Center for Dynamic Leadership Models in Global Business, Canada
Bradford College, UK
and
Waikato Institute of Technology, New Zealand
Time Horizons, Issues of Diversity, and Sunk Costs
Abstract
In this chapter, the editors seek to provide some ideas about the diversity and range of options for development and change as well as an insight into the challenges posed in the evolving global business and governance environment. The longer-term future is not fixed nor are current structural relationships stable in the medium to long term. The latter changeability applies whether we are analyzing potential for social, political or economic change, or considering change potential in environmental terms. The future of the world is evolving in a dynamically complex manner and will be determined by the fluid interactions within the various fields of endeavor of humanity. There will thus be some areas that will be amplifying the trending forces operating today. Yet others, where the prevailing resources, focus, capabilities, will-to-change or energy of the relevant socio-political, cultural and economic force fields will be dissipating as new alliances emerge or old ones dissolve and governance is made more or less secure as a consequence. Nonetheless, the currently-perceived trending force fields, focus and direction for corporate and collective governance in the public and private sector institutions and agencies is towards greater transparency and ethical integrity although that road is a thorny and stony one indeed.
Keywords: Force fields, Emergence, alliances, focus, capabilities, will-to-change.
The array of chapters presented in this book has covered all of the aforementioned topics in the current postscript chapter title. The future balance sheets of businesses and governments are inevitably opaque: the future is emergent, the past is not a consistently reliable guide to the balance of forces driving new dynamics facing leaders and boards. The chapters in this book strongly suggest that the nations and people of the world are searching for new, better forms of governance at individual, firm, and national and global levels. The negative impacts of cycles of poor governance and excessive wealth concentrations in particular stakeholders, whether at firm level or at the level of government, serve to induce dispirited populations of workers and citizens with reduced trust in public or private entities. There may not be a “one-size-fits-all” method to resolve the diverse issues of governance at local, regional, national, and international levels.
Hence, we have presented a menu of potential scenarios and from a range of nations as well as types of organizations. We have discussed the topical concerns and reflected upon the focused long-term investments required in capabilities of people, technology, and in the popular will to change from “business as usual.” This includes changed orientations to what constitutes good governance for both business enterprises and countries.
Governance of sunk costs of 30-, 40-, or 50-year investment projects are already well recognized as being vital in many industries such as resource mining and oil or gas extraction, refinement, and distribution, not only to sustain the current processes but also to transition to less environmentally damaging systems. Even in industries where a shorter time horizon might be expected, such as many fast-changing, innovative technology sectors, the need to use a longer time horizon for investing in sustainable futures is evident though risky. Equally, pharmaceuticals make large long-term R&D investments and governments make investments in national infrastructures where the “payback period” extends beyond the term of any elected party.
Some of the well-known systems for creative thinking around planning for the ambiguities of such an opaque long-term future were originally developed in these same sectors, e.g., Shell’s scenario planning originally devised by Pierre Wack (McKie and Cockburn 2000). Nevertheless, to adapt Heskett’s question (2001, 2) quoted in Chapter 1, even if the financial auditing reveals all is functioning efficiently in terms of cost control, revenue generation, and so on, is it also functioning effectively as “future-proofing” us for what we already know is looming in the long term? Table 2.1 in Chapter 2 illustrates this with regard to innovation, but the same concepts may be applied to governance in general. That is the “known” issues governance must address. Aside from the known, there are the known “unknowns” for which we have some solutions with which to react and respond. Then there are “random, chaotic factors” that are insufficiently predictable or novel, unknowable issues: the “unknown unknowns.”
Currently, there are a critical number of such “known unknowns”, i.e., problems we are aware of currently such as climate change, which have proposed solutions that are not agreed globally or even locally in many instances. Other such known unknowns or governance issues that remain unresolved including the agreement on a definitive answer to the question of “what is global or regional best practice in Enforcement of good governance?” The hastily drafted 2002 U.S. Sarbanes-Oxley regime has proved less effective in curbing problems of governance in advanced economies than originally expected. The less hastily drafted EU Action Plan laid out in the 2003 draft from the European Commission on “Modernising Company Law and Enhancing Corporate Governance in the European Union” envisaged four main pillars for corporate governance reform:
1. enhancing corporate governance disclosure/reducing information asymmetries;
2. strengthening shareholders’ rights;
3. increasing the role of nonexecutive directors; and
4. coordinating corporate governance efforts of member state.
There is little doubt that these are all worthy in many respects. However, the effectiveness of EU regulations has also been questioned since there still remains considerable variation of focus in the regulatory regime as applied in different countries. Thus, there may be appropriate focus and even governance capability available, but there seems a lack of will to act among leaders.
When looking beyond the EU, these kinds of regulatory measures are premised upon a sophisticated board process and Western-type structures, which are less common in many regions such as Africa.
One of the challenges facing modern corporations in Nigeria may stem from lack of qualifications of corporate board members. According to the Central Bank of Nigeria (2006), many board members may lack the requisite skills and competencies to effectively contribute to leadership of modern corporations.
(Okpara 2011, 188)
The functioning of internal Corporate Governance mechanisms and stakeholders’ roles is still an under-researched area within emerging markets as noted by Ararat et al. (2014, 19). In Chapter 5, by Pomare and Berry on Canadian Higher Education governance, they discuss the gap between internal and external strategic environments and perceived scenarios of staff as stakeholders. Ogunyemi and Nwosu, also comment in Chapter 6, on the need for further development of academic and professional conversations around the character and scope of the internal “organizational footprint” of governance in stakeholder theory. Thus, there are still many matters concerning processes for empowerment, innovation, trust building, and collective capability to be resolved.
The Role of the State
Oberoi (2014) also comments in Chapter 3 “The quality of public governance impinges on the level of law enforcement and extent of corruption.” The nature, role, and functioning of state governance as a scene setting or contextual actor has been questioned in many areas in the EU and beyond as Mickelthwait and Wooldridge remark (2014):
In Brazil and Turkey in recent years, huge numbers of protesters have marched in the streets against the corruption and incompetence of their rulers. In Italy, since 2011, three prime ministers have found themselves defenestrated, and in last year’s national elections, voters awarded the largest share of votes to a party led by a former comedian. In May’s elections for the European Parliament, millions of British, Dutch, and French voters, frustrated with their countries’ political elites, chose to support right-wing nationalist parties—just as legions of Indian voters turned to Narendra Modi during elections this past spring. In November, Americans will trudge to the polls more full of anger than hope.
(Micklethwait and Wooldridge 2014, 1)
Often, as Shirky (2011) has indicated, such activism arises from surprising sources and is spread in viral fashion via social media conversations.
Potentially disruptive combinations of transdisciplinary, sociodigital technologies, cross-over applications, products, and processes alongside social media are critical to governance nowadays (Smith and Cockburn 2013, 2014). Chapter authors have argued that new sociodigital media not only have the capability to increase the speed of communication and the connectivity between many actors but also, by effectively bypassing many official gatekeepers, often encourage change by providing a voice to alternative views and debates, thereby increasing the dynamics of communication for social and political activism.
Governance Innovation and Dynamic Digital Technologies
There are some clear trends broadly agreed by most mainstream commentators. That is, a shift toward ensuring more transparency and greater voice for diverse communities of stakeholders as well as shareholders or owners. As the World Economic Forum (WEF) states:
Today, digital technologies play an increasingly important role in the daily lives of people and businesses, altering attitudes towards the nature, delivery and providers of public services. Citizens expect to have fast, easy, safe and accurate access anywhere, anytime. The technology that empowers citizens offers ways for governments to improve service design and delivery. They include: open data and big data; embedded technologies and the Internet of Things; integrated and ubiquitous mobility platforms; cloud computing; and next generation networks.
(Attali, Curtin, and Jarrar, chapter III, WEF, 27)
The WEF report titled “The Future of Governance” asserts that governments as well as the world’s top enterprises will need to invest long term in giving voice to the under-represented and improving the human condition and employ exponential technologies and innovation to significantly accelerate their objectives (result) (WEF 2014, 8). Views on the scope of the necessary changes to enterprise, social, and political governance and related systems obviously vary depending on what is the focus of attention at any time or what is prioritized.
Some changes are more far reaching than others and will involve everyone in some way as the basic premise is that we all inhabit the same planet and cannot avoid the collective impact of environmental degradation and climate change. Thus, corporations, governments, and NGOs ought to cooperate to mitigate or avoid a global climate catastrophe. Others such as the application of covert forms of control like algorithmic governance or regulation by smart devices have potentially dystopian implications as noted in Chapter 1(Morazov 2014).
There are some radical ideas for changes in two recent Club of Rome reports. The core data underpinning these forecast each spanning the next 40 years is from research by professor Jorgen Randers (2012), one of the original coauthors of the 1972 Club of Rome reports on “Limits to Growth” and the later sequels in 1992 and 2004. Traditionally, the Club of Rome has focused on population and climate studies and forecasts of the impact of this on regions and on the global environment. Randers suggests that support for strong state intervention is needed. He sees the West being rescued by the major power in the East, China. He states:
I think we will see 40 years down the line that it was the Chinese who did, in the end, solve the climate problem for us—through collective action. They will produce the electric cars and the technologies we will need, and they will implement them in China through centralised decisions. Meanwhile, we will be fiddling around with half-baked quota systems that provide insufficient incentives—which might modify development somewhat, but doesn’t solve the problem.
(Randers 2012, 15)
He goes further to suggest that the developed nations reduce their populations to reduce consumption and fund clean energy systems for the less developed as a means of reducing climate change for all (Randers 2012, 14–15).
The impact of the changes in technology and constraints of the current global financial, commercial, and environmental systems, as described in the Club of Rome’s new scenarios for 2052, are summarized as follows:
• There is a 40-year window for humanity to take actions to avoid the most serious negative consequences of our decades-long overconsumption of planetary resources. The process of adapting humanity to the planet’s limitations may be too slow to stop planetary decline. Currently the human demand on the biosphere exceeds the global biocapacity by some 40 percent.
• Global population will grow, peaking at 8.1 billion people in 2042 because of rapid decline in urban fertility.
• Global GDP will grow much less than generally expected because of slow productivity growth in mature economies, and lack of takeoff in the 186 poorer countries.
• Global GDP will peak after 2052, and investment share of the GDP will grow as society is gradually forced to handle issues of depletion, pollution, biodiversity decline, climate change, and inequity, slowing growth in consumption growth with a fall in disposable income in some places.
• Global energy use will reach a peak in 2040, because of continued increase in energy efficiency.
• CO2 emissions will peak in 2030, because of a shift toward low-carbon sources of power and heat.
• Nevertheless, CO2 concentrations will grow, and the global average temperature will pass the danger threshold of +2 °C by 2050 peaking at 2.8 °C in 2080, which could then trigger self-reinforcing “run-away” warming (with a possible global societal collapse in the second half of the 21st century)
• The United States will experience the greatest stagnation, while the process of stagnation will occur more gradually in the other OECD countries. China, Brazil, Russia, India, South Africa, and 10 leading emerging economies will progress, but this will still leave 3 billion people in poverty.
The scenarios are not considered as inevitable. There is a margin for error since no one can predict the future with 100 percent accuracy. However, the scenario forecasts allow leaders to test their own assumptions against those of the Club of Rome’s experts. Naturally, climate skeptics and others will wish to question the data, timescales, and trends underpinning the scenarios. All scenarios are as subject to error as other extrapolations from the present as we have remarked in previous chapters.
There are also some less pessimistic scenarios such as the two World Energy Council Scenarios (titled “Jazz” and “Symphony”), which envisage improved energy efficiency gains of between 30 and 50 percent compared to energy consumption in 2010. As the WEC report indicates:
The share of renewable energy sources for electricity generation will increase from approximately 20 per cent in 2010 to more than 30% in 2050 in Jazz and nearly 50% in Symphony.
The degree to which renewable energy sources will be used and investment in CC (U) S technologies for coal and gas (and also biomass) will be decisive in mitigating climate change.
(WEC, p. 26)
In any case, there are clear governance implications emanating from whatever scenario is applicable at any point in time. The “Jazz” scenario involves much less regulation but more local innovation than the “Symphony” scenario, which presumes some central direction of effort. Equally, the “Jazz” scenario assumes less shared values other than transitioning to more sustainable energy futures.
Thus, we might once again posit Heskett’s (2001) question referred to in Chapter 1 in the concluding section.
What Is to be Done?
The Club of Rome’s answer involves some major restructuring with a focus on creating and evaluating new long-term global governance paradigms and capabilities to ensure that these changes can be made to work sustainably over time. Inevitably, there will have to be changes to social priorities and social mores to embed and encourage a long-term perspective, which may not always be palatable, viewed from our current businesses, institutional, or societal perspectives. On their webpage, under the heading “Basic Assumptions,” they indicate the underpinning assumptions about constraints on progress to alleviate climate change that are used in the scenarios to 2052 as follows:
Humanity’s systems, which uphold “business-as usual” are very resilient towards real change. Rapid change does not happen until people’s patience caused by the negative consequences of “business-as-usual” (climate change effects, inequity, resource depletion) runs out. Society’s main institutions: democracy and economy are based on short-termism, resulting in a slow societal response to challenges, which need long-term solutions and investments.
(Club of Rome, retrieved on January 7, 2014 from http://www.clubofrome.org/?p=703)
Obviously, the perceived causes of short termism of institutions vary according to the observer. Roe (2013, 1003) states:
The corporation may indeed need to plan more today for the short run than for the long run. But the explanation for the shortened planning horizon may lie more in the nature of shortening technological life cycles, globalization, and changing government policy than in the financial markets external to, or the structures internal to, the large public firm.
The Club of Rome—EU branch report on monetary policy and sustainability (2012) draws other conclusions. Referring to IMF data, the authors note, “. . . between 1970 and 2010 there were 145 banking crises, 208 monetary crashes and 72 sovereign-debt crises-in other words, a staggering total of 425 systemic crises. An average of more than 10 per year! These crises have hit more than three-quarters of the 180 countries that are members of the IMF, many of them being hit several times.” Aiming for sustainability and good governance at macrolevels without restructuring our money system is therefore deemed “. . . a naive approach, doomed to failure “(Club of Rome 2012, 9). The report further states that monetary instability can be solved by the creation of complementary and cooperative currency systems to operate in parallel with the conventional bank-debt financial monetary system, counterbalancing the negative effects of the conventional system while utilizing the underused local resources in communities.
Such resources they say include individuals with time and talents; and businesses, voluntary associations, and local authorities with spare capacity. They envisage this approach as a means to build civic community spirit and address growing social costs such as care of the elderly, refurbishment of communities, and environment without burdening the community with extra taxation costs.
Paraphrasing and summarizing their list of presumed advantages, we can say these include the following:
• rebuilding communities and strengthening local economies;
• helping to protect local environments;
• sharing inventory, labor, and skills within the community;
• harnessing volunteers more effectively;
• supporting learning, training, and skills sharing;
• sustain local businesses with spare capacity; and
• meeting the demand for the care and support of the elderly.
Finally, these programs are not seen as being at risk from a “meltdown” in the financial sector, help build social capital, value people, and are unlikely to produce a short-term perspective, wealth concentration, or cause “boom and bust” cycles in the economy (as it requires unending growth instead of recurrent cuts). So this approach is viewed as addressing the major problems currently experienced in a number of troubled post-Global Financial Crisis economies in the EU such as Greece, Spain, Portugal, and Italy.
There are many other such scenarios and the WEF has its own, published in 2013. Their scenarios converge in some respects and diverge from others mentioned earlier. The WEF scenarios are as follows: in the first scenario, WEF envisages a world ruled by “megacities,” where governance is administered largely by major urban agglomerations. The second possibility is a world in which strong central governments use big data to fortify their control somewhat akin to the “algorithmic governance” concept referred to in Chapter 1 and earlier. In the third scenario, central governments are fundamentally weak, with markets—and the enterprises that dominate them—providing almost all services (WEF 2013). Governmental transformations envisaged include massive urbanization or mega regionalism; community building and identity; shared societal expectations; availability of financial resources for government; nongovernmental delivery of services; division of labor among actors; big data; cyber capabilities; complexity of challenges; fads and fashions in governance models; and leadership. As Joseph Nye and others indicate in the “Future of Government Smart Toolbox” (2014, 5–7), “If well managed and strategically deployed, information and communication technology (ICT) can reshape government in the next decade by strengthening trust in government, leadership, delivery of services, political representation, anti-corruption, bureaucratic cooperation, the management of conflict, and innovation.”
References
Ararat, M., Claessens, S., and Yurtoglu, B. 2014. Report on The First 10 Years- of the Emerging Markets Corporate Governance Research Network (EMCGN). Washington DC, USA: International Finance Corporation.
Attali, J., Curtin, G.G., and Jarrar, Y. 2014. “Enhancing Government Services for Citizens in the Digital Age.” In World Economic Forum, What Is the Future of Governance? pp. 27–34. http://forumblog.org/2013/12/what-will-governance-look-like-in-to-2050, (Accessed June 30, 2014).
Club of Rome reports (All reports from 1972, “Limits to Growth” report to latest report for 2014) are available on the webpage at http://www.clubofrome.org
Heskett, J. 2001. What’s the Future of Corporate Governance? http://hbswk.hbs.edu/item/2399.html, (Accessed June 23, 2014).
Lietaer, B., Arnsperger, C., Goerner, S., and Brunnhuber, S. 2012. Money and Sustainability: The Missing Link. Axminster, Devon: Triarchy Press.
McKie, D., and Cockburn, T. 2000. “Strategic Conversations: Existing Scenarios, Public relations Theory and Futures.” In Public Relations, Public Affairs and Corporate Communications in the New Millennium: The Future, eds. D. Vercic, J. White, and D. Moss Ljubljana. Slovenia: Pristop Communications.
Micklethwait, J., and Wooldridge, A. 2014. “The State of the State.” Foreign Relations. http://www.foreignaffairs.com/articles/141477/john-micklethwait-and-adrian-wooldridge/the-state-of-the-state, (Accessed July 1, 2014).
Nye, J. 2014. Future of Government Smart Toolbox. http://www3.weforum.org/docs/GAC/2014/WEF_GAC_FutureGovernment_SmartToolbox_Report_2014.pdf, (Accessed June 30, 2014).
Okpara, J.O. 2011. “Corporate Governance in a Developing Economy: Barriers, Issues, and Implications for Firms.” Corporate Governance 11, no. 2, pp. 184–99.
Randers, J. 2012. 2052: A Global Forecast for the Next Forty Years. University of Cambridge, UK: Report for 2012 Programme for Sustainability Leadership.
Roe, M.J. 2013. “Corporate Short-Termism—In the Boardroom and in the Courtroom.” The Business Lawyer 68, pp. 977–1006.
Shirky, C. 2011. “The Political Power of Social Media.” Foreign Affairs. http://www.foreignaffairs.com/print/66987, (Accessed April 30, 2014).
Smith, P.A.C., and Cockburn, T. 2013. Dynamic Leadership Models for Global Business: Enhancing Digitally Connected Environments. Hershey, PA: IGI Global.
Smith, P.A.C., and Cockburn, T. 2014. eds. Impact of Emerging Digital Technologies on Leadership in Global Business. Herschey, PA: IGI Global.
World Economic Forum. 2014. The Future of governance. Government Summit, UAR, http://www3.weforum.org/docs/GAC/2014/WEF_GAC_FutureGovernment_SmartToolbox_Report_2014.pdf, (Accessed July 1, 2014).
World Economic Forum. 2013. What is the Future of Governance? http://forumblog.org/2013/12/what-will-governance-look-like-in-to-2050, (Accessed June 30, 2014).
World Energy Council. 2013. World Energy Scenarios: Composing Energy Futures to 2050 (Executive Summary). World-Energy-Scenarios_Composing-energy-futures-to-2050_Executive-summary.pdf, (Accessed July 01, 2014).
Additional Reading
Hermalin, B.E. 2005. “Trends in Corporate Governance.” The Journal of Finance 60 no. 5.
Morgus, R. 2014. The Future Internet World Order. Time Magazine. http://time.com/2976926/internet-governance, (Accessed July 13, 2014).
Okonji, E. 2014. “Mandatory Corporate Governance Code Will Stifle Best Practices in Telecoms.” In This Day Live (online). http://www.thisdaylive.com/articles/mandatory-corporate-governance-code-will-stifle-best-practices-in-telecoms/183781 (Accessed July 17, 2014).
Author’s Biography
Tom Cockburn obtained his first degree with honors from Leicester University, England, both his MBA and Doctorate were gained at Cardiff University, Wales. He has several professional teaching and assessment qualifications, including e-moderator certification and executive coaching qualifications from UK Universities and Professional bodies as well as from the Waikato Institute of Technology (New Zealand) and Hay Consulting (Australia). Tom is Associate Fellow of the New Zealand Institute of Management and has experience on a number of editorial boards of academic journals, and review member of the Cutting Edge Awards Committee of the US Academy of HRD. He has 5 years Board experience on the Standing Conference of Welsh Management Education Centers, one year as a non-voting Trustee in K’aute Pasifika Board, New Zealand and has carried out a number of Institutional Teaching audits in the UK. Tom has 8 years senior academic experience as Head of a UK Business school and a deputy Head of School role in New Zealand as well as adjunct and visiting E-faculty roles on Henley Business School (UK) and Ulster University Business Schools’ MBA and MS programs. He is currently Director, Policy, for the Center for Dynamic Leadership Models in Global Business founded in 2012. Tom is also co-author and co-editor respectively (with Peter A.C. Smith) of Dynamic Leadership Models for Global Business: Enhancing Digitally Connected Environments (2013) and in (2014) Impact of Emerging Digital Technologies on Leadership in Global Business, published by IGI Global.
Khosro S. Jahdi
Khosro S Jahdi, MBA, MPhil, PhD is a senior lecturer in marketing and has been teaching for over 25 years, he has published in a number of academic journals such as the Journal of Marketing Management. He is also a member of a number of editorial boards, including the International Green Economics Journal published by Oxford University. Khosro is a Chartered Marketer, a corporate member of the Chartered Institute of Marketing and a Fellow of the Academy of Marketing Science. Khosro is a senior associate in The Leadership Alliance Inc. (http://www.tlainc.com) and was President of the 13th International Conference on CSR held at Bradford College. He is a visiting lecturer at several overseas universities including the American University at Skopje, Macedonia. Khosro also has received a number of academic honors and is nominated for a National UK Higher Education award for his excellence in teaching. Recently Khosro was the Keynote speaker at the 4th Organizational Corporate Governance Conference, hosted by the University of Bucharest.
Edgar Wilson JP, has considerable experience on Trusts in a range of governance roles. These present roles include Deputy Chair and Trustee of First Credit Union with a membership of 58,000. Deputy Chair of Trust Waikato, Deputy Chair of K’aute Pasifika (a Pacific Health Provider) and elected member of Independent Tertiary Education New Zealand Board. As well a raft of leadership experience and expertise Edgar has presented at a number of conferences both national and international. The most recent being a paper presentation at the World Council of Credit Unions (Gdansk, Poland 2012) entitled: First Credit Union (NZ) case study: Building a culture of integrity-practical tools and techniques. Edgar is the joint author of a chapter of a book titled Business Integrity in Practice: Insights from International Case Studies part of the Principles of Responsible Management Education (PRME) United Nations book collection. One of the first books in the UN collection for the PRME series.
Study Questions
1. Would you agree with Randers’ assertion about the role the Chinese government may play in the future in moving the rest of the world to more sustainable development? Give reasons for your answer.
2. How “open and transparent” can governance become without endangering commercial and/or public security and well-being? Refer to case studies where possible to illustrate your case.
3. Is social media drawing us into populist referenda on every aspect of governance in the public sphere? Would that work to enhance citizens’ freedom and choice or would it reduce political action and debate to the “lowest common denominator” or result in voter apathy and thereby pose a threat to democratic advancement?