The Governance Inquiry

Sir Adrian Cadbury in 1992 provided a lasting definition of governance as “the system by which companies are directed and controlled”.

The definition was as part of the Cadbury Code; the document that first sought to give direction to UK companies through a set of principles for good governance that became the UK Corporate Governance Code. It is widely recognised that the Cadbury Code was the UK’s direct response to a series of high-profile corporate governance failures. Polly Peck had been put into administration in 1990 and Asil Nadir, who held the roles of Chair and Chief Executive, was put on trial for theft and false accounting. The Bank of Credit and Commerce International (BCCI) had been forced to close by the Bank of England in 1991 and subsequent investigations revealed money laundering and other financial crimes. Robert Maxwell’s business empire had collapsed in 1991 and he was found responsible for theft from employees’ pension scheme.

Ten years later the Sarbanes Oxley Act 2002 was introduced in the USA. The Act provided rules and guidance to USA companies in response to a series of high-profile corporate crises in the USA at Enron, Tyco, Global Crossings and Worldcom.

Numerous other reports, codes and standards have sought to address the previously piecemeal approach to corporate governance and regulation over the two decades following the Cadbury Code. The areas that have been worked on over those two decades include corporate structures and processes, board leadership and membership, board behaviours, internal and financial controls risk assessment, accountability and audit.

Good governance generates positive outcomes for business and society in countless organisations. But despite the continual development of guidance over two decades, high profile governance failures continue to emerge. The latest case of false accounting in the German company Wirecard shows that the problem of ensuring good governance has not yet been solved.

In this context Karl George of the governance forum (tgf) is proposing as a solution a set of governance principles that are fit for future boards and applicable across all jurisdictions. The principles are seen to be a potential solution to improve governance through clear, practical approaches and activities that organisations can adopt and apply to improve their governance using 12 Principles of Good Governance.

The 12 Principles of Good Governance was published in November 2019 by the governance forum (tgf) in association with the Chartered Governance Institute. As the fundamental governance issues are remarkably similar across sectors and jurisdictions tgf reviewed Codes from different countries and different sectors and used their commonality to inform the tgf principles. Where unique elements in different codes were seen to have potential to help to improve practice everywhere, they were also used to inform the principles.

The 12 principles are orientated around three areas: resources, competency and execution. Each of these three areas has four principles. Tgf summarise the principles as “organisations should have complete and up to date resources, individually and collectively competent boards and the boards should execute their strategic role appropriately”.

The relative simplicity and certainty of the framework needs to be able to deal with a huge variety of individual issues and regulatory requirements organisation of different sizes, sectors and countries. To test whether that is possible the Lunar Society in collaboration with tgf set up the Governance Inquiry in April 2020. The Inquiry will consider the realities of whether the 12 principles are fit for future boards and applicable to every organisation no matter how small, complex, where it is based or what it does.

Central Consultancy is currently carrying out research for the inquiry by exploring governance practitioners’ attitudes to the 12 principles. The research is creating knowledge on whether one set of governance principles can be applied across organisations in different sectors, sizes, maturity and geographical jurisdictions? Whether governance thinking is keeping up with the 4th industrial revolution? Whether generation Y and Z are involved in shaping governance as much as they should be? Whether cognitive diversity in board rooms is changing at a rate it needs to address future?

Karl George, ever the thought leader, has uniquely defined corporate governance over three generations. Tgf sees governance as a journey through three levels of maturity. From Governance 1.0 in which successful operation of governance is held back by dominance hierarchy (for example Maxwell); through Governance 2.0 in which successful operation of governance is held back by blind spots (for example Enron); to Governance 3.0  in which governance takes advantage of new technology, new ways of working together, makes room for generations Y and Z and has the potential to help organisations successfully navigate fast-changing, uncertain, ambiguous and disruptive environments.

The search for new ways to govern organisations in a disruptive world is of great importance to organisations across all sectors, sizes and jurisdictions and Governance 3.0 has already been taken up by some early adopters. However, there has been no previous research into organisations’ attitudes to the 12 principles and readiness for Governance 3.0. This motivated the Lunar Society to collaborate with tgf to research practitioner’s views on the 12 principles as a practical tool.

I am currently collecting rich data through online discussion groups with governance practitioners. I’m very grateful to the many Lunar Society members who have participated in this research so far. Alongside this I have also carried out a survey that covers the adequacy of the principles, organisational readiness for adopting Governance 3.0, barriers from structures and delegations, and readiness in terms of technology.

I will be analysing what participants have said and writing up the findings, discussion and conclusion in a research report to inform the application of 12 principles as a practical tool. The research will contribute to the White Paper that will be formally presented by Dr Karl George MBE of tgf at the Sir Adrian Cadbury Lecture 2020.

This research is finding out about the realities of the environment that governance practitioners are operating in, the key opportunities presented by the principles and the key challenges involved.

Dr Abigail Robson of Central Consultancy reports on The Governance Inquiry. Commissioned by The Lunar Society the inquiry explores governance practitioners’ attitudes to the 12 principles of governance orientated around the three areas of resources, competency and execution. The research will contribute to the White Paper that will be formally presented by Dr Karl George MBE at the Society’s Sir Adrian Cadbury Lecture 2020 in the Autumn