A Guide to Corporate Governance: Principles, Teachings and Tools

1. A Guide to Corporate Governance:Principles, Teachings and Tools Ian Rennie

2. 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.

3. Timetable • Fundamental Principles of Good Governance • Legislative Reform • Structures of good Governance • Administrative Reform • Regulation, Auditing and Accountability.

4. Governance : a definition • ‘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.

6. Session 1 Fundamental Principles of Good Governance

7. Rule of Law • 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.

8. Accountability • 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.

9. 12 Conditions • Adults should demonstrate equal probability of voting • Right sized constituencies • Adults should have some reasonable probability of becoming a candidate • There should be multiple candidates with reasonable probability of winning proportionate and equal financial resources and media access • Parties should offer policy alternatives that are only plausible and address issues of concern to citizens • There should be alternative sources of information protected by law, and ownership should not be so concentrated or monopolized ...

10. 12 Conditions • Sources of information are accessible in cost and citizens must be capable and motivated to make a “well-informed” choice • Competing political parties and associates are independent of state authorities, each other, and are not systematically drawn from one segment of the population • Parties or associations should not enjoy privileged recognition, access or subsidisation from state agencies or governments officials • Incumbent office-holders should not enjoy decisive advantage in subsequent elections • Winning candidates show high probability of fulfilling campaign promises • Political parties should monitor and sanction candidates that do not.

11. Free and Fair Elections • 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.

12. Checks and Balances • 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.

13. Functioning Democracy • 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.

14. Expansion of 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).

15. Session 2 Legislative reform

16. National Law • 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 • Shariais 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.

17. International 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.

18. European Union 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.

19. Treaties • 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).

20. Reforming a National Legal System • 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.

21. Why Reform? • 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.

22. Reforming a National Legal system • 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.

23. Scrutiny of Judicial Appointments • 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.

24. Accountability in Legal system • 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).

25. Session 3 Structures of Good Governance

26. What is the State? • 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.

27. Core Functions of 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.

28. Central Civil Service Responsibilities • 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.

29. Civil Service Merit Model • 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.

30. Organizing principles for a civil service • 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).

31. Different Models

32. Local Government • 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.

33. Potential services provided locally • Public information and archiving, such as libraries • Public transportation • Social housing • Social services • Telecommunications • Town planning • Waste management • Water services. • Broadcasting • Education • Electricity • Environmental protection • Fire service • Gas • Health care • Military • Police service

34. Regional Autonomy • 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).

35. Types of Decentralisation • Political • Administrative • De-concentration • Delegation • Devolution • Fiscal • Economic.

36. Federal and National Government • 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.

37. Local democracy • 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.

38. Government Procurement ... • ... 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.

39. Session 4 Administrative reform

40. Drivers for change • 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.

41. Reform Concerns • 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.

42. Value for Money • 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.

43. Lessons : Private and Third Sectors • 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.

44. Why? • 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.

45. How? • 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.

46. Administrative Cultures • 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.

47. Public Spending and Financial Crisis • Where does the money go ...? • The main areas of UK government spending in 2008, which totalled £575b, were:

48. The 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.

49. In detail • £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.

50. Sharing internationally • 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.