New Zealand: Governance Codes And Regulation: A Warrant Of Fitness, Not An Indicator Of Driver Capability!

Last Updated: 3 January 2018
Article by Denis Mowbray

I recently took my car in to get its yearly warrant of fitness (WoF) check. While waiting, I was chatting with the mechanic, lamenting the terrible number of deaths on our roads over this last year. When he made the following logical observation; that a WoF, certifies that the car is safe for use, as prescribed by the code, it does not certify the driver or their behaviour.

Simply, the vehicle doesn't cause accidents; driver behaviour does!

After leaving the garage, I was reflecting on this and the recent "Play the Game Conference 2017," at which I presented on the topic of behavioural governance. There were many fantastic presentations and discussion panels on various governance, integrity and anti-doping codes and issues. These either added to, or expanded on the plethora of information that discusses the changes made to, and or the benefits of various governance codes implemented in almost every jurisdiction around the world.

It struck me, that governance codes, and an organisation's adherence/compliance with them, is just like my cars WoF. When tested, it certifies that an organisation is fit to be operated, while also identifying if the organisation has areas of weakness that need repair or replacement.

Even so, just as a car WoF does not review the driver's behaviour. An organisation's compliance with a governance code, does not review the behaviour of the drivers; the board and executive and how their behaviour may cause/contribute to the destruction of tangible or intangible organisational wealth.

Please do not jump to the conclusion that I am opposed to the implementation and use of codes of practice. Or, that I am opposed in some way to reviewing organisations to ensure that they have a metaphorical, 'warrant of governance fitness' (WoGF). I am not!

However, I am anti the lazy narrative and conclusions that arise from poorly constructed arguments surrounding board review methodologies where the near totality of the review focuses on compliance or conformance to a code. Worse still, when the mythology surrounding these reviews, suggests not only a correlation, but also causation between codes of practice, and organisational performance.

What passes as a board performance review is in most cases, little more than a review of their adherence to various codes of governance, conduct and or integrity. Which, save some minor infractions, show them as compliant. Therefore, the board performance is excellent. As we all know, it is not that simple. Yet, the greater majority of board performance reviews treat it as though it is.

However, because a director's governance behaviour is influenced by internal/external unwritten codes, biases, and pressures. This has allowed those same organisations to become embroiled in money-laundering, corruption, mis-reporting (lying) about revenues and much more.

This behaviour maybe being driven by moral licensing, or simply a lack of trust in their rivals or the system (code) itself; "they all do it, so its ok for me/us to as well."

The international sport environment is no different. However, a key difference between the corporate and sport sectors is; international and national sport federations are less open to public participation, or any effective form of public scrutiny and accountability. Furthermore, unlike the corporate sector, most international federations fail to pass their WoGF.

Leading to a majority of these federations being governed by a heady mix of very poor compliance with governance, conduct or integrity codes, combined with behavioural attributes and characteristics, that are predicated on an unequalled sense of entitlement, leading to the all too familiar problems of, poor transparency, dictatorial edicts, corruption, bribery, cheating, etc.

As is evidenced by the large numbers of these federations who regularly appear on the front page of major papers for various infractions, e.g. FIFA, Boxing, etc.

For example, over recent times Fifa has implemented many reforms, enhancing the powers and standing of its governance committee, and codes of conduct and integrity. Yet still, the behavioural characteristics and attributes remain unchanged, as identified in these excerpts from an article, quoting members of the Fifa Governance Committee:

We were dealing with a game, and its organisations, including national football associations, generally extremely resistant to independent scrutiny, lacking real democracy and integrity, dominated by a small group of people resistant to public accountability, in a context of huge economic stakes and endemic political interference.

It wasn't a lack of codes or their appropriateness; it was that the behaviour that remained unchanged, as the Fifa Governance Committee tried to breathe life into the codes, as evidenced in this next passage:

We tried to effectively and impartially enforce Fifa's stated principle that members of the Fifa council must be politically neutral. Our decision, in that context, to ban the Russian deputy prime minister Vitaly Mutko from elections led to a backlash from the new Fifa leadership against our independence. We also tried to enforce gender equality, human rights, and regulate the integrity of Fifa elections, and faced resistance on all of them. Ultimately, it became clear to us that the leadership, in order to secure its own survival, could no longer support our independence.

The members of the Governance Committee were removed from their posts, at the 2017 Fifa Congress. Why, because, they wanted the behaviour of Fifa to reflect what was written in their various codes, etc.

Fifa's codes of governance are not at fault, the behaviour of individuals within the executive board and executive is!

A significant body of evidence exists, identifying the behaviour of individuals, and the groups they form (boards), as the real drivers of performance. The positive or negative boardroom behaviour of the Chair or senior director will influence the performance of the other directors or executives, for better or worse.

For example, several reviews I have conducted identified director's individual and collective behavioural attributes and characteristics as adversely influencing the board/executive relationship. Relationship breakdown caused through behavioural dissonance, not only occurs inside formal meetings, but importantly, in external (formal/informal) settings.

This breakdown leads to decreased levels of trust between individual directors and or the collective board and the executive. The seriousness of the issues faced by organisations with this occurring, rise exponentially. As trust diminishes, so the board calls for ever greater levels of transparency, causing the wheel of distrust to spin faster and faster and the board executive relationship to disintegrate into barely disguised hostility.

One outcome from this poor relationship and lack of trust is a decline in the executive's access to and use of the collective skills and tacit knowledge of directors. This is significant because it inhibits the executive's utilisation of the skills and tacit knowledge of directors through adaptation, innovation or replication, for the advancement of the organisation.

All of which, has a negative influence on organisational performance.

To remedy this obvious failing in our governance review processes. We must begin to look at the governance performance of boards and executives through a behavioural governance lens. Behavioural governance, views the characteristics, attributes, drivers, motivators and barriers that shape the behaviour of the individual and the collective board and executive. Identifying how these behavioural elements influence and impact the individual and collective, and subsequently how they influence or impact organisational performance.

The call to action is simple: if you want insights into what is holding back the performance of your organisation, however, that is measured. You must start reviewing your organisation's governance performance through the lens of behavioural governance.

Those who practice great corporate governance do not slavishly adhere to a collection of code's rules and regulations, for no law is perfect. They continually acknowledge the importance of, and explore the mysteries that are grounded in the behavioural attributes and characteristics of all its actors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Denis Mowbray
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