Take for example the subprime mortgage crisis which has led to the present credit crunch. It exists because there is need for prudence and control amidst a general climate of scepticism.
At the end of 2001, the scandal that was Enron surfaced — one of the largest corporate failures in history. Mismanagement and the death of ethics were central in the downfall of this corporate giant which had previously recorded stellar growth and even won industry awards for its performance.
The degree to which fraud was perpetuated in Enron was a turning point for the corporate sector and the accountancy profession. We witnessed the tightening of regulations, the introduction of more controls, and an intensified focus on corporate governance to curb recurrence.
Unfortunately we continued to hear of more cases of fraud being perpetuated. More recently, the Madoff scandal was exposed — a US$50 billion Ponzi scheme, run by a highly respected individual in the financial sector in the US. It seemed to have escaped the scrutiny of regulators and market players alike.
Are these simply cases of oversight? Aren’t there sufficient controls in place to thwart these scandals?
While the debate would continue on who should be blamed for causing the financial and economic tsunami, there appears to be a consensus that one of the key drivers was the meltdown of values among the market players, says the President of the Malaysian Institute of Accountants (MIA) Nik Mohd. Hasyudeen Yusoff. “When profits and personal interests take precedence over the overall benefit to society, such a catastrophic outcome is not unexpected.”
Countries around the world are working together to collectively handle the present economic challenges which affect the global community. For example, the recent G20 summit in the US included recommendations which would result in some structural reforms in the governance of the global financial architecture.
However, any reform which overlooks the issue of the failure in values, the inner-core of human beings — the soul of enterprises and organisations - would at the minimum be incomplete.
In these times when the general approach towards addressing the interest of corporations has become profit-driven, corporations must realise that there is so much more to achieving good governance than just checking the boxes, he says. “There is a need to also focus on people, who are crucial towards this end.”
While corporate governance continues to be an essential element in spurring public confidence and trust, the tenets of human governance must go hand in hand with it, Nik says. “This is because corporate governance is manifested as an external, outside-in rules and regulations to legislate the corporations. But corporations are ultimately run by people who are central to the decision making process and it is therefore this element that requires most attention.”
Inevitably, Nik says, the onus falls upon leaders and corporate captains to understand the importance of human governance and drive it in organisations. While there is no formula on how human governance must be implemented, what is important is that initiatives must focus on reminding people about the importance of values and ethical behaviour.
It is also towards this end that MIA, working together with two members of the academia, namely Professor Datuk Dr. Aziuddin Ahmad and Professor Dr. Arfah Salleh from the Graduate School of Management of Universiti Putra Malaysia, published a monograph titled Soulful Stewardship — Steering Corporations through Human Governance.
“In these times when the general approach towards addressing the
interest of corporations has become profit-driven, corporations must
realise that there is so much more to achieving good governance than
just checking the boxes … There is a need to also focus on people,
who are crucial towards this end.”
Nik Mohd. Hasyudeen Yusoff, President, MIA
It is a move taken by MIA as part of its efforts in leading the accountancy profession to protect public interest. It is felt that there is a need to create more awareness within the corporate world that people are the ones who are at the heart of decision-making and the focus should be on encouraging them to possess a strong set of values in order to actualise what is right from the ethical perspective.
“Organisations must nurture dynamic and versatile personnel who will provide ideas and guidance in terms of innovation and profit creation while at the same time not compromising on accepted principles of human interest,” Nik says. Accountants Today also caught up with both Professor Datuk Dr. Aziuddin and Professor Dr. Arfah to get their help in shedding more light into facilitating greater understanding on their research subject matter — human governance. The questions and answers are below:
1. What is human governance essentially about?
Human governance is an internal mechanism to guide human behaviour. The target object should not be the corporation but the human being since the soul of the corporation is human. It is through the adoption of human governance that stewards of corporations would be able to steer their corporations with integrity. Human governance brings back due regard to the profoundness of governing the individual rather than the corporation, which is the artificial legal person.
2. How is human governance different from corporate governance?
Corporate governance is manifested as an external, outside-in rules and regulations to legislate the corporations whereas human governance is an inside-out values-based conviction to guide the human where the human is viewed essentially as a non-material soul embodied in the physical being rather than as machine. Being parameter-driven and rulebased, corporate governance emphasises the letter of the law, unlike human governance, which is about the spirit of the law.
3. How will human governance benefit us?
As the leading segment of society, business has become the most powerful force for positive change in the world today, taking over the role of governments. The decision- making process of business now must take into consideration human well-being and the interest of the people. For business corporations to assume this role is never easy since conflict can arise between serving the self and the public. History shows that the original corporations were actually regulatory agencies such as guilds or local governments and had nothing to do with profits. But, over time, events such as the formation of “joint stock companies” and the court’s decision to grant legal person status to corporations have resulted in corporations being incapable of commitment to a community or any other undertakings that could diminish profits. Rather unfortunate too, free market fundamentalists further exacerbate the situation by arguing that corporations which pursue any other goal besides profit-maximisation disrupt the market ecosystem. This is when the presence of human governance will help corporations to make decisions that will benefit us, society. Human governance can take us back to the original intention of the corporation, homing on values that should be upheld during decision-making. The fact that corporate scandals have taken place only further endorses the benefits of human governance. And the fact that reactionary corporate governance measures have not managed to impede further disgrace only tells us that we have nothing to lose by upholding human governance. To the accounting fraternity, with human governance in place, the essence of the true and fair principle becomes less rhetorical.
Therefore, from the bigger picture, human governance will improve human wellbeing. The individual business organisation too, as implied by Ritscher (1985), “can increase fun, productivity and resiliency” by including spirituality, an essence of human governance. Fred Kofman (2006) in his book titled “Conscious Business: How to Build Value through Values” also believes that a conscious business fosters personal fulfilment in the individuals and mutual respect in the community; and sustainable success in the organisations.
4. Is there really a need to go beyond corporate governance into human governance?
The question that we should attempt to answer is how to go beyond corporate governance into human governance rather than whether there is really a need to go beyond corporate governance into human governance. If we are convinced that corporations should consider public interest as how they were originally meant to, and amidst the unintended consequences that have taken place as a result of granting the corporations legal person status, then human governance is our only hope, unless we truly believe that governing corporations without directing them to the human can arrest human misdeeds. Wishing to be presumptuous that societal contribution does matter to the corporate citizens, we now attempt to answer the question of how we transform ourselves to go beyond into human governance. To answer this question, let us learn a lesson or two from the development of science. The rise of modern materialistic science is an evolutionary leap in human history. But more than three hundred years later, this material science’s knowledge of the world of sense perception is shown to be an incomplete representation of reality. Scientific knowledge has now been extended to the realm of subjective experience through new sciences. If scientists have accepted that science has shown that the reality of the world now takes a different inclination, going beyond the physical dimension to the levels of intellection and contemplation, is it too difficult for social scientists and accountants to move from corporate governance to human governance?
5. Is the corporate world ready for such a framework?
The corporate world cannot do without it. But to start with, we must first believe that we need and want to move on to a different dimension; that we need and want to transform our mindset. There must be corporate will akin to the imaginal cells that are responsible to morph a caterpillar into a butterfly. We need to nurture those imaginal cells to transform corporations into the knowledge-based economy. Everywhere people are talking about transformation, but is their transformation really transformation or is it just about fiddling at the peripherals, analogous to quantitatively moving from three to four decimal places? We need to move to the cause of accounting failures, addressing the humans who somehow seem as if they do not want to be accountable. We need to address the issue of integrity in the stewardship of corporations. But for transformation to take place, corporate players need to reequip themselves with the right knowledge: that which includes the subjective besides the objective.
Source from: ACCOUNTANTS TODAY | January 2009
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