Developing a Culture of Good Governance

Developing a Culture of Good Governance by Gary Bandy

Governance is the rules, processes and mechanisms by which an organization is directed and controlled. More simply, it is the way that the management of an organization is managed. 

In the business world there was an increased focus on corporate governance following a number of very high profile scandals, such as the collapses of Enron and Worldcom, in the early part of this century. New laws and codes of practice followed in many countries and yet we still see accounting irregularities and spectacular business collapses (such as Carillion).

Public Sector Governance

Good governance matters to public sector organizations at least as much as it does to businesses. The higher level of scrutiny and the demand for accountability and transparency from the organizations and people who handle public money perhaps means good governance matters even more. 

The Australian Public Service Commission defines good governance as: 

the set of responsibilities and practices, policies and procedures, exercised by an agency’s executive to provide strategic direction, ensure objectives are achieved, manage risks and use resources responsibly and with accountability. 

This definition demonstrates that good governance is about:

  • Performance — how the public sector organization delivers its programs and services
  • Compliance — how the public sector organization meets its legal requirements and community expectations

Bad Governance. Bad Outcomes.

Aside from avoiding misuse of public money, good governance in the public sector “can improve organizational leadership, management, and oversight, resulting in more effective interventions and, ultimately, better outcomes. People’s lives are thereby improved.” (Source: IFAC and CIPFA

Public sector governance codes of practice do not seem to fare any better than the private sector ones. There are still numerous examples of bad governance around the globe. Take for example the concept of transparency, leaving aside governments whose constitutions make no claims of being transparent. Having rules about publishing financial and other information does not mean that the information is published on time, or ever. It also does not mean the information is accessible or understandable by the general public.

I suggest, therefore, that good governance needs more than frameworks, laws, regulations and codes of practice. Good governance also needs the right culture to be in place.

The Role of Culture

Culture plays an important role in the governance of an organization. Charles Handy defined culture as the way we do things around here. Culture involves the way things are organized, the way people relate to each other, and the symbols and stories that are present in the organization.

If the culture is negative, secretive, tolerant of bullying and abuse then it is not difficult to believe that fraud, corruption, theft and dishonesty could thrive. Indeed, common features in cases where governance is bad rather than good are the existence of dominant individuals in positions of significant influence; a lack of effective challenge and scrutiny; and a focus on private gain over the public good. 

Companies – and governments – that are positive, open and transparent, that invest in recruiting and developing staff to deliver their best work, and where people comply with the systems of internal control, are more likely to achieve their goals efficiently and effectively. This kind of culture echoes many of the traits of good governance suggesting that the two are linked.

Fujio Cho, who was the chief executive of Toyota from 1999 to 2005, said:

We get brilliant results from average people managing brilliant processes—while our competitors get average or worse results from brilliant people managing broken processes.

Results

I propose to borrow this idea and say that a public sector organization can get better results by employing average people operating within good governance than if it had brilliant people trying to operate with broken governance.

Taking that idea a step further, there is a strong argument for public financial management capacity building programs to include the development of positive organizational cultures and not just technical training.

Gary Bandy is an independent consultant who helps public sector organizations to manage their finances better. A great teacher and the author of Financial Management and Accounting in the Public Sector, he is also a guest lecturer at The FreeBalance Academy.

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