European Perspectives: Regulation against stewardship - Henley Business School Finland

European Perspectives: Regulation against stewardship

In our latest European Perspectives Professor Andrew Kakabadse discusses the need for stewardship to become more embedded in the governance of Europe.

Governance innovation for Europe

โ€˜AstraZeneca faces legal actionโ€™ ran a recent headline by the BBC World News โ€“ the company supposedly not fulfilling its contractual obligations to Europe.

Yet comment from within the Brussels bubble was of a blameless AstraZeneca. The firm is simply in the firing line of a European Commission that has no other levers to pull other than that of those available to a regulator. What the COVID crisis has highlighted is that to address issues of social and economic concern requires substantially more than threats of increasing regulations and compliance protocol.

The governance of Europe progressively parallels the compliance mindset of the private sector. From the Barings Bank scandal of the 1980s through to Enron, Marconi, Parmalat and the current UK Post Officeโ€™s travesty of justice, scandal after scandal has been met with ever greater regulation in the hope it would prevent repetition of the ills of the past.

There exists a commonly held misconception that effective governance focuses solely on compliance. But it is also stewardship and oversight, namely the oversight of the assets requiring care with the prime duty of the guardian(s) to determine how greater value can be realised than is currently the case.

Therefore the two governance levers at the disposal of bodies like the European Commission are compliance and stewardship. Against all evidence, disruptive and unwelcome occurrences have been met with increased controls and protocols, which have had the effect of inhibiting the discretionary choice from those in charge. The result, even more scandals!

The false belief by those in regulatory positions is that by introducing greater procedural diktats, the situation will be brought under control. What was and continues to be missing is stewardship. Stewardship is an evidence-based, sensitive raising of the uncomfortable truth(s) with the purpose of guiding and facilitating the institution to a better place. Because stewardship has been sadly lacking, trust in our institutions and in Government has eroded.

Stewardship requires becoming embroiled in context in order to fully appreciate the nature of the tensions and misalignments that need to be addressed. In fact, any oversight process requires reaching a delicate balance between compliance and stewardship in order to ensure for an appropriate level of engagement through the misalignments at hand. This is the way trust is built.

Such sensitivity of intervention is glaringly absent from the governance of Europe. The habit has been to regulate and if that doesnโ€™t work, threaten to regulate even more. For stewardship to become more embedded within the governance of Europe, three requirements need to be met:

1. Strengthen the fracture points

Fracture points are the critical juncture within any larger system (or structure) where repeatedly, policy goes wrong. Strategy, in order to be effectively delivered, requires adaptation, country by country, division by division, as different notions of competitive advantage exist, context by context. This needs to be taken into account by a centre that has to integrate top-down driven strategy with the flexibility to effectively trade in different locales.

Research has shown that over 82% of international corporations do not display such sensitivity and in fact, react punitively when challenged by what is seen as misguided sentiments held by the local general management. My own inquiry into the functioning of the British Government, The Kakabadse Report, highlighted that fracture point phenomena occur in government.

Fracture points arise because a reconsideration of the approach to policy delivery is required in order to meet the demands of varying communities. They are a necessary tension which if handled well, enable policy delivery. The questions to address within the European context are:

  • Where are the fracture points located within the complexity of the Commission /member states interrelationships?
  • Are such junctures recognised as necessary tensions or as unwelcome experiences?
  • Have such tensions been swept underneath the carpet?
  • In order to effectively address fracture points, who or what is the guiding steward?

Neglect of fracture points leads to ever-deepening mistrust of critical governmental and institutional bodies and by nature leads to an increasing distaste for democracy. One renowned European politician reflecting on low levels of trust commented, โ€˜Now is the time to lie, because I can, because few careโ€™.

2. Delineation of roles and duties

In addressing fracture points the next step is to clarify accountabilities and duties of key roles and institutions clustered around these faultsโ€™ lines. Where roles or departmental boards damagingly overlap, it can lead to further negative discourse.

Clear delineation of roles and duties provides for smoother policy delivery. Thus, the questions for Europe are:

  • Which key roles require greater clarity of accountabilities and duties so as to minimise discontinuous policy delivery?
  • If unaddressed, what mixed messages emanate from these roles?

Rarely admitted is the competitive tension between national Parliaments and the European Parliament. The net effect of not clearly delineating duties and contribution is the diminishing trust of European democratic entities.

3. Engaging across misalignments

Having located the fracture points and clarified the roles, duties and quality of interfacing at these junctures, more effective communication across tension points is now possible. In fact, due to the complexity of large systems, it is normal for leaders to be seriously challenged in how to effectively engage across differences. The manner of doing so builds or undermines trust. What is critical is respect for context and a disciplined approach to delivering on policy which cumulatively leads to greater resilience and confidence in the European system. Thus, the one remaining question for Europe is: What sensitivities remain unaddressed and what is the impact of not addressing these concerns? Once this question is publicly raised, an effective balance between compliance and stewardship can be realised.

Innovation in governance has come to mean compliance protocols/restrictions are seen as the primary mechanism for improvement. Nothing could be more misguided. Innovation in governance demands maintaining a workable balance between protocol and stewardship. Europe appears to have ignored this and pushed further regulation, eroding structures and making an already brittle system vulnerable to the changes of political fortune.

Courage is needed to identify the fracture points. Then evidence determined diplomacy strikes the delicate balance between regulation and stewardship.

The question for our European leaders is โ€˜Do you have the appetite to do so?โ€™ To date, the answer is seemingly no.

Read the previous article in this series: Meeting climate change commitments

Professori Andrew Kakabadse - Henley Business School Suomessa

Professor Andrew Kakabadse

Professor Andrew Kakabadse is Professor of Governance & Leadership, Programme Director for the Board Directorsโ€™ Programme and Boardroom Skills programme as well as Chairman of the Henley Directorsโ€™ Forum. He has undertaken global studies spanning over 20,000 organisations (in the private, public and third sector) and 41 countries. His research focuses on the areas of board performance, governance, leadership and policy.

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