GOVERNANCE: Underlying Principles

To recapitulate, the introductory article on the subject matter dealt with the ‘definition of governance’ in various shapes and forms as they are applied in both the private and public sectors in the developed and developing economies (Ref. Ghanaweb Feature Article of Thursday, 14 November). In a nutshell governance embraced the ‘structures’, ‘processes’ and ‘relationships’.

There is a wide range of terms used to describe the ‘principles of good governance’, most commonly: 'accountability', 'transparency', 'equity' or 'fairness' or 'participation', and 'efficiency'. Whatever terms are used, their underlying concepts have some common ground. The emphasis given to one principle over another reflects the differing perspectives, purposes, and context of the bodies articulating them.

Accountability/Responsibility

In the public sector, accountability 'seeks to ensure that public sector agencies and their staff are responsible for the collective and individual actions and the decisions leading up to them.' (Barrett 2001:7) Strong accountability relies on clarity in understanding the roles and responsibilities of the participants. In the public sector, there are multiple accountabilities - to the Minister, to the parliament, to overseeing agencies (such as the Ombudsman, Privacy Commissioner etc), to clients, and to the taxpayers. In Ghana one can cite the Serious Fraud Office (SFO), the Auditor-General’s Office, the proposed Office of Accountability etc.

In the private sector, accountability also entails responsibility for decisions and actions, although the lines of accountability are less complex. The Board is accountable to the shareholders for the company's performance, individual directors are personally liable at law for their activities, and corporate management is accountable to the Board for its activities. Increasingly, private-sector organisations have broader accountabilities to external stakeholders and to interested parties, such as interest groups and the media. Extending from the 'conventional' private-sector model of the Board are newer public-sector models, including Executive Boards whose members have multiple responsibilities and accountabilities.

The nature of accountability mechanisms varies depending on the weight given to the different governance dimensions and objectives. For example, where the objective is to account for performance, the content of accountability reporting relates to how the organisation is performing against goals (whether the goals are financial, political, social, or other). Where conformance is the focus, accountability reporting stresses how well the organisation is performing with respect to the regulatory context in which it exists.

In the Australian context, such reporting highlights financial reports that comply with corporate constitutions and legal requirements (such as the Corporations Act, the Public Service Act, the Financial Management and Accountability (FMA) Act, or the Commonwealth Authorities and Corporations (CAC) Act), while audit reports attest to compliance with internal or external regulatory requirements, and so forth.

Transparency/Openness

In the public sector, transparency refers to the visibility and clarity of decision making processes, as well as to the timely and accurate dissemination of information related to the performance of the agency, its objectives, and its governance. In the private sector, the principle refers more to disclosure of material matters (such as the financial situation and ownership of the organisation), as well as performance and governance (OECD1999).

Efficiency/Effectiveness

'Efficiency is concerned with doing things right. Effectiveness is doing the right things.' (Drucker 1977:33). In other words, effectiveness relates to how well outcomes meet objectives. Organisations may have many types of objectives, including financial, social, and environmental; these objectives and outcomes can be expressed in a variety of ways. Efficiency relates to the productivity of the resources used to conduct an activity - to 'optimise the yield from these resources' (Drucker 1977:32). Examples of resource types are human and financial. These definitions of efficiency and effectiveness are very broad, and apply equally well to both public- and private-sector organisations. However, in Australia, the Department of Finance provides more specific definitions for Australian federal public agencies. Within the Outputs and Outcomes Framework, effectiveness relates to the degree to which specified outcomes are realised, while efficiency concerns the immediate characteristics of an agency's outputs, especially in terms of price, quality, and quantity (DoFA 2000). Thus, outcomes and effectiveness relate to what government wants to achieve and outputs and efficiency relate to how government achieves these outcomes. In the past, the criteria used to measure effectiveness and efficiency were primarily financial; they now include wider nonfinancial objectives such as social and environmental measures. Triple bottom line reporting (economic, social and environmental) and balanced scorecards are examples of performance reporting mechanisms that seek to assess this wider range of organisational objectives.

Integrity/Ethics

In the private sector context, integrity refers to `straightforward dealing and completeness' . It entails the honest, full, and balanced reporting of a company's affairs. To achieve this, the people providing the information must have integrity. Thus, the principle is related to that of ethics, which may be supported by industry, legal, or organisational codes or standards of conduct. Within the public sector also, codes of conduct support the participants' efforts to behave with integrity.

Equity/ Participation

In the private sector, the equity/participation principle refers to shareholder rights. It emphasises the concept of one vote, one value, and insists upon the considered use of that vote. It further refers to the rights of shareholders to receive adequate redress for violation of their rights (OECD 1999). In the public sector, the principle refers to the participation by all stakeholders in the governance of an agency - to their right to receive adequate information about performance and even to the opportunity for them to participate in the development of policy.

Predictability

Although this principle is not commonly cited in either public or private codes of corporate governance, it is nevertheless considered significant. Predictability refers to 'the need for a stable, open and widely understood set of "rules of the game", and their consistent application' (Asian Development Bank 1995:7). It is therefore connected to the laws, regulations, policies, standards, and codes that form part of the structures that constitute the governance framework.

Having become acquainted with the underlying principles of governance, it is now possible to consider in depth the components of the governance frameworks in organisations at a later date.

To recapitulate, the introductory article on the subject matter dealt with the ‘definition of governance’ in various shapes and forms as they are applied in both the private and public sectors in the developed and developing economies (Ref. Ghanaweb Feature Article of Thursday, 14 November). In a nutshell governance embraced the ‘structures’, ‘processes’ and ‘relationships’.

There is a wide range of terms used to describe the ‘principles of good governance’, most commonly: 'accountability', 'transparency', 'equity' or 'fairness' or 'participation', and 'efficiency'. Whatever terms are used, their underlying concepts have some common ground. The emphasis given to one principle over another reflects the differing perspectives, purposes, and context of the bodies articulating them.

Accountability/Responsibility

In the public sector, accountability 'seeks to ensure that public sector agencies and their staff are responsible for the collective and individual actions and the decisions leading up to them.' (Barrett 2001:7) Strong accountability relies on clarity in understanding the roles and responsibilities of the participants. In the public sector, there are multiple accountabilities - to the Minister, to the parliament, to overseeing agencies (such as the Ombudsman, Privacy Commissioner etc), to clients, and to the taxpayers. In Ghana one can cite the Serious Fraud Office (SFO), the Auditor-General’s Office, the proposed Office of Accountability etc.

In the private sector, accountability also entails responsibility for decisions and actions, although the lines of accountability are less complex. The Board is accountable to the shareholders for the company's performance, individual directors are personally liable at law for their activities, and corporate management is accountable to the Board for its activities. Increasingly, private-sector organisations have broader accountabilities to external stakeholders and to interested parties, such as interest groups and the media. Extending from the 'conventional' private-sector model of the Board are newer public-sector models, including Executive Boards whose members have multiple responsibilities and accountabilities.

The nature of accountability mechanisms varies depending on the weight given to the different governance dimensions and objectives. For example, where the objective is to account for performance, the content of accountability reporting relates to how the organisation is performing against goals (whether the goals are financial, political, social, or other). Where conformance is the focus, accountability reporting stresses how well the organisation is performing with respect to the regulatory context in which it exists.

In the Australian context, such reporting highlights financial reports that comply with corporate constitutions and legal requirements (such as the Corporations Act, the Public Service Act, the Financial Management and Accountability (FMA) Act, or the Commonwealth Authorities and Corporations (CAC) Act), while audit reports attest to compliance with internal or external regulatory requirements, and so forth.

Transparency/Openness

In the public sector, transparency refers to the visibility and clarity of decision making processes, as well as to the timely and accurate dissemination of information related to the performance of the agency, its objectives, and its governance. In the private sector, the principle refers more to disclosure of material matters (such as the financial situation and ownership of the organisation), as well as performance and governance (OECD1999).

Efficiency/Effectiveness

'Efficiency is concerned with doing things right. Effectiveness is doing the right things.' (Drucker 1977:33). In other words, effectiveness relates to how well outcomes meet objectives. Organisations may have many types of objectives, including financial, social, and environmental; these objectives and outcomes can be expressed in a variety of ways. Efficiency relates to the productivity of the resources used to conduct an activity - to 'optimise the yield from these resources' (Drucker 1977:32). Examples of resource types are human and financial. These definitions of efficiency and effectiveness are very broad, and apply equally well to both public- and private-sector organisations. However, in Australia, the Department of Finance provides more specific definitions for Australian federal public agencies. Within the Outputs and Outcomes Framework, effectiveness relates to the degree to which specified outcomes are realised, while efficiency concerns the immediate characteristics of an agency's outputs, especially in terms of price, quality, and quantity (DoFA 2000). Thus, outcomes and effectiveness relate to what government wants to achieve and outputs and efficiency relate to how government achieves these outcomes. In the past, the criteria used to measure effectiveness and efficiency were primarily financial; they now include wider nonfinancial objectives such as social and environmental measures. Triple bottom line reporting (economic, social and environmental) and balanced scorecards are examples of performance reporting mechanisms that seek to assess this wider range of organisational objectives.

Integrity/Ethics

In the private sector context, integrity refers to `straightforward dealing and completeness' . It entails the honest, full, and balanced reporting of a company's affairs. To achieve this, the people providing the information must have integrity. Thus, the principle is related to that of ethics, which may be supported by industry, legal, or organisational codes or standards of conduct. Within the public sector also, codes of conduct support the participants' efforts to behave with integrity.

Equity/ Participation

In the private sector, the equity/participation principle refers to shareholder rights. It emphasises the concept of one vote, one value, and insists upon the considered use of that vote. It further refers to the rights of shareholders to receive adequate redress for violation of their rights (OECD 1999). In the public sector, the principle refers to the participation by all stakeholders in the governance of an agency - to their right to receive adequate information about performance and even to the opportunity for them to participate in the development of policy.

Predictability

Although this principle is not commonly cited in either public or private codes of corporate governance, it is nevertheless considered significant. Predictability refers to 'the need for a stable, open and widely understood set of "rules of the game", and their consistent application' (Asian Development Bank 1995:7). It is therefore connected to the laws, regulations, policies, standards, and codes that form part of the structures that constitute the governance framework.

Having become acquainted with the underlying principles of governance, it is now possible to consider in depth the components of the governance frameworks in organisations at a later date.