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Ideas for Leaders #179

Bridging Organizational Governance Gaps

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Key Concept

What the Board spells out as good practice, and what motivates managerial behaviour is not necessarily the same thing. The gap between both can lead to serious consequences, not unlike the scandals that took place at Enron, WorldCom and more recently, the BBC. How can your organization create a sense of moral responsibility from ‘the bottom up?’

Idea Summary

The concept of governance is certainly not new, but in recent years it has been gaining more attention, especially in the business world. ‘Corporate casualties’ are proof that commercial pressures nudge executives towards introducing irresponsible risk into routine business operations. Today, these risks are easily obscured thanks to technological complexity, the large scales on which organizations are run, and hierarchical structures. The latter in particular is proving to be an important factor in recent governance slip-ups; in many organizations, employees appear detached from feelings of ownership, or belief in their organizations values, thus emphasizing a gap between board directives and realities of governance practices.

Analysing this problem, Cranfield School of Management’s David Butcher and Martin Clarke ask, how businesses can build a culture of moral responsibility from ‘the bottom up?’

The answer lies in understanding the power of debate. Good leaders are able to foster debate about the principles and practices of their business. According to Butcher and Clarke, they should accept responsibility for voicing the concerns of their employees to the Board, and directors should adjust their objectives accordingly. This type of ‘grass roots’ level leadership will help to establish morally responsible local communities that will readily assume governance responsibility. Boards should allow these groups to self-regulate; moreover, they should encourage them to keep an eye on the power invested at senior levels, should those leaders appear to stray from the principles of good governance.

There are already parallels in the corporate world of such initiatives. IBM and BP, for example, use sessions called “Values Jam” and “Open Talk”, respectively, which involve the entire workforce in discussions encouraging them to challenge prevailing corporate views. Similarly, Marks and Spencer has also established Business Development Groups, in which employees are offered the chance to influence governance within the organization. 

Business Application

In order for the initiatives discussed by Butcher and Clarke to be truly effective, board members must first realise that their leadership role extends beyond setting and communicating governance standards (i.e. a ‘top down’ approach). Instead, they should encourage debate, and lead the way in creating moral communities that embrace good governance. It is essential that do not feel that even if they disapprove of certain practices there is nothing they can do about it.

In terms of ideas on what kind of discussions to foster, examples can be considered from the corporate world. Nevada-based Zappos asks employees to consider questions such as whether their company has a higher purpose than profit, or whether their own role has personal meaning. This key is to embed the value of employee voice into your overall corporate strategy.

Leading by personal example is also important; this means never turning a blind eye or appearing to condone questionable governance practices. 

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Authors

Institutions

Source

Idea conceived

  • August 2013

Idea posted

  • July 2013

DOI number

10.13007/179

Subject

Real Time Analytics