- Posted by Richard Stringham
- On October 24, 2017
- Governance Best Practices, Owners and Ownership, Policy Governance System
These days, we have come to expect remarkable changes in our lives based on technological innovations. Could such innovations apply to governance?
In his informative and charming video lectures, Professor Bob Tricker explains how corporate governance has evolved over centuries.
One turning point in particular was the revolutionary concept of the joint-stock, limited liability company. Prior to that, if a business tanked, investors could lose much more than their investment in the business. If the individual did not have sufficient means, the results could be as extreme as debtors’ prison! Obviously, this did not create much incentive to invest where the investor was not directly managing the business.
However, limiting the shareholders’ liability (first made possible by legislation in 1855) encouraged more investment in companies in which the owners (shareholders) were not necessarily managing the business. As Tricker points out, this also resulted in a separation of sorts between the ownership and the management of the corporation.
Consequently, new practices were created to offer some oversight of management’s work in this transformative business model. For example, the shareholders would meet and appoint one or two of their fellow investors to “audit” the books. This would, over time, lead to the development of audits and the auditing profession that we are familiar with today.
At the same time that this new corporate structure was introduced, the technology of steam was advancing. Wikipedia reports that the “lightweight, high-pressure steam engine” was first used in a railway locomotive in 1804 and the first public steam railway was built in 1825. By 1855 railways were being built worldwide with the first transcontinental railroad in the US completed in 1869. Throughout that period and through to the 20th century, steam locomotives would advance in their sophistication and power with improved best practices in locomotive design.
But by the mid 20th century, diesel and electric technologies were replacing the steam locomotives. And the rest, as they say, is history.
Yet, this was not achieved by improving on best practices of steam engine design. Instead it was a transformation in technology.
What would it take to bring about a technological transformation in governance rather than just improving on best practices? What would a new technology of governance look like?
In the 1970s, John Carver approached that issue by effectively “wiping the slate clean” and inventing a new technology of governance: Policy Governance®. He began from the premise that the Board stands in on behalf of an ownership and on that basis established a system of 10 interrelated principles which define the governance technology. By design, the technology is applicable to governing boards of all shapes and sizes.
Just as the technology of the internal combustion engine eventually transformed transportation, the Policy Governance®system has the potential to replace collections of best practices and transform governance. I expect that someday, someone will rethink governance and introduce us to another new governance technology. However, all of my seeking to date has not yet uncovered such a technology.
Until that time I continue to work with what I consider the best governance technology of our time: Policy Governance®.