Governance is More Than Openness 1

In a recent blog Richard Sage (@BakedIdea) points out that governance is just a matter of openness and sharing.  If only life were so simple.  If this were the case then what of Enron?  What of the whole global financial crisis?  These people were open?  These people shared?  They had GAAP reporting duties РSo what went wrong?

The simple fact of the matter is that (i) governance is more than just sharing, but (ii) less than the full apparatus of conformance which Richard sets out.

More Than Sharing

Governance is more than sharing.  It is about design and flow.  Financial institutions shared information internally and reported it externally but this made not one jot of difference to the near collapse of the global economy.  Collateralised Debt Obligations (CDOs) were so complex that it would take a long time to unpick each one.  It is essential to understand that if an organisation actively conspires to confound regulatory procedures then there is no governance structure that will catch it.

‚ÄúGovernance without design is somewhat akin to looking at a ball of multi-coloured string and trying to guess what the pullover will look like.‚ÄĚ

Organisations (here I extend the net to government and not-for-profit) need to design for misuse.  Understand that cross-functional information flows require some degree of architecture.  Without the necessary degree of design in governable artefacts (e.g. cost models, delivery schedules and contracts) it is impossible to unpick them.  In fact, it is somewhat akin to looking at a ball of multi-coloured string and guessing what the pullover is going to look like.

Governance Is Less Than You Think

I believe that governance is only the set of structures necessary to give confidence to institutional shareholders  that their interests are being well looked after.  The functions are the business processes and technical systems which enforce and deliver them.  This is why corporate governance speaks only of Directors Duties and not of business process.  The how will be forever changing in our modern and dynamic world.

In the end, governance is counterintuitive to business.  Good governance is seen to reduce profits, to close off avenues of growth and to burden management with bureaucracy and nugatory process.  Yet good governance should clear the way.  It should lower the bar and reduce the hurdles.  In concert with a stringent and effective assurance process governance becomes light yet effective.  It delivers confidence without suffocating the organisation.

Commercial Assurance Reply

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Assurance is the function of checking.  Commercial assurance is the function of making sure that that value is not only retained but maximised as projects move through the various corporate silos of the business lifecycle.

In the perfect company as a deal or project moves from business development to financial analysis to Design and then through to Projects & Programs and on to Operations & Management the numbers and analysis flow seamlessly through each function.  Each department is able to take the preceding analysis and add value creating a streamlined contracting and management process that maximises profit and minimises risk.

The reality is a lot clunkier.  Internal entropy and friction are enormous.  Departments fail to understand each other, analysis is duplicated, documents are endlessly re-created and  spreadsheets re-formatted. In many cases it is a wonder anything gets done at all and mostly deals get done despite the business.

Most companies have a raft of commercial assurance and contract management procedures but they seldom join up in a coherent and comprehensive governance framework. Divisions and departments expend vast amounts of additional effort trying to understand each other and make sense of documents and numbers.  As this functional entropy increases so too does risk as cost centres and teams attempt to pass risk off to the next business unit.  Costs increase as do delays as risk becomes baked-in to the project.

Getting to the bottom of such a mess requires sophisticated tools, deep cross-functional knowledge, comprehensive cross-sector experience and a consolidated framework of understanding which increases process convergence from all parts of the business.

Commercial Assurance is the nexus of good commercial management, good project management, good legal advice and good architecture.  It has the following key benefits:

  • ¬† Increase Business Process Efficiency and Value.
  • ¬† Increase Confidence in Governance.
  • ¬† Reduce Risk.
  • ¬† Increase Profit.

A good assurance function will achieve these results by maximising process convergence and then optimising process performance.