Corporate Governance as Self-Generating Order - Corporate Governance and Business Ethics

The “true” and “objective” representation of a fixed corporate reality in current corporate governance theory is misleading, since, “truth” and “objectivity” are in and of themselves relative constructs around which scientific and pseudo-scientific debate often turns. This is particularly so in social realities such as corporate governance for even the standing of a “fixed” legal entity may be subject to change as a result of a political process. The distinctiveness of the social reality from the natural world is that it is fully composed of human minds (conscious and unconscious) and ideas (practical and theoretical), which are the most basic elements of the social world and from which our attitudes, behaviors, actions, social relations and social conventions derive and are generated. Since mental activities are always in flux (Rescher 1996) and social reality as mind-composed and mind-mediated is, fundamentally, proconsul rather than substantial, any perceived enduring pattern or social stability in practice are relative in themselves (i.e., temporary in history and during a period) and subject to manipulation and collective maintenance.

Hence, in a truly proconsul sense, corporate governance is a process of governing which varies continuously and emerges from social interaction. The current crop of governance models are evidently unsupported because they are simplified abstractions filtering out the concrete experiences and complex dynamics of governing practice, based upon historical “snapshots” taken from the continually moving and flowing processes of governance that is moving towards an uncertain future. Rather than searching for general, universal and timeless principles (Porter 1991), corporate governance theorists would do better to become aware of the sensitivity of time, process and history (Tsoukas 2001), that is, the actual workings of reality where ambiguous perceptions, individualistic understandings, local contingencies, pragmatic actions and solutions, rational and irrational behaviors prevail.

The concepts of “spontaneous order” (Hayek 1982) and “emergent pattern” (Morgan 1997) better than any fixed notions describe the fluid character of corporate governance practice. Social systems are intrinsically open to diversities of individual actions, since individual actions depend on individual perceptions and understandings, which are inextricably bounded with individual properties of experiences (Sayer 1984; Tsoukas 1992, 1994) (“subject-referring properties”; Taylor 1985). Individual experiences cannot be exactly repeated over time and across contexts, and individuals are in the process of continuous learning, developing and interacting with others. Hence, self-understandings and self-interpretations as both responses to local contingencies and “enactment” of environments (Weick 1977, 1979) are necessarily implicated in defining individual actions. This eventually means that under close scrutiny, individual actions and behaviors are self-governed patterns that emerge from a combination of their own historical experiences, current understandings, local conditions and multiple possibilities. As human beings, we experience our life-processes in our own activities and in our own acts of free will, rather than as being driven and determined purely by external forces. This means that the emergent patterns of self-governance are not directly imposed from outside such as through hierarchical orders or through predetermined logic (Morgan 1997), but through self-determination (Frankl 1959). Thus, power (essentially, governance) is not a possessed, fixed and abstracted thing, a sense of imposed domination and centralization (Foucault 1979/1988). Rather, it must be exercised, existent in relationships and expressed in actions. Power as exercised is not simply an obligation or a prohibition on those who “do not have power”; it is manifest in the reaction to and reflection of the given pressure, in their attitudes, willing and intent. The outcome of power and governance is transmitted by them and through them in the process of obeying, disobeying, negotiating, debating and compromising. External forces and pressures are only possibly influential on individual perceptions and reactions, as one of the elements of individual “enactment” in their environments. However, it is important to recognize that when self-governance is defined as spontaneously emergent and individually distinctive, it does not mean that it is isolated from social processes. On the contrary, as social beings, individuals’ understandings and interpretations are the results of social interactions through communications, observations, learning and thinking. Hence, self-generating pattern and spontaneous order in a society and in the corporation are largely characterized (or colored) by collectively constructed pattern and order through more or less shared values, beliefs, cultures, conventions, habits, negotiated meanings, compromised actions, inter alia (Berger and Luckmann 1966).

Given the subjectivity of meaning-generations and mind-dependence of social actions, corporate governance should not be understood as pre-defined in the context of pre-designed structures, fixed and unchangeable entities, imposed and externalized order; rather, it should be generated from daily experiences and dynamic practices. Thus, belief in corporate governance frameworks that are prescribed and specified in rules, regulations or agreements such as corporate laws, company articles and private contracts is overly simplistic and unnatural. Governance that relies on maintaining a fixed definition by the provision of rules is impossible to practice and sustain in the long-term. No doubt that governance is often embedded within contextual rules for guiding behaviors and actions. However, in the process of application in practice, the interpretation of governing rules is dependent upon the understandings of the individual actors and complex social interactions, for rules can never “provide for their own interpretation independently of those agencies whose interpretations instantiate, signify or imply them” (1989). Hence, power or governance is a nexus not of contracts, but of contested meanings and interpretations within multiple possibilities and a socially negotiated order and collectively constructed reality. Governance is not rule-reification and rule implementation in general, but in the process of rule adapting to local conditions within specific contexts.

Given the emergent and self-generating nature of corporate governance, what theorists and practitioners need to deal with corporate governance issues effectively is not to presuppose a mechanic and machine-like notion of corporate entity that can be governed externally and objectively through the traditionally designed three-tier hierarchical structure of governance or through the market for corporate control. They need to evaluate specific contexts, historical backgrounds, temporary circumstances and contingent factors that condition the process of governing practices and which are sensitive to the proconsul character of direct experiences, particular interpretations, meaning-generating and sense-making in both collective sense and individual manner. In a proconsul view, self-governance itself is not a fixed notion either; it is a continuously renewing and innovative pattern. What is needed for theorists and practitioners is not to attempt to stop and freeze or ignore change, but to flow with and facilitate it (Morgan 1997), leaving room for individual interactions, innovations, judgment and adjustment so as to enable effective actions. Looking inward both intuitively and thoughtfully to address the contingencies and temporary issues at hand and generating order out of chaos from “inside” is a more effective route to understanding and facilitating corporate governance.

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