Good governance: How to avoid a train-wreck without using the handbrake
By Geoffrey Brown, OAM
Is it just me? Or does it feel like poor governance train-wrecks are becoming the new normal? We have been bombarded with shocking stories stemming from royal commissions. Treatment of people with disability, aged care, banking, governance and corruption in unions, home insulation, sexual abuse in institutions… The list goes on and new calls for commissions are coming thick and fast.
Systematic failures seem to have become commonplace and the impacts are significant. But it doesn’t have to be this way. If everybody followed the right process in managing their risk and governance, we could go a long way to preventing these trails of destruction and reduce the need to carry out costly – and brand destroying – investigations.
Risks and consequences
The recent royal commissions raised important questions for all of us. First and foremost, do we really understand our organisations’ risks and their consequences?
While most businesses and government departments would be quick to answer that they do, time and again hindsight reveals that many do not. The headlines are full of fallible governance fallout. Damaging social and environmental impacts that erode public trust, funding cuts, job cuts, stock value plunges and company collapses. Management is frequently told only what it wants to hear, or what informants want them to know.
Properly understanding your organisation’s risks and receiving accurate information about them is essential. Yes, it allows for the development of invaluable early warning systems. But more importantly, it enables the creation of the governance structures needed to deliver a high degree of confidence that you will achieve your desired outcomes.
Good governance is not a handbrake
Good governance is not about stopping people from doing things. You’ve got a counterbalance, at one end there is opportunity, the other end risk. Risk only exists because there is opportunity. Risk doesn’t exist in isolation. So, the aim of the game is to pursue the biggest possible opportunities you can but have a risk profile that fits within your risk envelope.
You need systems that give you this information. What we say to companies and organisations is, don’t look at audit findings or governance issues and say this is slowing us down. If you do it properly good governance will actually allow you to sprint, with a high degree of confidence that you are going to beat your competitor without getting into trouble.
Taking a wide view
It is vital to take the time to understand what makes your business succeed and what could make it fail. But many organisations fall into the trap of narrow risk assessments that fail to consider all of their activities and therefore access all processes. Take the example of a fashion/cosmetics brand that I worked with. The risks identified by the company were largely in their distribution networks, but when we looked closely at what activities underpinned their success and then their business processes more widely, we realised that the greatest risk was actually in their product design. If they misjudged the colour palette for a season it didn’t matter whether stock made it to its intended destination. It simply didn’t sell, and the product line was a write off.
The importance of long-term solutions
The compliance issues identified in regulatory audits and Royal Commissions are usually significant and complex. They often stem from governance “quick-fixes” that disintegrate in the long-term and end up costing significantly more time and money. One of the biggest mistakes made in short term solutions is the failure to establish appropriate accountability and responsibility for the implementation of the reform or change program.
Implementation should be delivered in parallel with the design of governance solutions, not tacked on at the end of projects. There is no denying that implementing long-term solutions is harder work up front, but it is easier than the repair of ruptured governance patch-jobs.
Preventing the train-wrecks of tomorrow
If we want to achieve a more just, sustainable and economically stable future we need to focus on making good governance the new normal and prevent the catastrophes of tomorrow, today.