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Good governance: transparency not enough

08 January, 2014 | Posted By: Petros Florides

By Petros Florides
The Memorandum of Understanding between Cyprus and its international lenders contains many references to good governance. On the assumption that agreements are entered in good faith, there is a moral, as well as legal obligation to meet this expectation.
Of all the principles underpinning good governance, transparency is probably the most widely advocated. “Sunlight is the best disinfectant” is the well-known quote from U.S. Supreme Court Justice Louis Brandeis that refers to the benefits of openness. Though essential, transparency on its own is limited by the assumption that honour and shame will serve as self-correcting mechanisms against excessive self-interests. Experience tells us this is a big assumption.
Appointments to the boards of semi government organisations (SGOs) provide an interesting case study. The so-called ‘spoils system’ (i.e. “to the victor go the spoils”) has been openly practiced in Cyprus widely, and quite unashamedly, for decades. This is also how the much-coveted seats on the boards of SGOs have traditionally been allocated. If transparency were the only criterion, successive governments could argue they have always been in compliance with good governance regarding awarding seats on the boards of SGOs given the openness about using the spoils system. It could be further argued this has also been with the tacit approval of the electorate fully aware of “the way we do things around here.”
The big change to this state of affairs is that Cypriots have recently had a rude awakening. Most neutral observers would agree that decades of cronyism and tribalism (that underpin the spoils system) is a significant contributing factor to the inefficiency of the state that is now bankrupt. Indeed, given current public sentiment, the President felt the need to give assurances that recent appointments to the boards of SGOs are based on merit and not political party affiliations. But the Cypriot public is now painfully aware of its vulnerability to any incompetence and / or corruption by the powerful elite (whether in the public or private domain). This brings home the realisation that without real accountability, the impact of transparency may be limited.
So, in the case of the SGOs, whom should board appointees be accountable to? This takes us to the heart of the governance debate surrounding alternative models.
Two examples can be used to illustrate: in broad terms, the ‘shareholder model’ prioritises the interests of an organisation’s owner(s), whereas the ‘stakeholder model’ takes a more holistic view to consider all those impacted by the organisation’s actions. This is a particularly relevant discussion given the pending denationalisation of Cyprus SGOs. It could also serve as a means of providing “more light and less heat” to an issue that promises to polarise society further than it already is.
With the roadmap for denationalisation providing a couple of years for preparation, sufficient time exists to conduct a comprehensive debate to gain broad consensus on three key governance questions: firstly, whom is accountability owed to; secondly, how can this stakeholder be empowered to exercise its rights properly; thirdly, to what extent should the needs of remaining stakeholders be addressed.
With transparency and accountability, firm foundations for good governance are starting to be put into place. But still more is required. For authority to not be used brazenly whilst answering only to an exploitative few, any system of good governance should incorporate the principle of probity. This could be understood to include the concepts of honesty, fairness and justice. Probity helps redress the balance between the powerful and powerless through ethics and values. Importantly, the interpretation of what is deemed fair and just should not simply be provided by the same powerful actors and stakeholders that probity is trying to guard against!
Again, the SGOs provide interesting insight. Political parties and unions are the two most powerful stakeholders and have also set the agenda for SGOs to date. This can be illustrated by the current issue related to political appointments to the boards, and the recent admission by one SGO to being “over populated” and able to operate perfectly well with fewer people.
The question is whether other stakeholders - especially the paying customer - also support SGOs being such gracious, not to mention generous, employers. Probity requires their opinion be given an adequate hearing. This is especially important in a monopoly environment where the opportunity to only patronise a preferred supplier does not exist.
The principle of sustainability is also critical for comprehensive good governance. This includes the economic, social and environmental arena in which an organisation operates. Unfortunately, the Cypriot cultural idiosyncrasies of cronyism, short-termism and populism have weighed heavily on SGOs with the growing financial crisis exposing their inefficiencies. Moreover, wider public support is being severely tested as the growing ranks of unemployed start to question the value for money offered by SGOs.
The ‘New Governance for a New Cyprus’ initiative is promoting non-negotiable corporate governance standards for all systemically important public interest entities (whether publicly or privately owned). Based on good governance principles such as transparency, accountability, probity and sustainability, these standards should be reinforced by law and regulation that impose personal liabilities on directors who are in breach. Anybody interested to contribute to their development is invited to write to petros_florides@wvi.org .

The views in this article represent those of the author and not any other individual or organisation.

Petros Florides is Regional Governance Advisor for World Vision International and Executive Officer of World Vision Cyprus. He is also on the board of the Institute of Directors (Cyprus), co-founder of the Cyprus National Advisory Council for the Chartered Institute for Securities & Investments, co-founder of the Institute of Risk Management Cyprus Regional Group, and a Chartered Management Accountant.