A Guide to Corporate Governance:Principles, Teachings and Tools

Ian Rennie

Programme Objectives

• Participants will:– understand the fundamental principles of good

governance– learn about governance and national and

international legislative reform– understand the structures of good governance – develop awareness of administrative reform and

its impact on governance issues– understand the roles of regulation, audit and

accountability in good governance.

1. Fundamental Principles of Good Governance2. Legislative Reform3. Structures of good Governance4. Administrative Reform5. Regulation, Auditing and Accountability.

Timetable

• ‘Ensuring the organisation is doing the right things, in the right way, for the right people, in a timely, inclusive, open, honest and accountable manner.’• UK Audit Commission.

Governance : a definition

FUNDAMENTAL PRINCIPLES OF GOOD GOVERNANCE

Session 1

• no person is above the law• no one can be punished by the state except

for a breach of the law• no one can be convicted of breaching the law

except in the manner set forth by the law itself.

Rule of Law

• Political accountability is – the accountability of the government, civil

servants and politicians – to the public and – to legislative bodies such as a congress or a

parliament.

Accountability

1. Adults should demonstrate equal probability of voting2. Right sized constituencies3. Adults should have some reasonable probability of becoming a

candidate4. There should be multiple candidates with reasonable probability

of winning proportionate and equal financial resources and media access

5. Parties should offer policy alternatives that are only plausible and address issues of concern to citizens

6. There should be alternative sources of information protected by law, and ownership should not be so concentrated or monopolized ...

12 Conditions

7. Sources of information are accessible in cost and citizens must be capable and motivated to make a “well-informed” choice

8. Competing political parties and associates are independent of state authorities, each other, and are not systematically drawn from one segment of the population

9. Parties or associations should not enjoy privileged recognition, access or subsidisation from state agencies or governments officials

10. Incumbent office-holders should not enjoy decisive advantage in subsequent elections

11. Winning candidates show high probability of fulfilling campaign promises

12. Political parties should monitor and sanction candidates that do not.

12 Conditions

• In any State the authority of the government can only derive from the will of the people ...

• ... as expressed in genuine, free and fair elections ...

• ... held at regular intervals on the basis of universal, equal and secret suffrage.

Free and Fair Elections

• The separation of powers, is a model for the governance of a state

• the state is divided into branches, each with separate and independent powers and areas of responsibility

• no one branch has more power than the other branches• normal division of branches is into

– an executive – a legislature and – a judiciary

• For similar reasons in some countries also separation of church and state has been adopted.

Checks and Balances

• Only became fully developed in the last century

• Before the First World War, women had the right to vote in only four countries– Finland, Norway, Australia and New Zealand

• Outside Europe, North America and Australasia, there have only been a small number of long-standing democracies, such as Costa Rica in Latin America.

Functioning Democracy

• Overthrow of military regimes in Greece, Spain and Portugal

• Establishment of democracies in South and Central America in the ‘80s

• Transition to democracy post 1989 in Eastern Europe, and parts of the ex Soviet Union

• Followed then by a number of countries in Africa• In Asia since the early 1970s - in South Korea, Taiwan, the

Philippines, Bangladesh, Thailand and Mongolia (India has remained a democratic state since its independence).

Expansion of Democracy

LEGISLATIVE REFORMSession 2

• Different countries have different systems in place for making and updating laws– Common law is mainly based on the idea of precedent: when

a court makes a decision about a case, that decision becomes a part of the law of the country

– Civil law is based on legislation: general, written laws made by the government. In this legal system, the decisions of judges do not affect the laws of a country

– Sharia is the religious law of Islam: deals with many topics addressed by secular law, including crime, politics and economics, as well as personal matters. Sharia is applied by Islamic judges, or qadis.

National Law

• Governs the conduct of independent nations in their relationships with one another and is primarily concerned with nations rather than private citizens– Public international law, which governs the relationship

between provinces and international entities– Private international law, or conflict of laws, which

addresses the questions of (1) which jurisdiction may hear a case, and (2) the law concerning which jurisdiction applies to the issues in the case

– Supranational law or the law of supranational organizations.

International Law

• ... establishes a series of rights and demands that are recognised by EU member states' national judiciaries

• is governed by the European Court of Justice (ECJ)• legislation enacted by the law-making institutions of the

Council of the European Union and the European Parliament — comes in two forms: – Regulations become law in all member states the moment they

come into force, without the requirement for any implementing measures, and automatically override conflicting domestic provisions.

– Directives require member states to achieve a certain result while leaving them discretion as to how to achieve the result. The details of how they are to be implemented are left to member states.

European Union Law ...

• The Vienna Convention on the Law of Treaties (in force since 1980) defines a treaty as:

• “... an international agreement concluded between States in written form and governed by international law ...”

• Only a minority of such agreements have treaty in their title (other common names include convention, protocol and agreement).

Treaties

• Is different from Law reform which is the process of examining existing laws, and advocating and implementing changes in a legal system, usually with the aim of enhancing justice or efficiency

• Law reform activities can include:– preparation and presentation of cases in court in order to change the

common law– lobbying of government officials in order to change legislation– research or writing that helps to establish an empirical basis for other law

reform activities• The four main methods in reforming law:

– Repeal (get rid of a law)– Creation of new law– Consolidation (change existing law)– Codification.

Reforming a National Legal System

• Can be the driver for other reforms, including reform of the economy

• True market economy cannot be created without ensuring full guarantees of private property and transparent predictability for entrepreneurial activity ...

• ... and sufficiently reasonable legal control over economic processes

• Legal reform is a tool for implementing necessary reforms:– balancing competing interests– creating a dynamic and sustainable economy– building a sustainable civil society.

Why Reform?

• Complete legal reform normally includes:– judicial reform– reform of various aspects of the structural system

and content of legislation– legal education– legal awareness by the population– corporate consciousness of the whole legal

community.

Reforming a National Legal system

• Delivering an independent judicial branch• elected, evaluated, and disciplined to ensure

that decisions are insulated from improper influences

• in-service training programmes and investment in adequately resourced law schools

• financially independent• with the power to challenge the executive and /

or legislative branches of Government.

Scrutiny of Judicial Appointments

• Right to appeal against any judicial decision• Right to complain about the personal conduct of a

judge• Legislature can petition for the removal of a judge• Appearance before Parliamentary Committee• Media and social network scrutiny• The Lord Chief Justice’s Review presented to the

Queen• Court Reports (an annual report on performance).

Accountability in Legal system

STRUCTURES OF GOOD GOVERNANCE

Session 3

• an organized political community under one government or such a community forming part of a federal republic

• state institutions include administrative bureaucracies, legal systems, and military or religious organisations.

What is the State?

• legitimate monopoly on the means of violence• administrative control• management of public finances• investment in human capital• delineation of citizenship rights and duties• provision of infrastructure services• formation of the market• management of the state’s assets (including the environment,

natural resources, and cultural assets)• international relations (including entering into international

contracts and public borrowing)• rule of law.

Core Functions of the State ...

• to provide the Government of the day with:– advice on the formulation of the policies– to assist in carrying out the Government's decisions– to manage and deliver Government services.

• civil servants therefore:– cannot express their own opinions, even in court or in front of a Parliamentary

committee– must loyally carry out Ministers' decisions with precisely the same energy and

good will, whether they agree with them or not, and • ... must demonstrate four core values:

– Integrity – Honesty – Objectivity– Impartiality.

Central Civil Service Responsibilities

• Civil services in developing countries are large, underpaid, and politicized

• Delivery can be inefficient at best and corrupt at worst• The consensus in the development community is on a merit

model for civil-service reform (the model used by today’s advanced countries)

• This model has not taken root because politics militates against it:– patronage politics and large government

• The challenge: to move from patronage to merit:– getting merit and politics to live together.

Civil Service Merit Model

• Patronage systems need capable people, but they overwhelmingly use public jobs to provide private payoffs.– Payoffs: for political services rendered; to reward friends and

family; to shore up political support.• Merit systems employ people on the basis of merit,

protect them from undue political interference, and provide equality of access

• New Public Management principles provide options to improve the performance orientation of merit systems in the core civil service (or to change personnel systems more radically in decentralized public agencies).

Organizing principles for a civil service

Different ModelsModel Nature of

Decision Making

Nature of human behaviour

Nature of organisations’ aims

Rational administration

Problem solving.Means / ends search.

Altruistic Unified

Bureaucratic administration

Opportunistic .Strategic.

Individually / organisationally focussed

Conflictual

• Local government refers collectively to administrative authorities over areas that are smaller than a state

• Levels below nation-state level, which are referred to as the central government, national government, or (where appropriate) federal government

• Generally acts within powers delegated to it by legislation or directives of the higher level of government

• Federal states such as the United States have two levels of government above the local level: the governments of the fifty states and the federal national government whose relations are governed by the constitution of the United States

• In modern nations, local governments usually have some of the same kind of powers as national governments do, including some that raise taxes, though these may be limited by central legislation.

Local Government

• Broadcasting• Education• Electricity• Environmental protection• Fire service• Gas• Health care• Military• Police service

Potential services provided locally• Public information and

archiving, such as libraries• Public transportation• Social housing• Social services• Telecommunications• Town planning• Waste management• Water services.

• decentralization of governance to outlying regions

• examples of autonomous regions include:– the Guangxi Zhuang Autonomous Region in China– the Cherokee Nation in the United States– devolved administrations in the UK (Scotland,

Wales and Northern Ireland).

Regional Autonomy

• Political• Administrative• De-concentration• Delegation• Devolution• Fiscal• Economic.

Types of Decentralisation

• National government – the autonomous status of self-governing regions exists by

the sufferance of the central government– created through devolution granting self-government “from

above”– rights of devolution can be revoked

• Federal government– formally independent states join by agreement or

convenience– created voluntarily “from below”– federal governments’ power is significantly smaller.

Federal and National Government

• Representative democracy:– Refers to the election of representatives who

operate at local level– In the UK this means councillors (rather than at a

national level Members of Parliament)• Participative democracy:– Where citizens are involved more directly in decision

making – In the UK this means participating in a single or

multiple issue referenda.

Local democracy

• ... is the procurement of goods and services on behalf of a public authority, such as a government agency

• 10 to 15% of GDP in developed countries• up to 20% in developing and transition countries• accounts for a substantial part of the global economy• the laws of most countries regulates government

procurement more or less closely to prevent fraud, waste, corruption or local protectionism

• also subject to the Agreement on Government Procurement, WTO International Treaty.

Government Procurement ...

ADMINISTRATIVE REFORMSession 4

• New public management – – seeks to roll back the role of the state by applying private sector management

principles to government organisations– principles of client focus, decentralization, the separation of policy making

from implementation, and the use of private partners for service delivery continues to inform current thinking about PAR

• Structural adjustment reforms – focussed on reducing overall costs of the government, mainly through

privatisation of state owned enterprises and reduction of the wage bill to bring government spending and free resources for other uses more beneficial to the overall economy

• Transition from central planning– to market economy, and from single party systems to multi-party democracies – previously socialist countries transforming economies to market principles

requiring reorientation of the system of public administration.

Drivers for change

• There are four broad reform concerns that to different degrees were publicly stated by governments at the time:– Reducing public expenditure: maintaining the attractiveness of the

investment climate and the competitiveness of national firms– Improving policy responsiveness and implementation: overcoming

resistance from vested interests to the implementation of legitimate policies or to the reduction of some programs

– Improving government as employer: making government a responsible employer – attracting sufficient numbers of appropriately skilled employees while restraining aggregate employment costs

– Improving service delivery and building public and private sector confidence enhancing the degree of respect and trust accorded to government by the private sector and by the public.

Reform Concerns

• sustainable value for money, can be defined as the optimal use of resources to achieve the intended outcomes

• increasingly seen as more than just modernising state institutions and reducing civil service costs

• about fostering dynamic partnerships with civil society and the private sector– to improve the quality of service delivery– enhance social responsibilities and ensure the broad

participation of citizens in decision-making– feedback on public service performance.

Value for Money

• cost savings from competitive tendering in UK have delivered between 10 per cent and 30 per cent

• this includes occasions when the in-house team won the bid

• and no adverse effect, and sometimes an improvement, in service quality.

Lessons : Private and Third Sectors

• Different firms and organisations have different strengths (and weaknesses) in delivering different types of services

• Evidence points to the benefits of a ‘mixed economy’ model of provision where public, private and third sectors compete to provide the best service in a given area.

Why?

• In the UK the Labour Administration had three terms to concentrate on this

• first term was concerned with setting national standards and requiring all public services to meet centrally determined targets

• second term then focused on choice, diversity and the introduction of quasi-markets

• the third term focused on re-engaging with citizens and public service staff.

How?

• the Arena – strict adherence to the principle of democracy

• the Bureaucracy – rule of law and the principle of the Rechtsstaat

• the Home – basic humanitarian values in combination with a sense of duty

• the Professional Seminar – a problem solving administration

• the Firm – due regard to economy and resources must be used in the best of ways,

both efficient and effective• the Network

– working together with other societal actors.

Administrative Cultures

• Where does the money go ...?• The main areas of UK government spending in

2008, which totalled £575b, were:

Public Spending and Financial Crisis

• Comprehensive Spending Review, established one of the toughest programmes of public sector spending cuts on record

• the government’s six-year plan to reduce borrowing will see public spending brought down from its peak of 47.4% of national income in 2009–10 to 39.3% by 2015–16

• the period from April 2011 is set to be the tightest five-year stretch for public spending since at least the Second World War

• of 29 leading industrial countries, the International Monetary Fund (IMF) forecasts that only Ireland and Iceland will deliver sharper falls in spending as a share of national income than the UK between 2010 and 2015.

The Financial Crisis

• £81 billion cut in public spending in the remaining four years of the parliament

• average departmental cuts of 19%• £7 billion of extra welfare cuts, changes to incapacity benefit, housing

benefit and tax credits and a rise in the state pension age to 66 from 2020• Public sector employees must make a £3.5 billion increase in public

pension contributions.• The Home Office faces cuts of 25%, local councils will face a yearly 7% cut

in funding from central government each year until 2014• Ministry of Defence will face cuts of around 8%• Many other public sector bodies will face cuts to their funding• BBC licence fee frozen for 6 years • loss of about 490,000 public sector jobs by 2015.

In detail

• The International Institute of Administrative Sciences (IIAS) is a NGO with scientific purpose established in 1930

• The Institute provides a platform for exchanges that promote knowledge and practices to improve the organization and operation of Public Administration and to ensure that public agencies will be in a position to better respond to the current and future expectations and needs of society

• The IIAS aims to:– promote the development of the administrative sciences – provide a worldwide platform for exchanges between practitioners and academics – establish a link between theoretical research and practice – improve the organisation and operation of public administrations– develop effective administrative methods and techniques – contribute to the governance progress within the national and international

administrations.

Sharing internationally

• The World Bank views good governance and anti-corruption as important to its poverty alleviation mission

• Many governance and anti-corruption initiatives are taking place throughout the World Bank Group

• They focus on:– internal organizational integrity– minimizing corruption on World Bank-funded projects– assisting countries in improving governance and

controlling corruption.

Sharing internationally

• The Worldwide Governance Indicators (WGI) project reports aggregate and individual governance indicators

• Concentrates on six dimensions of governance:– Voice and Accountability – Political Stability and Absence of Violence– Government Effectiveness– Regulatory Quality – Rule of Law– Control of Corruption.

Sharing internationally

• Africa Governance Initiative (AGI) works within African governments to promote efficient public administration of government and public services.

Sharing internationally

REGULATION, AUDITING AND ACCOUNTING

Session 5

• A regulatory body primary activity is to protect the public

• established on the basis of legal mandate• exercise a regulatory function, that is:

imposing requirements, restrictions and conditions

• setting standards in relation to any activity• securing compliance, or enforcement.

What is a Regulatory Body?

• Proportionate: – Regulators should only intervene when necessary– Remedies should be appropriate to the risk posed costs identified and

minimised• Accountable:

– Regulators must be able to justify decisions, – Must be subject to public scrutiny

• Consistent: – Rules and standards must be joined up and implemented fairly.‐

• Transparent: – Regulators should be open, and keep regulations simple and user friendly.

• Targeted: – Regulation should be focused on the problem, and minimise side effects.

Role of Regulatory Organisations

Advertising Standards AuthorityArchitects Registration BoardAssociation of Costs LawyersBar Standards BoardCare and Social Services Inspectorate WalesCare Council for WalesCare Quality CommissionCivil Aviation AuthorityClaims Management Regulation Commissioner for Public AppointmentsCommissioner for Public Appointments for Northern

IrelandCommittee of Advertising PracticeCompanies HouseCompetition Appeal TribunalCompetition CommissionCompliance Exchange Council for Healthcare Regulatory ExcellenceCouncil for Licensed ConveyancersCouncil for the Curriculum, Examinations and

AssessmentDepartment for Business, Innovation and SkillsFinancial Reporting CouncilFinancial Services AuthorityGambling CommissionGangmasters Licensing AuthorityGeneral Chiropractic Council

UK Regulating BodiesGeneral Dental CouncilGeneral Medical CouncilGeneral Optical CouncilGeneral Osteopathic CouncilGeneral Pharmaceutical CouncilGeneral Social Care CouncilGeneral Teaching Council for EnglandGeneral Teaching Council for Northern IrelandGeneral Teaching Council for ScotlandGeneral Teaching Council for WalesHealth and Safety ExecutiveHealth Professions CouncilHealthcare Improvement ScotlandHealthcare Inspectorate WalesHousing CorporationHuman Fertilisation & Embryology AuthorityHuman Tissue AuthorityInformation Commissioner's OfficeInsolvency ServiceIntellectual Property Regulation BoardInternational Association of Insolvency RegulatorsInternational Compliance AssociationLegal Services BoardLegal Services ReviewLondon Stock ExchangeMedicines and Healthcare Products Regulatory

Agency

National Lottery CommissionNorthern Ireland Social Care Council Nursing & Midwifery CouncilOfcomOffice of Fair TradingOffice of Rail RegulationOffice of the Legal Services Complaints

CommissionerOffice of the Scottish Charity RegulatorOfgemOfqualOfstedOfwatPensions RegulatorPharmaceutical Society of Northern IrelandPhonepayPlusPostcommPress Complaints Commission Public Appointments CommissionerRegulation and Quality Improvement AuthorityRegulatory LawRoyal College of Veterinary Surgeons.Royal Institution of Chartered Surveyors:

Regulation UKScottish Information CommissionerScottish Social Services Council .Social Care and Social Work Improvement

ScotlandSolicitors Regulation AuthorityTakeover PanelTenant Services AuthorityUtility Regulator

• Public sector audit is about– safeguarding public money– ensuring proper accountability– upholding proper standards of conduct in public services – helping public services achieve value for money

• The Public Audit Forum was established in 1998 by the four national audit agencies– the National Audit Office (NAO), – the Northern Ireland Audit Office (NIAO), – the Audit Commission for Local Authorities and the National

Health Service in England and Wales– the Accounts Commission for Scotland.

The Public Audit Form

• Accountability• Integrity• Objectivity and Independence• Adding Value• Competent• Rigorous• Perseverance• Clear Communication.

The Audit Process

• Scrutiny• Objectivity• Impartiality.

Regulators responsibilities ...

• If you were responsible for setting standards in a particular industry, how would you go about it?

Setting and maintaining standards

• Better Regulation Executive works with government departments and regulators to:– scrutinise new policy proposals – achieve effective new regulations – make it easier to change or remove regulation, where

beneficial– reduce existing regulatory burdens affecting business, the

third sector and frontline staff in the public sector – improving transparency and accountability for regulation – effectively communicate regulatory changes; and – drive forward the better regulation agenda in Europe.

Improving Regulation

How?

• The UK’s Coalition Government’s strategy is to:– remove or simplify existing regulations that unnecessarily

impede growth; – reduce the overall volume of new regulation by introducing

regulation only as a last resort; – improve the quality of any remaining new regulation; and – move to less onerous and less bureaucratic enforcement

regimes where inspections are targeted and risk-based.• In April 2010, the Prime Minister said:

– "I want us to be the first government in modern history to leave office having reduced the overall burden of regulation, rather than increasing it.“

Political Will and Regulation

• Africa Governance Initiative– http://www.africagovernance.org/africa/index/

• Improvement and trust in local public services - Audit commission - Corporate governance– http://www.audit-commission.gov.uk/nationalstudies/localgov/Pages/improvementtrustpublicservices.aspx

• The Good Governance Standard for Public Services - The Independent Commission on Good Governance in Public Services– http://www.cipfa.org.uk/pt/download/governance_standard.pdf

• Declaration on Criteria for Free and Fair Elections – Inter-Parliamentary Union– http://www.ipu.org/cnl-e/154-free.htm

• International Institute of Administrative Sciences– http://www.iias-iisa.org/e/Pages/default.aspx

• The Plurilateral Agreement on Government Procurement (GPA) – World Trade Organisation– http://www.wto.org/english/tratop_e/gproc_e/gp_gpa_e.htm

• Public Administration Reform – UNDP– http://www.pogar.org/publications/other/un/undp/pubadminreform-practicenote-04e.pdf

• Striking the Right Balance – Better Regulation Executive Annual Review 2009– http://www.bis.gov.uk/assets/biscore/better-regulation/docs/10-578-striking-the-right-balance-bre-annual-review-2

009.pdf

• World Bank– http://www.worldbank.org/

References