Corporate Governance: the Mary Poppins syndrome (and the Belgian case)
A deeper dive into corporate governance and what’s wrong with it — Phantasms around governance — A tentative of definition — Components of corporate governance — When in Belgium, do as the Belgians — Governance as an insurance policy.
« Mary Poppins, practically perfect in every way », says the tape measuring Julie Andrews in the Disney’s 1964 movie, in which an umbrella-dropped nanny manages to set things straight in a helter-skelter household. The show’s ending sees the pater familias (Mr. Banks, one can’t make that up) coming back to his clan and regain control — and therefore the good nanny fired. The kind of morale that develops the paradox of getting rid of a practically perfect agent for the better.
The movie has been abundantly commented by experts and analysts detecting conspicuous parallels with this or that. For my part, I see an interesting illustration of what corporate governance (Mary Poppins) is for businesses (the Banks household) and entrepreneurs (the Banks kids).
Corporate governance is the nanny entrepreneurs, startups and companies need, because of her intrinsic ability to transform a chaotic trench into a place of order. She sets up the rules of the house, handles carrots and whips, enforces a pace, strikes a good balance between occupants, and it’s also in her petticoats that fidgety kids come to find solace, advice and arbitration.
In business though, firing Mary, like at the end of the movie, will never happen — we are not in a Disney’s fantasy world. Corporate governance will never be fired, because human beings will always be naturally faillible, inept, limited and inclined to misleading behavior. In a sense, the mere existence of corporate governance emphasizes mankind’s intimate limitations and flaws. It would not exist if we all were honest, transparent and trustworthy. The fact is that we are not and will never be. Our Mary Poppins is the formal proof of our imperfections, and the weight of the Company Codes the patent measure of how vast they are.
An impossible definition
Consequently, corporate governance is as necessary as it is burdensome. This is why most ventures set sails towards the red ocean without a glance for it. This is why the topic has attracted entire industries flourishing around it, with unclear offerings. This is why it has as many definitions as they are experts in the field. The word “governance” is versatile and can assume any circumstancial meaning. It can take infinite variations depending on jurisdictions, industries, business size, expertise or functional units.
Besides, corporate governance is subject to fantasies and often summoned to appear in court when problems happen between stakeholders: it is the ideal target to blame when a decision is not in one’s favor, outraged by pretended governance defects. Outlines of the definition are so vague that it is being confused with leadership and management itself.
Corporate governance components (at least 3)
For the sake of our case, we shall define corporate governance by something a bit more elaborate than “Our sweet burdensome Mary Poppins”. Like Investopedia, we consider corporate governance being (words not in italic are our additions) the set of rules, practices and processes by which a company is incorporated, directed, controlled and liquidated. Corporate governance essentially involves balancing the interests of a company’s many stakeholders, such as partners, shareholders, management, employees, customers, suppliers, financiers, government and the community.
In practice, this definition of corporate governance implies a number of key basic components. I’d like here to highlight 3 of them, as they contribute a lot to the purpose of our thesis:
- Governance includes fundamental rules of engagement between people. We like to call them basic hacks: first shortcuts to the game. Those hacks should be agreed upon before a company is created (as most of the creative value is generated in the pre-incorporation phases of the entrepreneurial journey, when shareholders are still only partners), and are supposed to be future-proof.
- Governance includes all first-layer processes to facilitate decision-making and communication between stakeholders. Those processes usually mobilize, by default, tools and methods from the times of Mary Poppins: meetings, back-and-forth exchanges of registered mails (not electronic: snail mail through a postman), stand-still periods and hand-raised quorums. A pinch of technology would here come in handy.
- Governance includes a complete and readable documentation for the future to be able to leverage the past. Often, corporate housekeeping tasks are botched or outsourced. Yet, it is a crucial aspect that allows audit trails and periodic reports required here and there. A proper documentation promotes accountability, and accountability fosters well-governed behaviors. How many times have we met people hiding behind blurry or nonexistent proofs of past facts?
When those components are actually foreseen, putting them in motion still is daunting and complex. The same observation is valid for the incorporation process, with the distinction that it is required by law.
When in Belgium, do as the Belgians
There’s no place like home! In Belgium, creating a company is a long, doggish ride, despite the state initiatives of gathering all touchpoints behind a single counter (guichet unique, in French). I have quickly made a napkin-draw. Let’s have a look:
Let’s assume that you had enough patience and passion to go through the maze without getting mad. Now comes the time to govern your newly born newco. In its benevolence, the Belgian State provides you with all the rules you need in a Company Code drawing the framework in which your efforts may be deployed. Any entrepreneur, shareholder, director, executive or employee can consult the Code, provided that his aesthetic sensibility is well-tested enough to survive the website design.
The Code is so lengthy and complex that the use of lawyers or expert advisors is absolutely necessary if you want to be certain to fully comply. Therefore, the vast majority of newly-created companies ignore it and rely onto what they think they know, walking aside the law, on the custom’s pavement.
This sticky-fingers reading also reveals some lovely surprises. We were evoking the total absence of technology — we were wrong. For instance, article 234 mentions in plain French: “Il sera fait usage de photocopies.” (“Photocopies will be used.”).
And then what?
We are definitely convinced that something must and can be done to unlock value creation globally through the fix of the corporate governance problem from which any entrepreneur and businessman suffers. Governance is a necessary evil because its management is hard and complex, and because one has no clear view of its immediate advantages. One needs it only when things go south — like an insurance policy. Something you pay for and would like to never have to use it. The insurance paradox is the governance paradox: throwing energy, time and money into something that you expect to keep silent and discreet. On the other hand, just like the insurance does, corporate governance is also what allows risk-taking, tough decisions and challenges. Knowing that a security net exists, you’ll maybe jump harder and farther.
We are working on that. It will take time but we have to start somewhere. And like Mary Poppins says: “Well begun is half done.”
