Governing the Enterprise
Blog: The Knowledge Economy
This has been stated so often that the application of a governance regime should be second nature. Why is it that although most businesses accept the intent of governance, the supporting processes require such frequent revision?
Business governance should not merely be perceived as the annoying watchdog that gets in the way of doing business. It should be regarded as the aggregation of those business ideals and processes, used to steer the business towards effectively and efficiently achieving its goals and objectives.
Effective governance of the business enterprise requires a broad focus. It may be applicable to:
- Externally imposed rules and regulations (legislation)
- Standards (internal and external), business architecture and principles
- Occupational Health and Safety
- The environment
- Organisational behaviour (bullying, harassment, collaboration, etc.)
- Business and personal ethics
- Business strategy
- Decision making
Governance provides the capability to oversee and guide a business towards its desired outcomes. It provides both the framework and the rules within which the business operates. Governance requires full cooperation within the business in general and individuals in particular, in accepting the need to comply.
Whilst appropriate compliance of defined business rules leads to positive business outcomes, conversely, non-compliance can result in chaos expressed by:
- Market failure
- Cost blow-outs
- Organisational dysfunction
- Corruption and loss of reputation
- Deregulation and litigation
When appropriately adhered to, compliance can ensure:
- Market success
- Cost containment and business growth
- Organisational well-being
- Business integrity and a good reputation
Human nature suggests that compliance may not occur unless there is some personal benefit to be had from the act of complying.
In a business setting it is essential that governance is associated with well understood consequences for both compliance and non-compliance. The ‘carrot and stick’ approach is one that would seem to be effective.
Appropriate rewards can be given for complying. These may be as simple as providing a safe and happy workplace, motivation and public recognition and acknowledgment of the act of compliance and providing increased remuneration.
Fitting penalties can be imposed through loss of personal integrity, prestige and responsibility, loss of promotional opportunities, loss of job or criminal prosecution.
Governance requires compliance to be effective. This will not occur unless the consequences of both compliance and non-compliance are well understood and followed through. An absent or inadequate governance regime significantly reduces the opportunity for business growth. Neglecting to administer or reinforce both positive and negative consequences are all too frequently responsible for business mismanagement and failure. Consequences are a vital cog in keeping the mechanisms of compliance and governance successfully functioning.
Governance and a continuous measuring of its effectiveness, allows the business to refine its operating model and establish and culture of continuous improvement. Good governance should be regarded as a business asset, which should be fostered and encouraged to yield all the benefits its existence permits.