Business and Government in Canada

Chapter One: Corporate Governance

CHAPTER ONE CORPORATE GOVERNANCE This chapter introduces the topic of corporate governance as increasingly uniting rather than separating business and government in terms of their organization and conduct. Typically thought of in the realm of a private company, corporate governance denotes the mechanisms for accountability and alignment enjoining corporate management, shareholders, and stakeholders. Increasingly, however, similar terminology is found in the public sector as governments strive to rebalance traditional political control and more innovative governance models predicated on bettering performance. While fundamental differences between each sector remain, and must be understood as such, corporate governance as a strategic balance between the competing objectives of conformance and performance denotes an increasingly shared challenge for business and government. Such a challenge calls for at least a partial transcending of sectoral boundaries in order to foster mutual awareness, collective learning, and strong performance capacities for a jurisdiction as a whole. INFORMATION AND COORDINATION Information is the foundation for governance in any context, be it organizational, sectoral (e.g., the marketplace or the state), or jurisdictional (e.g., a city or country). The emergence of 23 Business and Governmentin Canada governance as something of a unifying culture across sectors and cultures reflects the widening availability and production of information on the one hand and heightened competition for quick and effective usage of informationon the other. Across business and government, approaches to managing information flows are often contrasted: hierarchies as the basis of bureaucratic control in the public realm (a basis for Jacobs' guardian syndrome) and competition and networks in the private realm (more consistent with the commercial behavioural syndrome). Yet such distinctions can also be fluid. For instance, after World War II, hierarchical-basedbureaucratic management principles were in good currency in industry as much as in government, whereas the more recent rise of new public management seeks greater usages of networks and competitive solutions within government. Much of the present contrast between rigid hierarchy and flexible networks has to do with how people are managed within organizations, but an equally important dimension of this governance dichotomy is the availability of information and the relative degree of secrecy and propriety deemed suitable for a particular organizational context. Throughout much of the twentieth century, across both guardian enterprises (e.g., the military) and commercial entities (e.g., IBM in its early mainframe days with its self-titled corporate motto, "big blue"), scarce information flows tended to be dominated by limited sets of organizations with the wherewithal to capture the information and translate it into specific policies and strategies. Public and private sector entities alike became inward, often benefiting from economies of scale as big proved better — so long as the external environment remained relatively stable (as was the case in the "thirty glorious years" of largely uninterrupted economic expansion that followed World War II in much of the Western world —viewed by some as a not-soglorious period that enshrined high government-spending levels now difficult to contain1 ). Today this old paradigm has long since given way to global competitiveness pressures and what some have termed "the 24 Corporate Governance age of transparency" (Tapscott and Ticoll 2003). Innovation is often viewed as the purview of small start-ups (at times created within larger corporate structures seeking to escape bureaucratic rigidness and facilitate flexibility). The collaborative and mobile work culture of Silicon Valley is put forth as the most promising ecology of shared information and learning externalities, forcing all organizations to become vigilantly insecure and outward in orientation. In this new context, prosperity has come to resemble a more volatile path of "creative destructionism," to borrow the phrasing of a prominent twentieth-century political economist, Joseph Schumpeter (1947). Yet a continuing need for accountability and the rising demands for moreofitfrom alltypes oforganizations havecreated new governance dilemmas. Unfettered competitive instincts and weak controls can fuel corporate scandals such as those of Enron and Nortel.Yetan excessive shift to control or guardian functions risks stifling innovation and risk taking. Similar dilemmas face government organizations: creativity can often be viewed as lax by those seeking clarity and control, while taken to an extreme this control orientation reinforces a bureaucratic, risk-averse mentality that embeds bureaucratic structures (often viewed as wasteful and unresponsive). Resolving these dilemmas requires an artful governance balance that, while not identical across the private and public realms, also carries similarities across and synergies among them. SHAREHOLDER AND STAKEHOLDER RELATIONS In recent times, there has been...