Food for Thought

• Published date: 01 January 2016
• DOI: http://doi.org/10.1002/bl.30037
• Date: 01 January 2016

4 BOARD LEADERSHIP

“The best way of reducing

error rates is to target the

underlying systems failures,

rather than take action

against individual members

of staff.”

Leape, L. L. “Striving for Perfection,”

Clinical Chemistry 48, no. 11 (2002):

1871–1872.

Being Real About Governance

by Caroline Oliver

Caroline Oliver, Editor of Board Leadership, suggests that better governance

would be served if we were more willing to face the limitations of our current

understanding and practice. Here, she starts the process for herself and asks you

to do the same.

As someone who has taken a very

close interest in governance for

over twenty years, it seems to me

worth asking the question that every

child asks from the back seat of their

parents’ car on a long and winding

road: “Are we there yet?” Like a child,

I often ask the question in a rather

imperious and despairing voice (“For

heaven’s sake, can’t you lot in the

front seat get us there any faster than

this?”). And, like a child, maybe I don’t

understand, or take any responsibility

for, the realities of what it is going to

take to get us from A to B.

In this article, I try to start putting

that right for myself and hope that you

may come some or all of the way with

me. Please note that, throughout this

article, I am using the word governance

to denote the work of the board.

Noble Aims

The first question to ask, of course,

is where are we trying to get to? I

suspect that the answer for all of us

is something along the lines of “gov-

ernance that enables organizations

to succeed.” A noble aim indeed, but

clearly one that begs at least two fur-

ther questions:

1. How should success for any

given organization be dened?

2. How can governance impact

success or failure?

How We Fall Short

Asking these two seemingly simple

questions reveals the fundamental

reality that we must face if we are to

be real about governance. For all the

increased research and focus on gov-

ernance since the very first report on

corporate governance,1 we still have

no agreement on the answers to the

most basic of questions.

On the question of how success

should be defined for any given orga-

nization, the legal framework in many

jurisdictions would say we must look

to “the best interests of the corpora-

tion.” As Tuvia Borok points out in

the context of the Canadian Business

Corporations Act (CBCA)2: “A consid-

eration of any corporate law issue …

ultimately leads to a deliberation of

how to define what the best interests

of a corporation are.”

The CBCA demands that “every

director and officer of a corporation, in

exercising their powers and discharg-

ing their duties shall act honestly and

in good faith, with a view to the best

interests of the corporation.”2 Yet

courts and academics disagree as to

the appropriate definition of “acting in

the best interests of the corporation.”3

In the absence of this definition,

many claims arise. Perhaps “the best

interests of the corporation” can be

equated with the best interests of

shareholders, or employees, or stake-

holders, or the local community, or

the people represented by the incor-

porating body? Or maybe all of them?

And it doesn’t help our search for clar-

ity to know that each of these terms

is open to a large number of different

interpretations.

In the United Kingdom, the Compa-

nies Act 2006 requires that directors

consider the impact of their actions on

a wide range of stakeholders. The Act

requires a director to “promote the

success of the company for the benefit

of its members as a whole,” but sets

out the following six factors a director

must consider in fulfilling the duty to

promote success:4

1. The likely consequences of any

decision in the long term.

2. The interests of the company’s

employees.

3. The need to foster the

company’s business relationships

with suppliers, customers, and

others.

4. The impact of the company’s

operations on the community

and the environment.

FOOD FOR THOUGHT

For all the increased

research and focus

on governance since

the very first report on

corporate governance,

we still have no

agreement on the

answers to the most

basic of questions.