The challenge of governance

What is governance in a corporate context? Governance is about ruling. According to Wikipedia, "it relates to decisions that define expectations, grant power, or verify performance." On the simplest level, it is the "the way things should be done around here" according to a written code of conduct, policies and rules. Company publications may project the aspirations of a company - like being an attractive, innovative, customer oriented employer making environmentally sound choices and attractive returns for its shareholders - but it may have little to do with the real culture of the company. Culture, by contrast, is "the way things are actually done around here". It is what is encouraged, what you get promoted or fired for, its the explicit or implicit tradeoffs that are expected or tolerated, and it is the way things are done in daily operations. Cultural realities do not necessarily translate into professional standards of governance that apply consistently to all managers and staff throughout the company.

Let us switch perspectives. Do you find yourself asking to be served by particular people in organizations you work with? The reason will typically be inconsistencies in the performance culture, meaning that some people are good at what they do for you, while other are not. This is bad news for the company in question, but has anyone defined what good is? Do people improvise the rules as they go along? Have they trained themselves? Do they excel  irrespective of managers who have failed to create an environment where they can work successfully? When these characteristics apply do you tend to have cultural chaos and inconsistent organizational performance based on individual heroes.

The problem of cultural chaos not just a problem of start ups and small companies, but can be observed in established and big ticket companies as well. The way things are actually done can vary wildly from governance intentions and documents. After a merger or acquisition there may be years of rival claims as to the better way of doing things. Cultural chaos gets particularly problematic when management ends up losing control of the company's risk taking practices, when it is delegating responsibility without the corresponding resources to get things done, when it is failing to train people for the tasks they expect of them and does not support its staff when facing problems they can not solve on their own. Cultural chaos can be the reason why strategies are ineffective and why change management programs with best governance intentions fail.

In practice, the achievement of a professional culture and a matching governance is probably both one of the hardest and one of the most rewarding challenges of management. Getting everyone in the company to "walk the talk" takes years of intensive and relentless effort. In a world of rapid corporate change, however, this endeavor may be prone to major setbacks if the managers in charge do not assign a high value to accepted standards of governance. These give very specific orientation on what needs to be done in a professional, quality or security oriented organization, but both managers and their consultants will often be unaware of this. If they further follow the "not invented by me" approach that the work of all previous managers can be discarded, cultural chaos will prevail, governance will be patchy and progress toward a culture of high level professional consistency may not progress at all.

But why are governance and cultural compliance issues taking backstage rather than center stage in so many companies? Why do so many staff departments write libraries full of policies, only to roll them out with a simple email? Why do so many senior managers think that compliance will take care of itself? It is only a hypothesis at present, but the possibility that we are dealing with two contrasting schools of thought on management requires further empirical investigation. We will refer to them here as the explorative and the normative schools respectively:

Explorative thinking was driven by the big names in the consulting business with the purpose of creating superior analytical concepts and tools for their client work. It was pushing the envelope and breaking new ground, thus giving us the management concepts taught at business schools, like the strategic portfolio, innovation maps, the "7S" model, breaking points and the talent mid-set, for example. The explosive growth of management consulting led in turn to an explosive growth of explorative concepts and literature, with managers struggling to keep up with the latest fashions and acronyms. While interesting and worthy contributions to mankind, they addressed increasingly sophisticated problems, while the companies being consulted were still struggling with basic problems. Addressing the rubber mixture of formula one cars is a valid area of research, but not relevant when the racetrack is made of mud and the racing car is beat up family saloon. The hypothesis is that explorative work streams moved well ahead of the typical company environment over time. Worse still, the elites discussing the latest concepts with their consultants in the boardroom may have become disconnected from the realities in their own companies. In its extremest form, the "all star" team would ignore the normative dimension, defining the best way forward as part of their specific explorative adventure.

Normative thinking, on the other hand, focused on the other end of the spectrum. What are the things that characterize good management? What are the typical things that go wrong in organizations, military missions, projects and processes? It was work condensing the rules of good management into universal standards according to which organizations should work. This gave us international standards like ISO, CMMI, ITIL, EFQM and COC, to mention but a few. The hypothesis to be explored, however, is that these standards lost out against explorative approaches in the competition for attention from mainstream business schools, management consultants and managers. They got continuous attention mainly in the institutes and universities hosting the normative work, leading to a continuous improvement of these standards over time. There was at least one more major problem, according to this hypothesis: the language of explorative and normative management schools began to drift apart. Perhaps in an effort to differentiate normative work streams from each other, many "insider" acronyms and essentially academic language crept in to the normative work. This frequently leads to the following adverse effect: when top management, driven -for example- by a customer request to implement one of these standards asks for a briefing on the normative school of thought, the specialists they confront often speak a language that appears very far removed from to the daily business they know, concluding that this "standards stuff" must be something for wimps. Since the quality departments seem to eventually deliver any certificates required, the content of these normative standards came to be largely ignored.

The view taken here is that normative work is the basis for explorative work to succeed. The normative dimension ensures that governance has a practical and consistent meaning in daily operations. Modern bureaucratic companies seem to follow every explorative concept and management fad out there, because external consultants and internal departments propose them as trendy. Some companies follow so many concepts at once that you wonder how any work gets done for the customers. Yet, they fail to yield the expected results when the normative fundamentals are not taken care of first. Worse still, they systematically misallocate resources as they maintain big bureaucracies to keep ineffective explorative concepts alive while cutting productive resources and exposing themselves to dramatic risks of failure through the gaps in their normative standards and governance. We shall argue in the simplification section below that the normative approach can also identify cost reduction potentials commonly ignored by the explorative school.

Asymmetries between explorative initiatives and normative realities can take many forms: Initiatives to become industry leaders or industry innovators will fail if there is a variance of interpretations on what professional standards to apply. Customers will not believe new strategy announcements if they are concerned about management priorities, the quality of the team serving them or if they doubt whether the company learns from past mistakes. Service improvement efforts will be futile in the absence of performance indicators relevant to customers and improvement cycles that influence daily operations. Development plans for high performers, succession planning and 360 degree feedback will lose force if roles are not defined clearly enough to know who the high performers actually are. Excellent project managers will tend to avoid companies where project ownerships are unclear, where they are expected to run projects as mediators among lobby groups and where they are given responsibilities but no mandate to control their projects. Six sigma initiatives will disappoint if applied before professional consistency is achieved and meaningful corporate data repositories are in place.

When explorative initiatives do not match the maturity level of normative realities, much of the effort will be wasted. Staff functions will be producing world class brochures on corporate responsibility, codes of conduct, governance and personal development while the front line struggles to cope with the adversities of real corporate life. The self assessment at the top will differ sharply from the customer and employee experience. By contrast, in exemplary companies, the governance and culture match, representing high standards of professionalism, applied consistently throughout the organization, constantly reinforced by all management and staff, measured in its absolute performance as well as variance, and continuously improved over time.