MODULE 1

What is Governance?

*The concept of "governance" is not new. However, it means different things to different people. The
actual meaning of the concept depends on the level of governance we shall be talking about, the goals
to be achieved and the approach being followed.

*The concept has been around in both political and academic discourse for a long time, referring in a
generic sense to the task of running a government, or any other appropriate entity for that matter. In
this regard the general definition provided by Webster’s Third New International Dictionary (1986:982)
is of some assistance, indicating only that governance is a synonym for government, or “the act or
process of governing, specifically authoritative direction and control”. This interpretation specifically
focuses on the effectiveness of the executive branch of government.

*The working definition used by the British Council, however, emphasizes that “governance” is a
broader notion than government (and for that matter also related concepts like the state, good
government and regime), and goes on to state: “Governance involves interaction between the formal
institutions and those in civil society. Governance refers to a process whereby elements in society wield
power, authority and influence and enact policies and decisions concerning public life and social
upliftment.”

*"Governance", therefore, not only encompasses but transcends the collective meaning of related
concepts like the state, government, regime and good government. Many of the elements and principles
underlying "good government" have become an integral part of the meaning of "governance". John
Healey and Mark Robinson1 define "good government" as follows: "It implies a high level of
organizational effectiveness in relation to policy-formulation and the policies actually pursued, especially
in the conduct of economic policy and its contribution to growth, stability and popular welfare. Good
government also implies accountability, transparency, participation, openness and the rule of law. It
does not necessarily presuppose a value judgement, for example, a healthy respect for civil and political
liberties, although good government tends to be a prerequisite for political legitimacy".

Mind-setting of Governance

*We can apply our minds to the definition of governance provided by the World Bank in governance:
The world Banks Experience, as it has special relevance for the developing world:

*“Good governance is epitomized by predictable, open and enlightened policy-making, a bureaucracy

imbued with a professional ethos acting in furtherance of the public good, the rule of law, transparent
processes, and a strong civil society participating in public affairs. Poor governance (on the other hand)
is characterized by arbitrary policy making, unaccountable bureaucracies, unenforced or unjust legal
systems, the abuse of executive power, a civil society unengaged in public life, and widespread
corruption.”

*The World Bank’s focus on governance reflects the worldwide thrust toward political and economic
liberalization. Such a governance approach highlights issues of greater state responsiveness and
accountability, and the impact of these factors on political stability and economic development. In its
1989 report, From Crisis to Sustainable Growth, the World Bank expressed this notion as follows:

*“Efforts to create an enabling environment and to build capacities will be wasted if the political context
is not favorable. Ultimately, better governance requires political renewal. This means a concerted attack
on corruption from the highest to lowest level. This can be done by setting a good example, by
strengthening accountability, by encouraging public debate, and by nurturing A free press.

*The contribution of Goran Hyden to bring greater clarity to the concept of governance needs special
attention. He elevates governance to an “umbrella concept to define an approach to comparative
politics”, an approach that fills analytical gaps left by others. Using a governance approach, he
emphasizes “the creative potential of politics, especially with the ability of leaders to rise above the
existing structure of the ordinary, to change the rules of the game and to inspire others to partake in
efforts to move society forward in new and productive directions”.
His views boil down to the following:

• Governance is a conceptual approach that, when fully elaborated, canfollowingcomparative analysis of

macro-politics.

• Governance concerns “big” questions of a “constitutional” nature that establish the rules of political
conduct.

• Governance involves creative intervention by political actors to change structures that inhibit the
expression of human potential.

• Governance is a rational concept, emphasizing the nature of interactions between state and social
actors, and among social actors themselves.

• Governance refers to types of relationships among political actors: that is, those which are socially
sanctioned rather than arbitrary.

Eight Elements of Good Governance

1.Rule of Law- Good governance requires fair legal frameworks that are enforced by an impartial
regulatory body, for the full protection of stakeholders.

2. Transparency- Transparency means that information should be provided in easily understandable

forms and media; that it should be freely available and directly accessible to those who will be affected
by governance policies and practices, as well as the outcomes resulting therefrom; and that any
decisions taken, and their enforcement are following established rules and regulations.

3. Responsiveness- Good governance requires that organizations and their processes are designed to
serve the best interests of stakeholders within a reasonable timeframe.

4. Consensus Oriented. Good governance requires consultation to understand the different interests of
stakeholders to reach a broad consensus of what is in the best interest of the entire stakeholder group
and how this can be achieved in a sustainable and prudent manner.

5. Equity and Inclusiveness. The organization that provides the opportunity for its stakeholders to
maintain, enhance, or generally improve their well-being provides the most compelling message
regarding its reason for existence and value to society.

6. Effectiveness and Efficiency. Good governance means that the processes implemented by the
organization to produce favorable results meet the needs of its stakeholders, while making the best use
of resources – human, technological, financial, natural and environmental – at its disposal.

7. Accountability. Accountability is a key tenet of good governance. Who is accountable for what should
be documented in policy statements. In general, an organization is accountable to those who will be
affected by its decisions or actions as well as the applicable rules of law.

8. Participation. Participation by both men and women, either directly or through legitimate
representatives, is a key cornerstone of good governance. Participation needs to be informed and
organized, including freedom of expression and assiduous concern for the best interests of the
organization and society in general.

Key Players in Corporate Governance

1. Shareholders- You already know that as an owner of an AAPL stock, you are a shareholder, and
you can participate in corporate governance by voting on important issues. However, not all
shareholders are people like you.
2. Directors- Directors, often referred to as the board of directors, are often appointed or elected
by the shareholders. These stakeholders are legally accountable for many actions of the
corporation. The board of directors decides important issues and develops the long-term
strategies of a corporation.
 3. Officers- Officers are employees who serve the directors as top-level management, such as the
CEO, CFO, and COO. These stakeholders often make the day-to-day decisions for the
corporation. These decisions are intended to carry out the will of the shareholders and the
directives of the board of directors.

Governance Indicators

1. Voice and Accountability

2. Political Stability and Absence of Violence

3. Government Effectiveness

4. Regulatory Quality; (V) Rule of Law

5. Control of Corruption.

GOVERNANCE

● Generic sense to the task of running government or any other appropriate entity

● The act or process of governing, specifically authoritative direction and control ~ Webster

Goran Hyden

∙ a conceptual approach that can frame a comparative analysis of macro-politics.

∙ concerns "big" questions of a "constitutional" nature that establish the rules of political conduct.
∙ involves creative intervention by political actors to change structures that inhibit the expression of
human potential.
∙ a rational concept, emphasizing the nature of interactions between state and social actors, and among
social actors themselves.
∙ refers to types of relationships among political actors.

GOOD GOVERNANCE

• high level of organizational effectiveness in GOVERNANCE relation to policy-formulation and the

policies
• implies accountability, transparency, participation, openness and the rule of law

Corporate Governance
*The term corporate/corporation was derived from the Latin word “corporare” which means combined
in one body and governance from the Latin word “gubernare” which means to steer or rule. To put it
simply Corporate Governance means a set of systems, procedures, policies, practices, and standards
(streer/rule) put in place by a corporate (one body) to ensure relationships with various stakeholders is
maintained in transparent and honest manner. Corporate governance have been used and studied for a
long time but never knew its name until Robert Ian Tricker defined the field in his book (1984).
*Corporate governance is the system by which organizations are managed, directed and controlled to
achieve its objectives. Cadbury defined corporate governance as ‘the direction, management and
control of an organisation’ (1992).

Robert Ian Tricker

✓ Author & Founder of Oxford Centre for management Studies

✓ Born: 1933

✓ FATHER OF CORPORATE GOVERNANCE

Corporate Culture
*Shared meanings, values, attitudes and beliefs that are created and communicated within an
organisation (Ashkenasy, Widerson and Peterson, 2000)
*The set of shared taken for granted implicit assumptions that members of an organisation hold and
that determine how they perceive, think about and react to their various environments (Schein, 1992)
*Culture is the best way we do things around here. (Bowers and Seashore, 1966)
*Corporate culture, also called organization’s personality, is not only set of company rules, mission
statement, code of conduct, core values; it is a complex mix of factors that put together to shape an
existing practice how things are done in the workplace.
Cultural Iceberg
*Shows that the observable aspect and practice of culture is just a small part of the entire components
of culture. The Iceberg has three components Namely: Behavior and practice, interpretation and core
value. Behaviors and practice include words and actions which are highly observable. Interpretation is
how we feel the core values should be reflected in specific situations in daily life. One of San Miguel
corporation’s core values is “We are good neighbor.

Corporate Governance History and Framework

*Corporation was born in Britain with an 1844 Act allowing to define their own purpose. The power to
control them thus passed from the government to the courts. In 1855, shareholders were awarded
limited liability where their personal assets are protected from the corporation’s behavior.
*The cornerstone of good corporate governance is when all the stakeholders’ interest are considered
and protected .In order to adhere to good corporate governance a company needs to be accountable,
transparent, and ethical.
Importance of Good Corporate Governance
*The ultimate goal of every business is to gain profit without compromising its corporate social
responsibility. With good governance the company will perform better, and be able to make a sound
decision by reducing the impact of risk and exploiting business opportunities. It also underpins the
company’s responsibility in handling company assets and conduct of business.

The Stakeholder Theory

*Contrary to the “shareholder theory,” in the early 20 th century by economist Milton Friedman, says that
a company is beholden only to shareholders, the stakeholder theory maintains that the company has
wider range of responsibilities to a broad range of stakeholders rather than simply its shareholders.
Stakeholder theory was first described by Dr. F. Edward freeman, a professor at the University of
Virginia. A company’s stakeholders are “those groups without whose support the organization would
cease to exist.” These groups would include customers, employees, suppliers, political action groups,
environmental groups, local communities, the media, financial institutions, governmental groups, and
more. Freeman stated in his book that a successful company never loses sight of everyone involved in its
success.

The Stewardship Theory

*A steward is someone who protects and takes care of the needs of others. The stewardship theory is a
concept that has inspired organization whose mission is to preserve, protect and grow social and
economic assets for the benefit of stakeholders
*The stewardship theory of governance has a clear objective of stakeholder satisfaction. Having a single
leader creates one channel to communicate business needs to the shareholders and the shareholders’
needs to the business. This also eliminates confusion as to who is in charge when a company needs to
weather a storm. Stewardship governance requires that a CEO be trustworthy and willing to put
personal gains aside for the good of the organization.