By Petros Florides
UNFORTUNATELY, there is no “silver bullet” to kill the ‘bad governance monster’ that stalks this country. Determined and concerted effort by many people over many years, using complementary approaches, is the only way to ensure real and lasting change in ‘the way we do things around here’.
Nevertheless, we must resolve not to succumb to fatalism because of the size of the task at hand. One way of making the challenge less daunting could be to devise a strategy for good governance that is as easy to remember as ABC.
A is for ‘All’: this refers to the need for all relevant actors and stakeholders to contribute towards a good governance environment by exercising their rights and fulfilling their responsibilities.
The Cypriot banking crisis is a case study in what can happen if this does not occur. The Independent Commission for the Future of Cyprus Banking Sector identified, amongst others, the following underperforming stakeholders: international agencies, national policy makers, local supervisory and regulatory bodies, auditors, boards of directors, senior management and shareholders. Looking further afield, the global financial crisis also raised serious doubts about, amongst others, elected representatives, credit rating agencies, the financial media and supposedly sophisticated investors. A good governance environment depends on all actors and stakeholders being sufficiently informed, empowered and engaged.
B is for ‘Both/And’:this refers to adopting a mix of governance approaches for optimum results. Different approaches include the UK voluntary principles-based “comply or explain” system and the US compulsory rules-based “comply or else” system. Each has its advantages and disadvantages and should be judged on its merits and without prejudice. Dogmatic allegiance to one or the other should be replaced with an innovative and open mind. A complementary mix may produce better outcomes.
One example could be the introduction of corporate governance standards including, amongst other things, a Code of Conduct and non-prescriptive guidance for effective application. This would provide the benefit of flexibility associated with a principles-based system. Importantly, to avoid token observance or even abuse, demonstrable adherence to these standards should be incorporated into directors’ legal duties – with personal liability for breach. This would provide the benefit of rigour associated with a rules-based system. In contrast to the abovementioned, such a complementary mix of different approaches could be described as a mandatory standards-based “apply and explain, or else” system.
C is for ‘Comprehensive’: staying with the theme, this can be further understood to comprise Context and Content.
Context refers to the conditions and culture that exist to the benefit, or detriment, of good governance. An example is the need for any system of governance in Cyprus to tackle our cultural idiosyncrasies that include: cronyism, tokenism, short-termism, populism, scapegoatism, clientsim and tribalism. Not admitting to these situational realities has negated efforts towards good governance to date. When adopting the UK’s voluntary “comply or explain” approach, Cypriot policy makers did not adequately consider the obstinate nature of ‘the way we do things around here’. The result was a system of governance that has proven to be unfit for purpose. It could even be argued as dangerous given the false sense of comfort provided.
Content refers to governance best practices that should be reinforcing. This can be illustrated by the inter-dependency of transparency, accountability, probity (i.e. honesty, fairness, justice) and sustainability. None of these can deliver comprehensive good governance alone but rely on, and support, each other to be most effective.
The ABC of good governance could facilitate the development of a plan for changing ‘the way we do things around here’ in a way that is clear and methodical. The New Governance for a New Cyprus initiative is promoting mandatory, comprehensive, ethics-based corporate governance standards within a robust framework of enterprise-wide risk management. These standards should apply to all systemically important public interest entities (whether public or private). New Governance for a New Cyprus is also promoting a holistic approach, with each stakeholder group contributing to the quality of the overall governance environment.
To understand what the Cypriot public is now demanding, World Vision and Noverna Consulting have co-sponsored a representative focus-group public consultation. The results are now being used to formulate a quantitative public survey expected to be completed in March. These results will further inform a working group of governance experts from a variety of professional bodies, academia, civil society and other organisations and individuals. The aim is to develop a Governance Charter to be reinforced by new or existing law and regulation wherever considered efficacious.
Anybody interested in participating, or otherwise contributing to the success of this initiative, is invited to write to [email protected]
The views in this article represent those of the author and not any other individual or organisation. Petros Florides is regional governance advisor for World Vision International, and executive officer of World Vision Cyprus. Petros is also on the board of the Institute of Directors (Cyprus), co-founder of the Cyprus National Advisory Council for the Chartered Institute for Securities & Investments, co-founder of the Institute of Risk Management Cyprus Regional Group, and a chartered management accountant.