Addressing the Global Governance Crisis: Overcoming Systems Thinking Capabilities Gaps
In a recent article Andrew Edgecliffe-Johnson , the US Business Editor at the Financial Times, suggests it is “time to ask what the directors were doing” at the banks that recently failed. He notes that “The fragility of financial institutions suggests serious lapses in corporate governance in banking and beyond.” And he proposes, “investors should use this moment to pull back from the corporate governance culture wars and ask themselves why the age of ESG has not given us better governed companies.”
There is little evidence that ESG has made governance any better, and reason to be concerned that it has made it worse. In my view it is an ill-conceived response to a serious problem that if far older and much more deeply engrained. I call it the #GlobalGovernanceCrisis.
The world is undoubtedly much more volatile, uncertain, complex and ambiguous (VUCA) in many ways. And businesses are themselves much more complex than they used to be when the institution we know as “the board of directors” was established. As a result, it is not hard to appreciate that the governance model we have is simply not up to the job.
Might investors do as Andrew suggests, pull back reflect on the question he proposes, and come to the same conclusion I have? The answer is no. Institutional Investors also lack the corporate governance structures they need to do their job properly. So, it is clear they are part of the problem and also lack the ability to hold the directors of the companies they invest in account in the way they should.
The capabilities of auditors, internal and external, must also be questioned given the criticisms levelled at them for their role in recent scandals, or their inability to prevent them.
Finally, what about the regulators? It would seem they are also unable to produce regulation capable of preventing the crises we have seen. That would suggest they also have systems thinking capabilities gaps.
Having read the Kay Review, by John Kay , which followed the Global Banking Crisis, we can see that it is possible to undertake thorough reviews of large complex systems and identify weaknesses that can be addressed. But such reviews are rarely that thorough or systemic, and the actors that need to learn and act upon the recommendations seem unable or unwilling to do so in many cases. Why?
I suspect that action to solve systemic problems in large and complex systems often requires coordinated and synchronised action across the whole, and piecemeal improvements in some areas and not others is unlikely to fix the problem. But recognising this and making it happen demands that those overseeing changes have strong systems thinking capabilities – capabilities that they do not seem to have.
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In conclusion, what I am saying is this. Good governance requires strong systems thinking capabilities, and the global governance crisis provides evidence to suggest directors and executives simply do not have those skills either individually or collectively. And the bigger question is this, is any board capable of ensuring it, collectively, has these capabilities?
I don’t believe any board is able to develop the capabilities it needs, a problem made worse by current governance structures (a topic for a future article). And for this reason, as the Enlightened Enterprise Academy , we have developed the Introduction to Critical Systems Thinking and the Management of Complexity, with Mike Jackson, author of the book of the same title. This addresses the systems thinking capabilities gaps for directors and executives.
Additionally, we are currently creating Director Dialogues and Executive Dialogues designed to provide additional insights on hot topics on a just-in-time and on-demand basis. Led by subject matter experts they will be interactive dialogues that help boards and executives address specific knowledge and capability gaps when they have an urgent need to address them. Details by email [email protected]
Our other programmes will also help directors and executives address problems related to organisational structure, leadership and the management of risks as organisations try and adapt to the demands of the 21st Century, which necessitate new approaches. ?????
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1 年For most organisations, ESG is just marketing spin for customers and to provide investors with a "Get out of jail" card when asked who they are investing in. This analysis is not in itself complex!! But you are correct Paul Barnett that systems thinking is the only route to a solution - of which I must add that the human virtues of "Leading Beyond the Ego" is an important part. And that won't change until we choose a different class of leader.
Project Consultant for Productivity, Efficiency, Profitability. Financial Engineering, and Environment, Circular Economy. [email protected]
1 年The system approach is necessary for the reason that the entire set of entities that make up the financial system must be seen and analyzed, observe the current situation and look backwards and forwards and obtain guidelines. to follow with the respective method of planing and continuous evaluation, and of this, the banks do the same in their entity, and, as far as possible, try to have a degree of influence in the increase of the monetary mass, its destination and its management, including the interest rate.
Project Consultant for Productivity, Efficiency, Profitability. Financial Engineering, and Environment, Circular Economy. [email protected]
1 年It is clear that among several points of view there are three important ones. As the article says, one is the management capacity of the governing bodies, another is that of the regulators, and another is the systemic approach. - In the field of management, two major objectives can be pointed out, one is obtaining the best profitability and the other is the distribution of money in credits where the best return is obtained, which requires constant research, both in the collection as in allocation, which also implies monitoring and evaluation of the pyramidal chain of financial ratios and taking the necessary and timely preventive measures, since all the ratios come to form profitability. - The one of the Regulators, is that they must also be aware of what can happen with the measures of the excesses of monetary supply, its economic support, the destination and duration of that increase. - The system approach is necessary for the reason that the entire set of entities that make up the financial system must be seen and analyzed, observe the current situation and look backwards and forwards and obtain guidelines. Etc.
Founder & Head Coach – Economic Engagement | Strategic Planning | Employee Engagement | Performance Management
1 年This article provides a more effective alternative to ESG: https://www.fastcompany.com/90844629/esg-investors-better-way-to-measure-corporate-impact
The Blended Capital Group - ESG, Governance, Strategy and Finance Integration Leadership Focused on Impact Delivery
1 年Good #systemsthinking is table stakes for good #governance. Businesses and governments need to navigate in a world that is complex, with multiple stakeholders intersecting, rapidly changing socially, economically and technologically. Being aboe to understand where your business is in this context starts with understanding what systems look like. Being able to transform in this env’t requires visibility of current and evolving patterns. Are board and c-suite members adept at systems thinking? Is it a mandatory skill given that it brings potential competitive advantage? I would suggest that the clear answers are ‘yes.’