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May 23, 2005

Permission versus Approval in Governance

"Governance", unfortunately, means different things to different people. First, there is the aspect of who enforces compliance. Second, there is the issue of how each given business participant's scope of responsibilities mean they should conduct compliance. Depending on who most needs increased orderliness in the environment, the two aspects are blended in various ways.

In order to work out those blends, one thing that governance should especially be able to do is to formally distinguish permission from approval. Why? Because when company members must decide amongst multiple options for action, approval will link the choice to current priorities, while permission only links it to opportunity. Thus, permission fosters opportunism, while approval fosters performance.

Enforcement and conduct are, of course, fairly direct influences on "successful" governance, both individually and in their relationship to each other. But the relationship between the two of them is often invented, not just legislated.

That happens because an organizational structure, although highly pragmatic, must not be rigid; and as it structurally changes to meet evolving and new requirements, it must rediscover what is governed and where a practical need for governance is most emphatic.

In the business organization, the relationship between enforcement and conduct must usually be resolved from the top down in the management structure. Yet "top-down" is not a one-size fits all approach. Instead, a variety of formats exist to establish the presence of a governance practice, including centralized, shared, federated, and others.

Our society is so complicated these days that governance is becoming an increasingly explicit topic of concern in regular life. This exposure might be very instructive.

For example, one especially interesting phenomenon of top-down governance surfaces in the news every few months: how can there be an event that is federally banned yet allowed by the states? What is the point of having a state position that apparently is overruled by a higher authority?

A review of this governance issue may hold lessons for use within the individual company arena.

First, we would consider what is the purpose of the state level of government versus the federal level. Second, we look at how the purpose distinguishes the position taken on the issue.

As an example, certain medication options appear to be permitted by a state but not permitted by the federal govenment.

The trick here is that the overrule is only apparent. Here's a solution to the paradox:

- The Federal-level position is that the medication is "not permitted" unless authorized, but that authorization is permitted at a state level.

- The State-level position is that the medication is permitted if the state authorizes it, but it is not authorized unless it is approved, an action for which there is generally some procedure defined. The procedure itself may have to pass Federal muster.

This makes a state-level approval the condition that establishes permission recognized at both the state level and the federal level, bringing them into alignment.

This complex mechanism of granting authorization and approval rights is interesting primarily because it allows a "think global, act local" approach that accommodates present risk and change in operations.

The accommodation allows for contingencies and innovation that help the organization generate and capture more opportunities of great value -- namely, opportunities for business recovery, continuity or growth.

A business mechanism similar to the example above might feature a policy guiding a portfolio with which the organization is managing some contracts.

Posted by Malcolm Ryder at May 23, 2005 11:48 AM

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