Listener 8 March, 2003.

Keywords: Business & Finance; Governance;

Underneath the world economy’s financial crisis is one of corporate governance. A decade or so ago there was considerable confidence that the best way to run the great businesses of the world (and just about everything else) was the way in which they were run.

Consider the following apparently noble sentiment expressed to a business ethics conference in 1999: what a chief executive ‘really expects from a board [of directors] is good advice and counsel, both of which will make the company stronger and more successful; support for those investments and decisions that the interests of the company and its stakeholders; and warnings in those cases in which investments and decisions are not beneficial to the company and its stakeholders.’ They proved weasel words from the chief executive of Enron, the thoroughly disgraced company which went on to disgrace its auditors. And if Arthur Anderson has also fallen over, another of the great auditing firms is being sued for an almost as reprehensible lack of integrity.

If supervising boards dont seem able to supervise, and auditors to audit, management consultants are struggling, most prominently the doyen, proud McKinsey whose internal management system is being criticised (just as they have criticised everyone else’s). Much of the ‘independent’ advice investment analysts give to shareholders, proves to be primarily in the interests of the analysts’ employers. And there are widespread calls for stricter rules on the composition of company boards, who are meant to represent shareholders but, as best, represent only some of them. Brian Gaynor has pointed out that two boards of New Zealand’s top ten companies fail to meet the NZ Stock Exchange standards, and only five would meet the tougher standards proposed by the British Higgs committee. Another local campaigner for tougher, shareholder-oriented, standards is banker Joseph Healy in his recently published Corporate Governance & Wealth Creation.

Once private sector governance seemed so sound that it was the basis of the reforms of the public service, replacing the notion of public service in favour of private sector models in which the cupidity of Enron’s managers were but an extreme. Fortunately our public audit service has proved far less corruptible, not only because it has maintained its notion of public service, but because the Auditor-General is a servant of parliament, not the managers he is meant to be checking on.

Even so the cult of the manager dominates. This is nicely illustrate by a Wellington District Health Board report ‘process for developing organisational values’, which advocates the establishment of ‘values [to] reinforce the purpose of an organisation’. The document, steeped in logical confusions, nowhere mentions that for over two thousand years the medical professions have been grappling with value issues (remember Hippocrates), perhaps demonstrating the upstart management profession is ethically challenged. The question may be, dear general reader, obvious to you, but in case a manager is reading this column, one asks ‘how on earth does a hospital have any meaningful values, if it ignores those of the people who actually provided raison d’etre for its existence.’ Doctors, nurses and technicians are way down the hierarchy in the document, when it lists ‘planner, funder and provider of health and disability services’, and in the phrase ‘our key constituents viz communities (including patients), staff and providers.’So the ‘staff’ are divorced from of ‘us managers’, are they? The document goes on to claim that values will ‘give it [the organisation] a soul’. Excuse me, I’d have thought that was God’s prerogative.

Sometimes managers give the impression they are out of control and subject to no one. The Wellington board’s last annual report shows that the number of non-medical managers earning more than $100,000 almost doubled from 16 to 28 in the year. But is it more managerially top heavy than other DHBs? Would not that be an interesting set of comparative statistics to collect? But the survey would be developed by management consultants, who would favour over-management.

I have seen it in other reports. The consultants propose increased management systems (creating more jobs for their profession and more friends for future consultancies) in order to control the professionals – without any recognition of their burden nor evaluation of the effectiveness. No wonder there is widespread dissatisfaction among professionals at the management imposed on them. More than one dedicated professional has said they cannot bear to be treated so badly, and are off overseas or into retirement.

And what do the managers do, as well as imposing extra controls on the real workers? Corporate plans, and ‘mission statements’ despite a survey that found seven out of ten senior business managers ignore them. And ‘values statement’ as Frankenstein like, managers aim to give their organisation a ‘soul’. I reckon that instead using the resources that produce such documents for hip replacements would be of greater value.