In my opinion - Chartered Management Institute

Chartered Management Institute Companion Kevin Beeston, executive chairman of Serco Group, argues for a positive kind of corporate governance.

Last Updated: 31 Aug 2010

There is too much of the wrong sort of corporate governance. There's a real danger that risk-taking and innovation will be stifled by over-prescriptive controls that leave companies unresponsive to market needs and public services hampered by red tape.

In the private sector, the reaction to too many corporate scandals has been ever-increasing governance. The same applies in the public sector, where some ministers have recently said that new legislation such as the Freedom of Information Act will make it impossible to govern.

So how can we be certain there is a balance between prudence and entrepreneurialism and yet ensure the golden goose is free to produce golden eggs? At Serco we face this issue daily. We've developed a decentralised approach that allows us to be responsive to the needs of our customers but within a clear framework of control that stands up to scrutiny by our stakeholders.

People often ask how a company like Serco can balance a portfolio of more than 600 contracts in 30-plus countries. It ranges from running Docklands Light Railway in London and being responsible for children's education in Walsall through to flight control centres in many countries around the world - and yet we do it day after day and win awards for it.

The answer is to embrace the best aspects of corporate governance and minimise the burden of the rest. We believe that managers should be able to spend 90% of their time managing and 10% reporting, and not the other way round. So does this mean that we're taking undue risk?

Quite the contrary. Our own internal research, Good People Good Systems, asked some of our most senior managers why the same people could produce better results in the private sector than they were able to produce - often in similar jobs - in the public sector.

The response was wide-ranging, but one prominent aspect was the appetite for risk - taken within a tightly defined management framework, which places much emphasis on personal accountability. So what does the model look like?

It is necessary to have a strategic plan at every level of the business, and the same applies whether you are running a hospital, a prison or a manufacturing plant. This plan needs to consider aspects such as the ability to grow and to sustain that growth; operational performance; safety performance; leadership and staff development; community involvement; risk management; and key relationships.

This doesn't mean that one plan will fit all. If you're to fire the enthusiasm of managers, the governance model must accommodate different market needs and encourage entrepreneurialism and balanced risk-taking. We treat each contract as a micro plc. We establish a board, which includes 'non-executive directors' from different areas of the business. This model helps to achieve a balance between devolved responsibility and the need for corporate control.

There is always a temptation to retain control at the top of an organisation, but the downside is loss of flexibility at the sharp end of the business.

In other words, the tight control at the top may just deprive the golden goose of the oxygen it needs.

So how do you get the balance right? The key is to make sure that each manager throughout the business feels part of the risk management process and does not assume that someone else is managing the risks. In Serco, the people across the business are actively supported by our corporate assurance group, which has responsibility to oversee and review the internal controls and risk policies. This team is responsible for guiding and training the management throughout the organisation to ensure the current and future needs of the business are met. Consequently, we maintain a risk register at every level of the business that identifies the probability of each risk, its potential impact and the actions being taken to manage it. To be effective, these techniques must be applied with clarity of accountability and with clear delineation of responsibility, backed up with certain formal policies on, for example, safety and environmental protection.

This is where our approach differs from that of traditional corporate governance. We do not believe you can be sure that your golden goose is in rude health by conducting a tick-box audit. This carries the risk of becoming too prescriptive and risks rejecting golden eggs because they are smaller than standard.

As we see it, corporate governance must also ensure that stakeholders' interests are properly recognised and so should consider business, legislative and community drivers. For example, as well as procedures for managing the finances and the people, processes are needed to ensure social responsibility and ethical behaviour.

So if we are in business to make a profit, we must take considered risks and have adequate procedures to avoid, manage and mitigate those risks.

To do so, we need to distinguish between boldness and recklessness; between good judgment and good luck. If we can't, then corporate governance will not save anyone from his or her folly.

CV - KEVIN BEESTON has worked in both financial and commercial roles since joining Serco in 1985. He was group finance director 1996-99 and CEO 1999-2002, becoming executive chairman in May 2002. He is on the CBI's President's Committee, deputy chairman of the CBI's Public Services Strategy Board, a council member of Business in the Community, and a non-executive director of Ipswich Town Football Club.

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