Argüden Governance Academy Foundation

Trust for institutions is the key for development

14 July 2016

Prof. Dr. Richard Leblanc, the editor of ‘The Handbook of Board Governance' and Professor at the Harvard University, has invited leading global experts on governance to contribute to the publication.

Dr. Yılmaz Argüden, Founder of the Argüden Governance Academy and Chairman of ARGE Consulting is the only Turkish expert to be invited to the 'All-Star' contributor list of 'The Handbook of Board Governance', which was published by Wiley last month. We talked on this process:

As the only Turkish expert who was invited to the 'All-Star' contributor list of 'The Handbook of Board Governance' can you share your experiences regarding this process?

As you know, my previous books such as ‘Boardroom Secrets’ and ‘Keys to Governance’ and my articles shared in various platforms such as the Harvard Business Review Blog and Insead Knowledge focused on good governance as the foundation of improving our quality of life. I guess the factors such as these publications having been used as references and text books in many international universities; the review provided by the Honorary Harvard Business School Dean Prof. John H. McArthur for one of my books; having been one of the referees to write a critique to a former contribution by Prof. Leblanc; having been invited to the World Bank / IFC Corporate Governance Advisory Board membership; having served as the Vice-Chairman of the Governance Committee of the Business and Industry Advisory Committee (BIAC) to the OECD; and finally having founded the Argüden Governance Academy contributed to Prof Leblanc’s decision to for the invitation to be among the contributors of the book.

Responsibility must be shared

In my former publications, I have argued that the directors’ responsibilities should be to all stakeholders, rather than only to the shareholders.  In contrast to the Nobel awarded economist Milton Friedman who argued that ‘Business of business is business and directors’ responsibilities are solely to improve the profitability of the corporation’, I have been defending the opinion that the social license to operate and the sustainability of the corporation could only be achieved if the interests of the stakeholders are fairly considered.    In the recent years, even in the US where capitalism is being exercised fully, the recent legal developments have laid the groundwork for boards to consider all stakeholder interests and concerns in making investment decisions.  Prof. Leblanc invited me to write ‘Responsible Boards for a Sustainable Future” due to my experience in sustainability and board duties as well as due to my nomination to a global role such as the Chair of the UN Global Compact Local Networks in 2014. It was an honor for me to be in contributor list of the book amongst the thought leaders in governance such as Ram Charan, Nell Minow, Mark Nadler, and Bob Monks. 

How do you define the essentials of good governance?

Good governance is building trust for institutions. In societies that don't trust their institutions, progress and process of improving quality of life will be hampered. Deficiency of governance is like a friction coefficient.  When friction is high, one needs much more energy to accomplish the same amount of work.  Therefore, in communities where there is a lack of trust, the competitiveness suffers as it becomes more difficult to achieve economies of scale and economies of learning as significant amount of energy gets dissipated by friction.   For instance, when the suppliers do not trust a company, they include risk premium into their pricing and the profitability of the company declines. If the employees’ trust is reduced, then the firm would be more likely to lose its qualified workforce to its rivals.

Good governance, involves the control of powers of the ones who use others’ resources. Uncontrolled power is not power. As Lord Acton stated: ‘Power corrupts and absolute power corrupts absolutely.’ For this reason, public sector, private sector, or civil society leaders must be consistent, responsible, transparent, and accountable.” 

Any result obtained by compromising from these principles will not be sustainable, as failure to observe them inevitably leads to loss of trust. History is full of disappointments for the societies where trust has been lost.

For a good public administration, first of all it is crucial to have good governance, transparency, and accountability in public sector. In this respect, what are the main issues in Türkiye?

Good governance is a culture and a climate where such a culture flourishes. In our country the concepts such as ‘Don’t get out of your father’s word’ at home, ‘Don’t get out of your teacher’s word’ at school, ‘Don’t get out of your boss’ word’ at work, and the concept of ‘paternal state’ causes individuals in our society to grow up without much experience in independent thinking, participative decision making, assuming responsibility, demonstrating accountability and transparency.  As a result, those who come to position of power e ones who came to the position to use their power, could not sufficiently internalize these concepts before they assume such powers.  As a result, people express their unhappiness via complaining and gossiping, rather than improving governance processes to overcome their unhappiness. To summarize, in our country there is a deficiency of both demand and supply for good governance. Lack of trust to the institutions and the rule of law adversely affects the quality of our lives. 

Is it possible to talk about good governance in the boards, where the number of women directors and diversity is limited?

There are two key responsibilities for the boards: providing guidance and oversight to the management.  As the sustainability of the business is essential, deployment of consistent, fair, transparent, responsible, accountable, and effective approaches through the organization which enables the company to advantageously access resources for its future success.  The boards of directors need to ensure that the risks taken by management on behalf of the shareholders are consistent and balanced, and that they have high likelihood of value creation.  To be sustainable, an organization must strike a fine balance between risk and reward; short term and long term; interests of various stakeholders; ethical considerations and market practices.  Diversity of skills and experience within a board is key to oversee all these balances and create value. One of the ways to bring different perspectives to the boards is to increase the number of women board members. Having more women on the boards not only enriches the potential member pool, but also helps to enrich with the diversity of opinions and perspectives.

How are new boards formed where the issues like technology, industry 4.0, sustainability, and green economy have recently risen?

Board members have three main duties: (i) duty of loyalty, (ii) duty of care and (iii) duty of disclosure. Boards are responsible for maintaining a balance between the risk-return profile of the strategic choices, short term and long term balance of performance, fairness of distribution of value created by the firm among stakeholders. For this reason, it is important to have a prudent balance in their decisions.

Boards are responsible for long-term decisions, guidance, and strategy for organizations. Therefore, sustainability is a key board responsibility. Ethical and moral behavior requires balancing short-term performance with the long-term sustainability of humanity (society and future generations). Responsible boards not only have a duty for the continuity of the business, but also duty for a sustainable future for the humanity and the world.  Decisions like redesigning the value chain, introducing new technologies, and investing on green innovations are some of the critical issues where boards need to take responsibility.  Therefore, new boards need members who are experienced on both sustainability and technology.  Hence, new generation of boards should be formed from by diverse set of members who are able to fulfill these responsibilities. 

What are the main issues for NGOs?

Regardless of type of institution, participative and evidence based decision-making improves the quality of decisions.  In those institutions where there is a deficiency of accountability, transparency, and participation, the learning cycle does not complete and rather than learning from mistakes, they are repeated.  Unfortunately, our cultural weaknesses caused by our social approach and education system can be observed in all institutions from private sector to civil society.  It is no coincidence that our soccer clubs are penalized by UEFA and we do not have sufficient number of global brands. It is also not a coincidence that companies that demonstrate a commitment for good governance such as Koç, Anadolu, and Borusan are among the preferred companies by the international investors and more successful in overseas markets. Similarly, the NGOs that adopt good governance principles such as TEGV and TEV are among trusted organizations in the society and are able to regularly increase their resources by donations.

Dünya Gazetesi, 14 July 2016