To Save Mankind from itself, Governance Must Catch up with Technology

(BDTI Representative Director recently wrote this piece for the Give2Asia Blog.), we are seeing a lot of corporate governance and risk management blow-ups. Many of these failures result in massive risk externalization events, in which the company causes so much damage that it goes bankrupt or otherwise can’t compensate for the huge trouble and losses it has caused.

The list includes Lehman Brothers, AIG, Enron, Fannie Mae, and a major portion of the Japanese banking sector in the 1990s. It also includes a host of lesser-known firms that went under, and assorted events such as the BP oil spill and Tepco’s meltdowns.

The resulting drag on the global economy and public safety is huge. It has been estimated that the collapse of Enron and Worldcom shaved .34% off the GDP[1] for the U.S. in the first year alone, and there’s little doubt that Wall Street’s mishaps in the recent financial crisis, and Tepco’s three meltdowns, will each end up having a much larger overall impact than that.

This is why a group of us formed The Board Director Training Institute of Japan (BDTI), a government-certified non-profit association whose primary mission is to train directors, statutory auditors and managers regarding corporate governance and effective board practices. BDTI collaborates with major educational institutions, law firms, consultants and other experts. Such programs fill a pressing need because currently there are no other comprehensive director training programs in Japan.

One of the biggest problems the world faces is that on the one hand, people have become very adept at rapidly developing new technologies, and these advancements sometimes bring unpredictable, large risks with them. However, mankind refines organizational systems to control those risks much more slowly. We are much better at inventing complex financial products, nuclear reactors, or floating oil rigs, than we are at fine-tuning governance and risk management.

This is not surprising. The pace of technological change has always been exponential, because each new discovery enables a host of others. In contrast, governance systems only improve very slowly, hobbled as they are by the need for consensus about changes in societal customs, practices, laws and regulations.

Furthermore, even if we knew how to measure and manage risk more capably, organizations simply cannot be commanded to change instantly. They are not staffed by robots, but human beings.

Thus, the gap between the damage that technology can cause, and mankind’s organizational ability to control those risks, is now expanding at an alarming rate.

What can be done? The first step is to recognize the depth of the problem. It’s deep. We may be able to land a man on the moon, but we are still in the Neanderthal age when it comes to corporate governance and risk management systems.

The second step is to see that because no country has developed perfect corporate governance and risk management methods, all nations need to work together in finding systemic solutions. We need to join forces to consider improvements and refininements to laws and regulations.

Last and most importantly, we need to recognize that most of our potential to “close the gap” will not come from structural changes, but rather from “soft” efforts such as training, leadership, and taking personal responsibility. Said another way, structure matters, but in the end, implementation, attitude, and training will make a much bigger difference.

For this reason, BDTI’s mission is to increase understanding about corporate governance and its benefits among the general public through education and information dissemination by offering (a) public seminars and training programs, (b) low-cost E-Learning, (c) speaker events, and (d) an internet discussion forum and a documents/data library.

Japan saw its share of governance and risk management lapses last year: Tepco, Olympus, Daio Paper, and other incidents. After three meltdowns, the public thinks something needs to be done. Japan also has a fine history of humble introspection and resourcefully finding wholistic solutions. At BDTI, we think these traits can help Japan become a prime example of how to inject true dedication into corporate governance – how to “put the spirit in the Buddha,”- in a way that might help other nations as well.

Nicholas Benes is Representative Director of The Board Director Training Institute of Japan, BDTI is a non-profit“public interest” organization certified as such by the Japanese government. (Contact: ).

[1] Brookings Policy Brief Series | # 106

Cooking the Books: The Cost to the Economy Financial Markets, Business, Corporations, Regulation

Carol Graham, Senior Fellow, Foreign Policy, Global Economy and Development

Robert E. Litan, Senior Fellow, Economic Studies

Sandip Sukhtankar

The Board Director Training Institute (BDTI) is a "public interest" nonprofit in Japan dedicated to training about directorship, corporate governance, and related management techniques. It is certified by the Japanese government to conduct these activities as a regulated nonprofit. Read a summary about BDTI here, and see a menu of its services for both corporations and investors here.

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