The Governance governs… without any obligation of a Sound Management!

Written by Bernard Brault on 19/03/2010

This is the other side of the coin. We have to understand them. Challenging them to implement a framework ensuring the viability of the organizations, it would mean asking too much of the directors of company. They have a definite mandate, shareholders, or investors, or even governments to ensure a comeback to investment. Isn’t it exactly the same thing that you are asking for your RRSP?
In such circumstances, it seems normal that the salaries of the company presidents appear to be disproportionate in comparison with those of the managerial staff and the employees who do the everyday work within an organization, especially in the case of the financial institutions. In our analysis, we are guided by the common sense of taking into consideration such concepts as viability, long term, jobs, social justice, and hope of a Sound Management. We don’t carry the can of the investors! If the person that you sort on the shutter brings in $500 million profit, would you be able to say no to his/her demand of $6, 7, or 10 million salaries? To be noted, if we are envious or jealous, it’s wrong!

On the contrary, if we are entitled to take offence at something, it should be related to the fact that we are paying for the astronomical amounts received by the high managers who didn’t succeed to generate the expected profits, who took huge risks and caused job losses, who misspent or stole our savings, or who ran away with the cashbox. And besides, who would be entitled to golden parachutes? This is when we can and have to require the compliance with the Sound Management model.

Ever since the blog was created on the site of the Institute, several persons have asked us to clarify the difference between Governance and Sound Management. What could the Sound Management concept add to the speech about ethics and governance? Here is a short explanation.

Governance or Sound Management?

In fact, if we exclude the omnipotent expectation of some, governance and management are synonyms. We’ll therefore emphasize the word “Sound”.

There are basically two ways of approaching this field that aims at the supervision, monitoring, and audit of the management. The first way is the legalistic approach, which allows us to hide behind the expression «a rule of law society» where law and rules prevail. Generally speaking, the supporters of governance claim to adhere to this theory. In fact, why would they do more than what it’s stipulated by the legislator? Moreover, the role of the legal consultants often consists of finding a way to get around these rules.

The second way, a managerial one, aims at enriching the management by adding the qualifier “sound” consisting of a referential of principles and norms called the Generally Accepted Sound Management Principles (GASMP). 

Therefore, the GASMP are centered on the managerial functions (Plan, Organise, Direct, Control, and Coordinate) and on the six fundamental principles of Sound management: Transparency, Continuity, Efficiency, Balance, Fairness, and Abnegation. This combination results in a 41-cell matrix serving as a tool for the compliance audit.

Based on this system, a model was born allowing a real accountability cell by cell. Compliant or non compliant. The materiality of every noncompliance will be determined depending on the organization’s mission and stakes. This method allows a self-diagnosis and the implementation of a management framework suggesting the actions to be taken by managers for each of the 41 cells. 

The GASMP are for managers what the GAAP (generally accepted accounting principles) are for accountants. These principles aren’t part of a law but the law regularly makes reference to them in order to express the good accounting practice. Similarly, the GASMP could very well play this role in order to define the meaning of a sound management. Could we have avoided such scandals such as Norbourg, Jones and Enron? I’ll prove it to you sometime later this spring.


3 comments

by P. Lamontagne at 04/24/2010

> Aurions-nous pu éviter les scandales à la Norbourg, Jones et
> Enron ? Je vous en ferai la démonstration un peu plus tard ce printemps.

À quand la démonstration?

by Bernard Brault at 04/24/2010

Je suis à préparer le texte qui fera partie de la prochaine édition d’exercer la Saine Gestion. Sur le site de l’ISG je pourrais procéder par feuilleton, c’est-à-dire par un article où s’ajouteraient de nouveaux textes à toutes les deux ou trois semaines. Je m’interroge, qu’en pensez-vous ?

Ça dépendra peut-être de la demande et de l’intérêt ?

by P. Lamontagne at 04/24/2010

Bonne idée! On ne manquera pas de suivre le “feuilleton” alors.

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