What is governance

• Good and transparent management of firms and institutions.

• External management, not internal.

Why it is needed

• Avoiding scandals like Enron, Worldcom, bank crisis

• Changes in laws and regulations like Sarbanes-Oxley (US) and the Higgs report (UK).

• Establishing the framework and boundaries for good and transparent management

Philosophical background

• Neo-liberalism: Humans are not steered directly but through the norms and other subtle forces in society

• Governance includes laws, guidelines and frameworks that shape, but not determine directly, conditions for ordered rule and collective action)

• Making people responsible for their conduct. (Freedom and responsiblity).

Reflection

• What is the relationship between governance and management?

• If the Boards of Directors of a company tries to interfere directly into the management of a project, what have they misunderstood about their roles and responsibilities, as seen from a Governance point of view?

Governance institutions

• Governments, public agencies, etc.
• Board of directors, auditors, etc.
• Sponsors, steering groups, etc.
• Program and Portfolio managers
• Project Management Office
• Line managers
• Standards, guidelines, etc.

Reflection

• What should a governing body do if they don’t like the contents of project’s objectives?
• How and to what extent is the governing body responsible if the project is not capable of producing the intended result?

Main theoretical components

• Actors: Act within the system, complying or counter-acting. Both the regulator and the regulated are parts of the same system.
• Institutions: Structures, frames, policies, regulations, roles and responsibilities that shape the actor’s context.

Shareholder approach

• Chicago School of Law and Economics
• Maximizing shareholder’s return on investment
• Focus on quantitative financial objectives
• Management actions in accordance with shareholder interests

Agency theory

• Principal-agent approach
• Possible conflicts of interests
• Imperfect control
• Realigning the agent’s interests with the principal’s

Shareholder approach

• Create value for stakeholders inside and outside the organization
• Balancing conflicting interests and claims
• Coping with many different objectives, resources and evaluations

Corporate Social Responsibility theory

Transaction-cost theory

• The contract as the primary governance mechanism
• Minimize transaction costs
• Make-or-buy decisions

Reflections

• To what extent can and should actors and institutions be independent of each other?
• To what extent should the Governance approach be the same for all projects or tailor-made to each project?