Governance: Inside & Outside

I am reminded of the Chinese proverb, “Do not make the water so pure that the fish should die”. 

 

Eventually fish die prematurely from impurities when they move beyond a threshold but to die from complete purity is another matter.

 

Governance is about the self-correcting mechanism that leaves more purity, like the natural spirit of the water bodies that sustain the eco-system around it; almost like Montesquieu’s Spirit of Laws and the world would immensely benefit if the spirit lives as well as the laws.

 

But companies have other things to contend with, like chasing an impossible dream to the very end, under severe constraints that markets pose and the leader as separate from the board must make the calls that are fraught with risks of all kind, the financial risk included or the risk of reputation, which could leave a permanent scar.

 

Some of these risks border and tread on the values that make the foundations of these companies be shaken, it could be in a host of areas where different stakeholders have to be satisfied within the framework of compliance that could be audit- able and demonstrable. 

 

This leaves the CEO & the board as insiders in fine balance against the outsiders, some of them could be the early founders who had handed over the reins from the privately held grip over several years that focused on growth as the fundamental driver. The values framework is all that remains to keep the inside from crumbling against competing objectives  that the outsiders must be wary about. 

The original founder after decades of growth could be selling his equity to raise funds for growth and thereby dissipating the risk across a range of stakeholders, investors or bond holders. His original equity and the risks he was holding could now be depleted so much that the residual risk could be infinitesimally small. But the conflict is not about how the risks are stacked against the deliverance of objectives alone. It is also about long term implications of the actions that appear so good now but the unintended consequences could be enormously different.

 

The conflict is real and tenuous, the values dance in a fabric woven out of objectives and risks that must collide to deliver within impossible time frames. There is not one stakeholder but many, the act must be crafted that does not leave one better than all others while you cannot make one lose while all else gain. 

 

This may not happen every time when large transactions are involved, the limited choice that actors are left with could play out like the prisoner’s dilemma whereas the pay-off matrix could be severely strained by the pressures on value systems, while lack of information on both sides could be a formidable factor influencing the choices.  

 

The outsiders, the original founder included, has the Hobson’ choice; he must make that choice whatever the final outcome. He has far little rights, but like the judge who deals with deep fairness questions, he need not be a contender for the smallest piece of the cake as long as the principles of fairness is honoured. 

 

It reminds me of Montesquieu’s Spirit of Laws; the world will be a better place if the spirit lives as well the laws. As long as both sides are mindful of the nuances that separate control from governance, while the checks must be so crafted that the former does not play second fiddle or the latter.

 

When there are more questions remaining than are answered by the recent saga, the incidents on their own are a sobering reminder that no matter how small the hint of dissonance, where values collide, there is no winner other than the over-arching values themselves.