Very generally,  governance refers to undertaking processes and practices by which others actions/activities are controlled and directed.

In effect these processes and practices start with guidelines, laws and rules  and end with enforcement to ensure they are adhered to.  For example, speed limits are a law most of us are familiar with.

This law is a governance practice intended to reduce the risk of accidents (or it represents a government money grab) . Speed cameras are one enforcement practice associated with this law.  Fines are another.

Governance, Yuk

A typical reaction to governance is distaste.  Like most things though  governance has associated pro’s and con’s.  Low levels of governance  usually result in:

• faster completion
• greater flexibility/ innovation
• simpler solutions
• lower quality
• greater risk of error
• inconsistency across repeated activities

Clearly high quality, consistentency and low risk are better attributes than the opposite listed above.  Yet higher governance is usually less flexible, slower and lacking creativity.

What to do?

Both approaches to governance (a lot and a little) have pro’s and con’s generally exactly the opposite.  The best way to achieve the highest results (best of both worlds) is “surprise,surprise” through a balanced approach.

Too much or too little governance is not a one size fits all balance.  It is very contextual.  For example, as an investor you probably desire strong governance to be in place around your investment.

The intent is to risk your reduce of loss.  However if the regulations are too onerous the investment can be strangled by them.  You might not lose but you might not gain either.

An example of this is Trumps approach to reducing regulations put in place during the last financial crisis.

In his view the risks mitigated by these outdated regulations have subsided in the current economy and the regulations are holding back economic and job growth.

I am not sure I agree with his assessment but the principle of balancing governance practices to get the best result really does resonate with me.