17 August 2016

Human governance – a new paradigm for sustainability

By Selina Sui Lu Siew

During the 2008 global financial crisis the collapse of an unprecedented number of corporations, including multinational financial institutions, was attributed to weak corporate governance. Consequently, governments and industry participants have emphasised and promoted the practice of good corporate governance as a measure to avoid another financial catastrophe.

Despite these efforts, however, some quarters in academia have strongly opposed the call, arguing that corporate governance is ineffective in safeguarding organisations in the long term. This, they argue, is because its main focus is the compliance of rules and regulations and penalising non-compliance. The rationale for their stand against corporate governance is that while its punitive nature ensures that corporations toe the line, it ultimately reduces human potential and organisational learning. Therefore, many regard the practice of corporate governance as “robotic” measure which will eventually lead to low organisational performance.

Following this, human governance was introduced as an alternative to encourage best corporate performance. The Malaysian Institute of Accountants (MIA) defines human governance as “an internal, inside-out and values-based conviction to guide the human as the sentient being to behave”. In other words, it views individual employees as the soul of the company. This is contrary to corporate governance which the MIA defines as an “external, outside-in rules and regulations to legislate firms”. In simple terms, corporations are regarded as a separate legal entity from their employees. Essentially, human governance is principle-based, as opposed to corporate governance which is rule-based.

Professor of Human Governance at Putra Business School, Arfah Salleh, describes human governance as people-centric, signifying that human influence impacts many aspects of change, and that personal values should be the drivers that motivate individuals to work towards the well-being of the corporation. This, she stated, allows employees to achieve what are beyond the rules and regulations of corporate governance. Since the focus is on employees, they are able to reflect on and uphold the spirit of the laws, rather than merely complying with regulations. And, over time, it is this factor that will contribute to both management and employee commitment to building high performing and more sustainable organisations.

Employees in such an environment could also align their personal values and goals with those of the company, and are therefore able to identify themselves with its visions and missions so that they remain loyal to the employer through the good and bad times. Such behaviour is a positive reflection of employee commitment and integrity, to both company shareholders and stakeholders. As Dr John Meyer, psychology professor from University of Western Ontario pointed out in his article Commitment in the Workplace: Theory, Research and Application, “a committed employee is one who will stay with the organisation through thick and thin and share its goals”.

Organisational learning helps a corporation to remain competitive. In corporations which nurtures and encourages learning, employees are often urged to exchange ideas and share knowledge. This translates to the ability of a corporation to adapt rapidly to changes or competition in the industry, which is essential for the sustainability of any business. On the contrary, corporate governance, which was established generally as a control mechanism, has proven to be ineffective in helping firms to survive in the new knowledge age. According to Professor Arfah Salleh, corporate governance has subconsciously impeded the growth of organisational learning as the increasing implementation of rules and regulations dictates the behaviour of organisations.

Although human governance may seem like a more viable option in the long term sustainability of corporations, some continue to question the need to adapt such a major evolution in corporate practice. Organisations are aware that it will require immense commitment and transformation, and the fact that the majority of firms are not prepared to accept the new revolutionary form of management. Correspondingly, MIA president Nik Mohd Hasyudeen Yusoff has also outlined an unresolved technical issue of the lack of formula on how human governance should be implemented. Despite this, the MIA has clearly stated that the corporate world cannot do without human governance as it is the only hope to help firms make decisions that benefit both them and society whilst simultaneously increasing their productivity and resilience towards all adversities.

After all, as Fred Kofman indicated in his 2006 book, Conscious Business: How to Build Value through Value, “a sustainable organisation can only be formed by having a conscious business that fosters personal fulfilment in its individuals and mutual respect in the community.”

Selina Sui Lu Siew is a lecturer with the Faculty of Business and Design at Swinburne University of Technology Sarawak Campus. She is an advocate of the Bar of Sabah and Sarawak and has practised extensively in the areas of commercial litigation, family litigation and conveyancing. Selina is also a legal practitioner of the Supreme Court of Victoria after having been formally admitted to the Victorian Bar in 2006. She is contactable at slssui@swinburne.edu.my