Time to steward the trust and reign in compliance

March 2022 | SPOTLIGHT | BOARDROOM INTELLIGENCE

Financier Worldwide Magazine

March 2022 Issue

‘EU sues AstraZeneca over vaccine delivery delays’ ran a recent BBC News headline, after the company allegedly failed to fulfil its contractual obligations to Europe.

Yet comment from within the Brussels bubble was of a blameless AstraZeneca. The firm was simply in the firing line of a European Commission (EC) that has no other levers left to pull, other than those available to a regulator.

What the coronavirus (COVID-19) crisis has highlighted most distinctly is that to address issues of social and economic concern requires substantially more than compliance protocols. The EC does not have a broadened remit able to call upon policy experts from different fields. Instead, lawyers have predominated over the discourse between the EC, member states and other institutions.

In effect, the governance of Europe is progressively paralleling the compliance mindset of the private sector. From the 1980s Barings Bank scandal, through to the collapses of Enron, Marconi, Parmalat and the more recent travesty of justice ensnaring hundreds of UK Post Office sub-postmasters and postmistresses – scandal after scandal has been met with ever greater compliance.

All of this has taken place in the hope and expectation that greater regulation will overcome the failures of the past and minimise their occurrence in the future.

There is a commonly held misconception that governance is compliance, but this is plainly wrong. Governance is the oversight of assets requiring care, with a prime duty for guardians to determine how greater value can be realised than is currently the case.

The two levers at the disposal of governance bodies are compliance and stewardship. Against all evidence, disruptive and unwelcome occurrences have been met with increased controls and protocols, which have the effect of inhibiting the discretionary choices of those in charge.

The outcome is always the same: even more scandals. On each occasion, those involved knew what action they should take, how to do it and when to do it. ‘It’ in these cases is the solution or way forward to addressing the problems at hand.

Unfortunately, there is a false belief by those in regulatory positions that by introducing greater procedural decrees, the situation will be brought under control. What was and continues to be missing is stewardship.

Stewardship is an evidence-based, sensitive raising of uncomfortable truths, with the purpose of guiding and facilitating the institution to a better place. Because stewardship is sadly lacking, trust in our institutions and government has eroded significantly.

The process requires becoming embroiled in context in order to fully appreciate the nature of the tensions and misalignments that need addressing. This requires reaching a delicate balance between compliance and stewardship to ensure an appropriate level of engagement. This is the way that trust is built.

Such sensitivity of intervention is glaringly absent from the governance of Europe. The reactionary habit for far too long has been to regulate, and if this does not work, then threaten to regulate even more.

Transversing fracture points

Fracture points are the critical juncture within any larger system or structure where policy repeatedly goes wrong. What was intended to happen does not, and this is often because an insensitive centre is unaware of the reality of localised conduct. Fracture point friction occurs in some of the best-run global companies.

Effectively delivered strategy requires adaptation by country and division because different notions of competitive advantage exist within different contexts. This should be taken into account by a centre that has to integrate top-down strategy with the flexibility to trade in varying locales.

Research has shown that over 82 percent of international corporations do not display such sensitivity, and instead react punitively when challenged by what is seen as misguided sentiments held by the local general management.

Our inquiry into the functioning of the UK government, ‘The Kakabadse Report’, highlighted that fracture point phenomena occur in government, namely at the level of secretary of state and permanent secretary.

We found that it was commonplace for politicians to misinterpret the actions and intentions of senior civil servants who, in their attempts to guide the minister through misalignments of interest that would damage policy delivery, found themselves facing accusations of being ‘blockers,’ ‘anti-Brexiteers’ and in some of the most extreme cases, ‘traitors’. In reality, this critical fracture point happened because it was simply misunderstood.

Fracture points further arise because a reconsideration of the approach to policy delivery is required in order to meet the demands of varying communities. A number of more enlightened ministers encouraged bottom-up comment and moulded that with top-down policy execution – resulting in sophisticated and sensitively delivered policy.

Fracture points are a necessary tension which, if handled well, distinctly enable policy delivery. There are key questions to address within the European context. Where are the fracture points located within the complexity of the EC-member states’ interrelationships? Are such junctures recognised as necessary tensions, or as unwelcome experiences? Have such tensions been swept under the carpet? In order to effectively address fracture points who, or what, is the guiding steward?

Neglect of fracture points leads to an ever-deepening mistrust of critical governmental and institutional bodies, leading to an increasing distaste for democracy. One renowned European politician reflecting on current circumstances commented: “Now is the time to lie, because I can, because few care.”

This comment captures the low levels of trust existing between political and institutional leadership and the communities involved.

A clear delineation of roles and duties

After identifying, understanding and attempting to address fracture points, the next step is to determine clarity on accountabilities and duties for key roles and institutions clustered around these faultlines.

This was clearly evident in the UK government study where the roles of secretary of state, permanent secretary, special political advisers and chairmen of departmental boards damagingly overlapped and led to further negative discourse.

A clear delineation of roles and duties provides for smoother policy delivery. This means that the key questions for Europe are: which roles require clarity of accountabilities and duties in order to minimise discontinuous policy delivery? And if unaddressed, what mixed messages emanate from these roles?

Effective engagement across misalignments

Having located the fracture points and clarified the roles, duties and quality of interaction at these junctures, it is now possible to build more effective engagement across conflicting misalignments.

Due to the nature of large and complex systems, it is also normal for leaders to be seriously challenged as to how they should effectively engage across differences. Their approach to this either generates or undermines trust.

As a result, it is critical to respect context and take a disciplined view on how to deliver policies which cumulatively lead to greater resilience and confidence across the European system. This means that a remaining question for Europe is: what sensitivities remain unaddressed, and what is the impact of not addressing these concerns?

Once this question is publicly and confidently raised, an effective balance between compliance and stewardship can be achieved.

To genuinely deliver on ‘governance innovation’ demands the maintenance of a workable balance between protocol and facilitation. To not do so, and instead pursue further regulation, erodes structures and makes an already brittle system vulnerable to the vagaries of political fortune. It is clear this is the pathway that Europe has always pursued.

For organisations, it takes courage to step up and identify the fracture points that most of us already know and recognise are there. Evidence-determined diplomacy strikes the delicate balance that is needed between regulation and stewardship. The question for both political and European industry leaders is: do they have the appetite to do so?

Andrew Kakabadse is professor of governance & leadership and Nada Kakabadse is professor of policy, governance and ethics at Henley Business School. Mr Kakabadse can be contacted on +44 (0)1491 418 776 or by email: a.kakabadse@henley.ac.uk. Ms Kakabadse can be contacted on +44 (0)1491 418 786 or by email: n.kakabadse@henley.ac.uk.

Andrew Kakabadse and Nada Kakabadse

Henley Business School