Your “Keys to Governance” book was acclaimed by notable leaders including, a Nobel Peace Prize laureate, a Head of State, CEOs of major think-tanks, global companies, and institutions, as well as Deans of INSEAD and Harvard Business School. John H. Mc Arthur, Dean Emeritus of HBS, said that it is “A tour de force of a kind that comes along only rarely by a well-known and widely respected modern day renaissance leader and thinker.” What are the keys to good governance, and how can organizations embed good governance into their culture and operations?

“Good governance protects the humanity from the human beings.”

There are two basic reasons why people establish institutions: (i) more effective utilization of resources and (ii) better risk management to create sustainable value. Yet if the institutions are not trusted by their stakeholders, they cannot achieve these goals. Good governance improves quality of management and trust of stakeholders.

There are two important roles for governance: providing direction and oversight. Providing oversight is critical as per Lord Acton’s famous quote “Power corrupts, and absolute power corrupts absolutely.” When we delegate the power to make decisions for the institutions to individuals, either through elections or appointments, institutions become prone to potential deficiencies of those people, such as short-termism, ignoring externalities, over-confidence, selfishness, and even agency problems.

Good governance helps ensure separation of powers of providing direction and oversight from those of management decisions. As such it is an insurance policy for sustainability of good management as well as better strategic decision-making and management of risks.

Value creation is a function of strategic choices as well as effective utilization of different resources including financial, intellectual, manufactured, natural, human, and social and relationship capitals. Creating an effective value proposition requires successful strategic direction, efficient and effective utilization of resources, and ability to invest and innovate continuously. Independent review of strategic options developed by the management through a separate governance body improves the probability of success.

Good governance is about creating a climate where a culture for building value and trust is nourished. Good governance must ensure that the organization has the right people, processes, information, and values to create value and build trust.

In a nutshell, good governance is about sustainability of success by helping broaden our perspectives and ensuring checks and balances into our institutional decision-making processes.

Your 2015 speech at the UN General Assembly Hall referred to “Trust” as the core value that all institutions should embrace. WEF’s Davos theme in 2024 was “Rebuilding Trust” and a couple of years ago the OECD initiated a “Building Trust and Reinforcing Democracy Initiative”. Why is trust so important and how can we build trust?

“Trust is the essence of good governance and foundation of sustainable development.”

The essential principle driving modern human rights and democracy is this: people should have a say in shaping their own future and be able to contribute to the local, national, or global decision-making processes that influence their lives.

“Good governance” signifies a transformation from a type of relationship where a limited group of people have the ultimate authority to rule others to a set of relationships where mutual, inclusive engagement takes place to make desirable choices for all stakeholders. It involves the mechanisms, processes, and institutions that individuals, corporations, groups, and societies utilize in decision-making and implementation, in expressing their interest and in fulfilling their obligations, as well as in solving conflicts. In this context, governance points out to the nature of mutual interaction among social actors as well as between social actors and public administration, and it contains the meaning of assuming responsibility to help others realize their potential for improving the quality of life.

Good governance is much more than just the structure, processes, and rules of decision making and controls. Good governance is a culture and a climate of Consistency (predictability), Responsibility, Accountability, Fairness, Transparency, and Effectiveness that is Deployed (inclusiveness and subsidiarity) throughout the organization and society (the “CRAFTED” principles of governance.) Embracing them reinforces social trust for all kinds of institutions, public, private, non-profit, local, national, or global.

For truly effective results, management decisions should be data-informed and consistent with the purpose of the institution to ensure coherence and alignment with the rules and regulations and stakeholder expectations. Care should be taken to be inclusive and fair in participation, in decision making, and in implementation. Any institution adopting good governance principles has to act responsibly not only in identifying the priorities and mobilizing the resources, but also in protecting the physical, economic, environmental, and social interests of the stakeholders and future generations.

Only an institution which displays accountability throughout all phases of value creation can build a relationship of trust with its stakeholders. This can only be attained if information related to each step is shared in a data-based and transparent manner with the stakeholders. Engaging the stakeholders in an inclusive manner also helps effective implementation of the decisions and minimizes the enforcement and compliance costs.

Inclusive and meaningful stakeholder engagement in decision-making processes ensures greater representation and participation, aligns the incentives for the common purpose, produce fair and effective decisions, which in turn reinforces the trust between the institution and its stakeholders.

Thus, the essence of good governance is ensuring trustworthy relations between the institution and its stakeholders. If we are going to build trust and reinforce democracy, good governance is the recipe.

2024 is the 10th anniversary of Argüden Governance Academy that conducts impact research, unique education programs, advocacy programs to promote good governance, as well as pioneering Integrated Reporting among the NGOs and the public sector. The Academy promotes meaningful, inclusive stakeholder engagement as a critical aspect of good governance. How should organizations approach stakeholder engagement to ensure inclusivity and transparency?

“Stakeholder engagement is not just an action, but a process…”

In the current global context, preserving and promoting the democratic system is of utmost importance to improve the quality of life. Building trust for government institutions is the key to reinforcing democracy. Trust for democracy could only be built by adopting good governance with a (i) whole of society, (ii) whole of government, and (iii) whole the policy cycle approach that focuses on (a) informed, inclusive stakeholder engagement, (b) evidence-based decision making supported by ex-ante and ex-post impact analysis, and (c) integrated thinking to help consider material impacts to different stakeholders and to support continuous learning.

Sustainability of success can only be achieved by adopting a long-term perspective, considering the interests of all stakeholders in decision-making, and developing a continuous ability to invest and innovate. Sustainable success can be achieved through integrated thinking, effective implementation, and proper communication of value.

Therefore, stakeholder engagement needs to be inclusive and meaningful, and should be conducted not only at decision stages, but also at service design stages (design thinking), and in providing feedback. Hence, quality of participation, quality of information shared with the stakeholders, as well as the quality of engagement processes are critically important.

Argüden Governance Academy conducts impact research such as Sustainability Governance Scorecard^©, Municipality Governance Scorecard^©, and develops Local Development Guides to improve peer learning, globally. Our Scorecard methodology aims to measure the quality of participation, information shared, and processes, as well as aiming to identify and promote good examples to speed up peer learning, based on publicly available information.

The Academy also conducts good governance advocacy programs such as leading the process of awarding the European Label of Governance Excellence (ELoGE) and School on Participatory Democracy, in collaboration with international organizations such as the Council of Europe.

The Academy not only promotes adoption of Integrated Reporting in the public sector and NGOs, alongside the private sector, but also ‘walks the talk’ and has been the first Turkish institution to adopt Integrated Reporting and a global pioneer among the NGOs by reporting its activities as an Integrated Report since its founding.

You have assumed numerous international leadership roles such as being elected as the Chairman of UN Global Compact National Networks and the Chairman of the Governance Committee of Business at OECD. What are the new emerging governance challenges and how can organizations prepare for them?

“Good governance is building a culture of trust and protecting the climate in which such a culture nourishes; regarding the other, as you regard yourself.”

While change and challenge are continuous phenomena and one would need to write a book on this subject to address it properly, I would like to list four important areas: (i) Artificial intelligence, (ii) Misinformation and disinformation, (iii) Changing our perspectives on sustainability from an adjunct activity and to incorporate it into our strategic and daily decisions, and (iv) Understanding the importance of transformational governance for sustainable development.

Artificial intelligence is a transformative force that has significant impacts on all aspects of life from the economy to politics, to culture, and social life. Patterns of life, work, and sharing relationships are undergoing radical changes, those who are unable to catch up with this revolution are left outside the system at an increased pace. This development presents the danger of an alienated two-tier society in contrast to the exciting prospect of efficient governance patterns based on the principles of democracy and equity.

Unless we can provide an equitable distribution of knowledge and means of communication among the people, we cannot lead humanity to a world free of discrimination, prejudice, and animosity. This requires not only a reform in what and how we teach our children, but also a rethinking of the global priorities to make education of the masses the top priority.

The spread of mis- and dis-information poses a fundamental threat to the free and fact-based exchange of information that underpins our democracies. Active transparency and accountability, provision of trusted information, and, once again, education are keys to addressing this issue.

A sustainable global economy combines long-term profitability with ethical behavior, social justice, and environmental care. When we look at the state of the world today – climate change, deteriorating water resources, plastic waste, income inequality, gender inequality, and corruption – it is evident that institutions need to assume responsibility for sustainable development and act.

For corporations to truly contribute to a sustainable future, we need to widen the lens through which we view sustainability. Sustainability requires decision-making processes incorporating all potential impacts of a company, incorporating the positive and negative externalities into its decision-making processes, and avoiding short-sightedness and selfishness. Referring to sustainability issues G(EES), prioritizing the Governance of sustainability (Economic, Environmental, and Social) impacts, is a more appropriate acronym than ESG.

Sustainable success requires adoption of transformational governance. Such an understanding of governance requires broadening our perspectives for decision making in four dimensions: time-frame (from short term to long term), place (from where we operate to all the places that our activities make a material impact), capitals (not only financial but also intellectual, manufactured, natural, human, and social and relationship capitals), and considering all material impacts not only to ourselves but also to our stakeholders (direct and indirect), as well as assuming responsibility to build such a culture of trust and protect the climate for its nourishment.

Trusted Magazine, April 24, 2024

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