'People have to understand that to behave with integrity and ethics and fail to meet a target is better than meeting a target and not behaving with integrity' Lord Browne, CEO of BP, giving evidence to a UK parliamentary committee, November 2002.
Since Enron and other subsequent corporate failures, governance has become the number one issue for all stakeholders in business organisations. Just as Six Sigma (quality), Y2K (the end-of-millennium computer crisis) and Customer Relationship Management (CRM) were watershed developments at the end of the 20th Century, launching a thousand corporate change programmes, so governance is now top of boardroom agendas in Europe and worldwide.
With the spotlight firmly on boardroom behaviour, companies in Europe and the US have begun to implement the recommendations of their various national reports (Higgs in the UK, Aldama in Spain, Tabaksblatt committee in The Netherlands, for example) and, where they are affected, the strictures of the US Sarbanes-Oxley Act, drawing up and implementing their own new corporate codes of practice.
But this is merely the tip of the iceberg. The real challenge is not the redrafting of corporate codes of conduct as such, but the effectiveness with which companies can cascade good governance down through the rank and file of the organisation. To perform their function, codes of governance must be embedded at every level of the business, front-line and back office, and in every business unit and subsidiary. Never has this been more important than now, when regulators routinely find companies in breach of ethical standards from misrepresentation to misselling.
Properly implemented, the process of clarifying responsibilities and increasing the transparency of decision-making can be genuinely transforming. But poorly implemented and ill-conceived governance change programmes will do more harm than good. Employee attitudes towards, and respect for, ethical standards are of critical importance when tackling these issues. No governance change programme will succeed unless companies take the time to understand the ethical mindset of the organisation. Only then can a change programme be implemented that meshes with the hard realities of day-to-day business.
The seven deadly myths of good governance
In practice, corporate governance comes down to relationships. People interacting with other people. People interacting with products and technology and people interacting with systems. Governance, at heart, is about human nature.
In order to find out what employees think PricewaterhouseCoopers commissioned MORI to conduct a UK survey in January 2004. To encourage open, unbiased responses from a random cross-section of nearly 950 respondents (almost half of whom worked for large organisations of 250 or more employees), the interviews were conducted in respondents' homes (see Methodology Box).
The PwC survey set out to understand what employees feel about the way they work, what they are asked to do, and how their colleagues and bosses behave. The responses were unequivocal. Perceived unethical behaviour (and fear of speaking out against it) is not uncommon within large UK companies (public and private sector alike). Organisational relationships are in need of serious counselling.
Most important of all, the responses unearthed some misconceptions underlying boardroom mindsets. When, asked to justify their actions around the governance issue, management resorts to a series of Pavlovian stock responses. These have been distilled in this article into 'Seven Myths of Good Governance', using the survey results to pinpoint the principal ways in which management is attempting to reassure itself (and the company's stakeholders) about its ability to deal with the governance imperative.
'We have an effective code of governance'.
Too many companies tout their governance codes as evidence that they are taking action, without attempting to measure either how well they are understood, or how effectively they have been implemented. To an extent, these attitudes are reinforced by …