Er­math Har­ring­ton

This ar­ti­cle fol­lows last week’s on the Gov­er­nance Ecosys­tem, where the gov­er­nance ecosys­tem frame­work was mapped on­to the in­fa­mous Bernie Mad­off Ponzi Scheme to demon­strate the need to look at gov­er­nance from an ecosys­tem-based per­spec­tive.

Pri­or to and fol­low­ing the Bernie Mad­off Ponzi fail­ure, there have been cor­po­rate fail­ures and scan­dals in­volv­ing com­pa­nies such as En­ron, World­Com, Lehman Broth­ers, BP, Face­book and en­ti­ties in T&T as well, for which the root cause was bad­ly man­aged gov­er­nance risk that led to gov­er­nance fail­ure.

Where­as the case for en­hanced lev­els of gov­er­nance in or­gan­i­sa­tions has been steadi­ly in­creas­ing, un­for­tu­nate­ly, ef­fec­tive gov­er­nance seems to be vary­ing in­verse­ly to the im­prove­ments in cor­po­rate gov­er­nance ex­pect­ed with the pletho­ra of ad­vo­ca­cy, train­ing pro­grams, reg­u­la­to­ry bod­ies, com­pli­ance regimes etc. The re­al­i­ty is that the qual­i­ty and cor­rect­ness of gov­er­nance in or­gan­i­sa­tions over­all have not been im­prov­ing. This is due to the preva­lence of the three sins of gov­er­nance– Omis­sion, Com­mis­sion and Sub­mis­sion. We need to ap­pre­ci­ate, as the pre­vi­ous ar­ti­cle as­sert­ed, that gov­er­nance is an ecosys­tem with eq­ui­table con­stituents op­er­at­ing and ful­fill­ing their gov­er­nance-re­lat­ed du­ties ei­ther as in­di­vid­u­als or as part of col­lec­tive bod­ies re­spon­si­ble for good cor­po­rate gov­er­nance prac­tices and out­comes.

Gov­er­nance is not just about laws, reg­u­la­tions, Board com­po­si­tions, struc­tures, roles and re­spon­si­bil­i­ties, but al­so crit­i­cal­ly in­cludes pos­i­tive be­hav­iours, acu­men and at­trib­ut­es. It is the ab­sence of the ap­pli­ca­tion of these, that cre­ates the op­por­tu­ni­ty for these three sins to thrive.

Omis­sion

The sin of omis­sion oc­curs when a con­stituent of the ecosys­tem ei­ther de­lib­er­ate­ly or due to a knowl­edge deficit omits or fails to per­form an ac­tion or ac­tiv­i­ty that ei­ther in­ter­dicts or in­ter­ro­gates an ac­tion or ac­tiv­i­ty that can have the po­ten­tial to con­sti­tute a gov­er­nance breach. Ex­am­ples in­clude–a reg­u­la­tor fail­ing to act on cred­i­ble in­for­ma­tion re­ceived re­lat­ing to com­pli­ance or gov­er­nance breach­es, a Board omit­ting to take ac­tion against an of­fi­cer or mem­ber of staff for le­git­i­mate breach­es; mem­bers of staff who fail to bring to the at­ten­tion of his/her su­pe­ri­ors ac­tions that po­ten­tial­ly con­sti­tute a breach of gov­er­nance; an em­ploy­ee fail­ing to re­port un­der whis­tle blow­er pol­i­cy, in­frac­tions that may be il­le­gal or un­eth­i­cal; a cus­tomer omit­ting to pro­vide in­for­ma­tion that may con­sti­tute KYC com­pli­ance re­quire­ments etc.

Com­mis­sion

The sin of com­mis­sion is al­most guar­an­teed to oc­cur from the vac­u­um cre­at­ed by the sin of omis­sion, where­in, stake­hold­ers, in ob­serv­ing some of the ex­am­ples of omis­sion men­tioned ear­li­er, de­lib­er­ate­ly seek to per­form ac­tions and ac­tiv­i­ties that know­ing­ly will be­tray rules, good gov­er­nance prac­tices and form and process to sat­is­fy ul­te­ri­or mo­tives or agen­das. Ex­am­ples of these in­clude fail­ure to pro­vide reg­u­la­to­ry sub­mis­sions (if the reg­u­la­tor does not en­force sub­mis­sion re­quire­ments); A Board/the man­age­ment/em­ploy­ees de­lib­er­ate­ly go­ing against es­tab­lished com­pa­ny poli­cies to sat­is­fy al­ter­na­tive agen­das etc.

Sub­mis­sion

The sin of sub­mis­sion oc­curs when those who ei­ther omit or com­mit ap­ply pres­sure to gov­er­nance ecosys­tem stake­hold­ers by way of vic­tim­i­sa­tion tac­tics, promise of re­ward or re­turn to “look the oth­er way”, black­mail, so­lic­i­ta­tion of favours etc. In many in­stances, the de­ci­sion to sub­mit is al­so in­formed by ap­a­thy, dis­in­ter­est or a gen­er­al de­fault po­si­tion of “not want­i­ng to rock the boat” (Group­think)

It is im­por­tant to note that any one of the gov­er­nance ecosys­tem stake­hold­ers can per­form any one of the sins. Sub­mis­sion can come from the reg­u­la­tor or omis­sion can come from the most ju­nior em­ploy­ee or even a cus­tomer.

The Sin Equa­tion shows the grad­u­a­tion from gov­er­nance risk to gov­er­nance fail­ure as fol­lows:

* Omis­sion = Gov­er­nance Risk

* Omis­sion + Com­mis­sion = Gov­er­nance Breach

* Omis­sion + Com­mis­sion + Sub­mis­sion = Gov­er­nance Fail­ure

Most times when the sce­nario gets to equa­tion #3, all the con­stituent stake­hold­ers in the ecosys­tem have Causal Eq­ui­ty in gov­er­nance fail­ure.

As in­di­cat­ed in the first ar­ti­cle of this two-part se­ries, the com­mon fail­ing de­nom­i­na­tor here is PEO­PLE, whether in an in­di­vid­ual or col­lec­tive stake­hold­er ca­pac­i­ty. There is a greater need now to fa­cil­i­tate through HR ed­i­fi­ca­tion pro­grammes in or­gan­i­sa­tions, and through em­ploy­ee on­board­ing and ori­en­ta­tion pro­grammes, un­der­stand­ing of the im­por­tance of gov­er­nance in en­sur­ing the sus­tain­abil­i­ty of the or­gan­i­sa­tion, and their rel­e­vant ecosys­tems.

The Hu­man Re­source Man­age­ment As­so­ci­a­tion of T&T (HRMATT) is the lead­ing voice of the Hu­man Re­source Pro­fes­sion lo­cal­ly. HRMATT Says is a col­umn meant to ad­dress is­sues and con­cerns of pro­fes­sion­als and the pub­lic fo­cused on hu­man cap­i­tal de­vel­op­ment. To­day’s ar­ti­cle is writ­ten by HRMATT mem­ber and Man­ag­ing Di­rec­tor of Har­con Con­sult­ing Lim­it­ed Er­math Har­ring­ton. Learn more about HRMATT by vis­it­ing our web­site: www.hrmatt.com. Fol­low us on Face­book, LinkedIn, In­sta­gram and Twit­ter. Con­tact us at 687-5523 or via email: sec­re­tari­at@hrmatt.com