(Excerpt) LAWS OF NATURE
Over billions of years nature has evolved sustainable systems of governance based on survival of the fittest. Living creatures cannot sustain their existence without self-regulation and self-governance. This was achieved before the existence of humans, their governments, laws, regulations, regulators, codes, auditors, independent directors, rating agencies, law courts and manifold layers of experts, advisors and even meetings like we are having today!
We must conclude that “good”, “best” and/or “sustainable” governance would follow the laws of nature. In other words good governance is self-governance.
Good governance must be sustainable governance. So self-governance offers most efficient and political desirable method for achieving the aims of this conference.
The role of government would change. It would reduce: (a) the need for regulators; (b) the size and costs of government while (c) enriching democracy at the grass roots level to sustain society and the environment. The role of government would become indirect. In the words of US Vice President Al Gore its role would be “to imprint the DNA” of institutions so they could become self-governing.
Space probes and robots must be self-governing. They could not be designed to be self-governing without the discovery of the science of governance. It is a new science identified years after the discovery of relativity or quantum mechanics. In 1948 a MIT mathematician described it as “cybernetics” and defined it as the “science of control and communications in the animal and the machine”. My PhD research showed how this definition could be extended to social organizations to become the “science of governance”, and specifically, “a science of corporate governance”.
DNA in social biota only survives if it hard wires its host to possess contrary behavior with manifold ying/yang characteristics such as approach/avoidance. Contrary behavior introduces a “requisite variety” of responses with checks and balances to permit the selection of the most appropriate reactions in uncertain, dynamic complex life threatening environments. While small-brained insects can survive in such environments, the 2008 crisis revealed that large brained highly intelligent so-called “masters of the universe” could not. The problem is that most large corporations are governed through top down command and control hierarchies rather that as an authority system resists contrary views, bottom up initiatives or checks and balances.
There are some firms who have adopted an ecological form of network governance with outstanding results. These firms have sustained their existence over business cycles and generations of CEOs. Examples include the John Lewis Partnership, Visa International and the Mondragón Corporacion Cooperativa (MCC)13. They are located respectively in the US, UK and Europe to prove that no changes in laws are required to re-invent corporate governance.
FAILURE OF TOP DOWN ONLY GOVERNANCE
The failure of current laws, regulations and regulators to protect stakeholders arises because each relies on a top down approach. The science of governance reveals that a bottom up approach is also essential to regulate complexity. Lawmakers and their regulators cannot control firms if firm directors and/or executives in turn rely on a top down control and communication system.
Network governance introduces bottom up control and communications from the very people governments and regulators are trying to protect. As illustrated by the John Lewis Partnership and the MCC, it is plain common sense for stakeholders to be included in the governance architecture of firms. Michael Porter recommended this approach in his report to the US government on competiveness. But his ideas were not adopted because stakeholders would introduce conflicts of interest. It is by including contrary views that network governance provides additional advantages than those seen by Porter.
Network governance separate conflicting interest and uses different viewpoints to create checks and balances to establish more mutually effective and resilient operations. Also, by separating the governance and management powers of directors, governance and management functions can be integrated throughout the firm. This in turn introduces self-regulation and self-governance as found in nature.
The speech by Dr. Shann Turnbull: http://bdti.mastertree.jp/f/eva1mz9y
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.
Actually it was my own grand-uncle, Norbert Wiener, who is the MIT professor Mr. Turnbull refers to in his paper as the father of "cybernetics", the core concepts upon which automated device and computers are based on. Wiener thought cybernetics could also be applied in other areas, such as society in general. A key aspect of cybernetics was the stablizing or destablizing effect of "feedback loops."
I do not agree with all of Dr. Turnbull's proposals. However, I have often thought, like Dr. Turnbull, that corporate governance theory needs to think about how to incorporate more effective negative feedback loops, and stable positive feedback loops, and mechanisms (in turn) to make each even more effective.
From "Norbert Weiner, 1994-1964:" http://www.isss.org/lumwiener.htm
"The idea of "cybernetics" came to Wiener at the beginning of the forties, prompted by his work on anti-aircraft defence and by contacts with colleagues in Mexico ("Behavior, purpose and teleology" with A. Rosenblueth and J. Bigelow, Philos.Sci 1943). lt was made known to the world by the book Cybernetics or Control and Communication in the Animal and the Machine, published in l948 after contacts in l946 with M. Freymann of Hermann et Cie (Paris). Coined from the Greek "kubernetike" (the art of the steersman), cybernetics involves the theory of regulation and of signal transmission applied to technical devices, living beings and even societies. It may also concern the art of government, or "cybernétique" as Ampère conceived it in 1843, which Plato, using the already existent Greek word, compared to that of the captain of a ship. Two main ideas play a part in cybernetics: negative feedback with its stabilizing properties, and transmission of information, which helps to make a whole of the many parts of a complex system, whether living or not. The metaphor of the computer, with the role of Boolean logic, is also present in cybernetics. It is of interest to note that Wiener, remembering Leibniz's "calculus ratiocinator" and his construction, after Pascal, of a mechanical computer, considered him a patron saint of cybernetics, whereas Warren S. McCulloch favoured Descartes. "
As noted in this MIT Centennial explanation, Wiener was fascinated by unstable feedback mechanisms:
http://www.ams.org/notices/199504/wiener.pdf
As I understand it, "positive feedback" (correctly understood; not the psychological kind) is often inherently unstable. An example would be a noisy cocktail party, where people have to talk louder and louder just to make themselves heard. This of course just adds to the din and makes everyone have to speak even more loudly in order to be heard. Positive feedback tends to create an inherently unstable situation, leading to violent oscillations and even breakdown of the system.
This is just one example of an unstable feedback mechanism, but to me, this sort of "positive feedback" is a good analogy for what happens when "groupthink" undermines the objectivity of board members who have recently been receiving "good news", or have not experienced new types or risks, or have not recently been faced with the consequences of risks. Good recent results can lead to more time spent on overly optimistic discussion, which becomes increasingly difficult to interrupt with concerns about risk. Conversely, when one raises concerns, negative feedback loops (which are stronger in times of optimism) tend to lower the volume by which he/she is permitted to speak. Colleagues feel like avoiding, or not wasting time with, the messenger of fears that are not presently occurring.
I think we would all agree (post facto) that some of the worst board decisions took place under conditions of unstable feedback mechanisms. to the extent Tepco's board ever discussed risk management policies, one can imagine that in a general sense the above paragraph probably descibes what took place (or rather, what did not take place.)
Here is a critique of Wiener's ideas as viewed from a "human communications" perspective:
http://www.colorado.edu/communication/meta-discourses/Papers/App_Papers/McGarry.htm
I think it is fair to say that he had some brilliant ideas, but the devil is still in the details….and unfortunately, we still have to figure out those details.
Nicholas Benes