okonjo-Iweala, a Nigerian cabinet minister and World Bank insider with lots of experience, represents power from developing countries and Africa in particular. Her policy preferences stick to already well-developed Bank approaches, and reaffirm her status as the “establishment choice”.
Ngozi also enjoys global gender preferences in leadership. She is described as a passionate performer, but her critics say that her pitch during her statement to the Bank’s board was not so well set out or structured.
Jim Yong Kim represents the traditional US backed power. His policy approaches are described as pro-poor and he is viewed as a very committed performer, but has limited knowledge outside health, and particularly not on finance and economics.
The third candidate is reported to have since pulled out from the race to lead the World Bank. Colombian former finance minister José Antonio Ocampo, perceived the selection process as a political exercise, not based on merit.
Unlike the other two candidates, Ocampo also lacked support from his Colombian government. However, Ocampo’s policy approaches had been based on his views that the Bank had not performed well so far, on issues such as country ownership and cooperation with other international organisations.
Balancing of power, policy and principles distinguishes governed corporations from managed corporations. It had been agreed since 1944 when World Bank and International Monetary Fund were founded that Washington chooses the Bank’s head and Europe chooses the IMF head.
This effectively made the two institutions, managed corporations. This year’s departure from the 1944 tacit agreement is a step towards creation of governed corporations.