Home Management Corporate Fraud and Corruption: A Holistic Approach to Preventing Financial Crises
Private and Public Sector Governance
Introduction: Definition of Concepts
The previous chapter explained that in a world of multinationals and globalization, thinking of some issues (e.g., sustainability) globally helps to improve a situation locally. Governance is such an example, and it will be addressed by considering not only the Organisation for Economic Co-operation and Development (OECD) principles (2004 and 2014), the United Nations (UN) approach, but some national approaches as well. In this chapter, the UK, US, and Australian governance principles will be addressed. In addition, governance for the public sector will also be discussed and so will the issue of culture in the private and public echelon of an entity.
Generally speaking, governance describes the elements of organizational control and accountability that are necessary for the good management of any organization, private or public. As was mentioned in Chapter 3, the processes that are involved in corporate governance (CG) also play a key role in controlling corruption by promoting ethical behavior and enhancing competence. In addition, effective implementation of a good governance system decreases the risk of fraud by encouraging a work environment that is not conducive for such behavior especially because there is better monitoring and control of management and accountability of the board through the nomination and remuneration committees, which sets the tone at the top.
Searching for answers to the question of what is governance, one finds a variety of definitions. For the World Bank, governance was defined in its 1992 report on “Governance and Development” as “the manner in which power is exercised in the management of a country’s economic and social resources for development” (p. 1). The report stated that the World Bank’s interest in governance derives from its concern for the sustainability of the projects it funds. It concluded that sustainable development can only take place if a predictable and transparent framework of rules and institutions exists for carrying out private and public businesses.
The gist of good governance was described as predictable, open, and enlightened policy, together with a bureaucracy permeated with a professional ethos and an executive arm of government accountable for its actions.
While a variety of definitions have been proposed by different bodies internationally over the years for what constitutes good governance, neither practitioners nor researchers agree on the definition. The UN (2012) defined governance as “the exercise of economic, political, and administrative authority to manage a country’s affairs at all levels. It comprises mechanisms, processes, and institutions, through which citizens and groups articulate their interests, exercise their legal rights, meet their obligations, and mediate their differences.”1 In the same publication, the UN advocated that the pillars of good governance are what make “institutions and rules more effective and efficient” (p. 3), which can be achieved thorough “transparency, participation, responsiveness, accountability and the rule of law” (p. 3).
The UN advocates that good governance of institutions will ensure sound management of resources, “delivery of and equitable access to public services... transparency in public finance... citizen participation and enhanced accountability,”2 “judicial independence, electoral integrity, political plurality, freedom of expression and media independence.”3 A view that appears to permeate through the relevant UN publication is that the agency is committed to ensuring stakeholders that it promotes “resilient, legitimate and inclusive national and local institutions, as well as inclusive participation in public processes” (p. 10).
Another important international organization that has addressed governance is the OECD, which was founded in 1961. Inter alia, article 1(a) of the OECD Convention states that it aims to promote policies designed “to achieve the highest sustainable economic growth and employment and a rising standard of living in Member countries, while maintaining financial stability, and thus to contribute to the development of the world economy.”4 For the OECD, good governance embraces public authorities as creators of the environment in which economic operators are active and the distribution of benefits between the governed and the governing is decided. Finally, the World Bank defined good governance as best exemplified by policy making that is foreseeable, open, and enlightened and associated with “democracy and good civil right, with transparency, with the rule of law, and with efficient public services.”5 As the World Bank pointed out, the notion of governance and good governance is of course not new, but throughout the concept’s history the focus has been mainly on CG and less on governance in the public sector. This chapter treats governance in both the private and public sectors as equally important and will address both.
Some authors (e.g., Rothstein and Teorell 2008) have proposed that instead of good governance in the public sector we should be talking about quality of government (QoG). In fact, at the University of Gothenburg (Sweden), there is the QoG Institute. QoG is very important because, generally speaking, a higher standard of QoG increases human development in a particular society in terms of life expectancy, educational attainment, and standard of living (Holmberg, Rothstein, and Nasiritousi 2008). Rothstein and Teorell (2008) linked QoG to the notion of impartial government institutions; that is, when public officials who implement policies only take into account what is provided in the policy or the law. The definition of QoG used most often by the authors on the topic of governance is that of the World Bank, given previously. It is important to note in this context that corruption is considered a key feature, but not a unique one of QoG, which entails much more than lack of corruption (University of Gothenburg 2010).
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