How a proud corporate history can lead to poor governance

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Only a few pages into Lord Myners’ report on the UK Co-operative Group, I had the feeling I had read this before. Soon after I took up a post at Oxford in 1996 Coopers & Lybrand, the consultancy, undertook an inquiry into the complexities of university’s organisation. Much of what Lord Myners wrote could have been taken straight from that document.

The purposes, origins and histories of the two organisations could hardly be more different but the similarities are the common outcome of failed governance structures. Multiple layers of authority overlap both horizontally (different people and committees engage with the same issue) and vertically (many decisions are liable to review by some other body). The lack of focus in decision making results in an absence of executive authority; while professional management is subject to random amateur interference. In consequence, able people are not easily attracted to management roles; and so the amateurs view the professionals with often justified and frequently reciprocated contempt.

With no defined power structure, the vacuum is filled by people who turn non-executive roles into a near full-time occupation. Many are well intentioned though some are obsessed with a single issue: fair trade, say, or diversity or equality. Others promote a sectional interest, which may simply be their own. Petty politicians enjoy the feeling of being at the centre and jostle for power; the power they seek is not the ability to get things done but the negative power that comes from “no decision without me”. Secrecy about matters of no significance bolsters their sense of self-importance.

When non-executives enjoy power without responsibility, the corollary is that executives suffer responsibility without power. The organisation cannot pursue a consistent or coherent strategy, and may find it difficult to take any decisions at all.

The chaotic process is vigorously defended by claims of democratic legitimacy, and by reference to the traditions and distinctive values of the organisation. But the democracy is a sham, and the values and traditions – admirable if different in the Co-op and Oxford – encourage a tendency to self-congratulation immune to deficiencies in current performance. The proud history also leads people mistakenly to blame organisational incapacity to adapt on current individuals rather than inherited systems and structures.

Anyone with knowledge of a badly run not-for-profit organisation, or a poorly functioning government department or agency, will recognise much in this account. Commercial bodies can suffer similar failings – see Alex Taylor’s book, Sixty to Zero, on General Motors. But in the private sector corrective mechanisms usually come into play faster. GM could experience gentle decline over several decades only because its incumbent position was so strongly entrenched, with a legacy of liabilities few predators wanted.

Able people are not easily attracted to management roles so the amateurs view the professionals with often justified contempt

The Co-op, whose principal businesses have been in similar sustained decline, was able to remain in denial until mistakes in its banking subsidiary proved catastrophic. The Coopers & Lybrand report on Oxford was safely buried: a distinguished cleric led his colleagues in denouncing consultants for their ignorance of the unique characteristics of the university.

Commercial organisations are more vulnerable to the opposite failure: domineering executives with a greatly exaggerated sense of their knowledge and competence, who rule by fear and reject dissenting voices and bad news. That is how Henry Ford’s eponymous company lost its market-leading position to GM in the first place. Royal Bank of Scotland is more typical than GM of today’s corporate failure, although there are plenty of examples of both types; contrast Dick Fuld’s Lehman Brothers with no one’s Woolworths or United Steel.

Yet good governance principles are now well understood. A collegiate but self-challenging executive team. Clear delegation of responsibility with strong accountability for results. Supervision by non-executives who do not override executive responsibility but have the experience and status to present effective challenge, and to displace underperforming management while upholding fundamental purposes and values. These principles are as relevant to a mutual as to a company; as necessary for a university as for a bank.

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