Governance Bites #79: governance in developing countries, with Dr Peter Crow

In this episode, Mark Banicevich talks to Dr Peter Crow about governance in developing countries. Peter outlines governance challenges in developing countries, and the impact of factors such as political and regulatory environments, corruption, and weak institutions. He talks about the impact of cultural differences, including the history of Western colonialism. They also discuss effective ways to improve governance capability in developing nations. 
Dr Peter Crow has a PhD in corporate governance and strategy. Not only is he an experienced chair and director, he has also designed and delivered governance courses in New Zealand (for the Institute of Directors, and Governance New Zealand), and overseas, in countries including India, Kenya, Lithuania and Ireland. He has presented about governance on five continents, and he works with and advises boards around the world. 
#governance, #leadership, #corporategovernance, #boardcraft, #decisionmaking, #makingadifference, #ceo, #governancebites

Transcript

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Hi, I'm Peter Crow. Today, we're going to talk about governance in developing nations. Thanks very much. Hi, welcome to Governance Bites. My name is Mark Banicevich, and as you just heard, again, I have the pleasure to spend more time with Dr. Peter Crow. Peter, thank you very much again for your time. I know you do a lot of work with governance in various developing nations, so you've got some deep expertise in this area. I’m sort of looking forward to this conversation. I want to start with a generic, thematic question really: what do you see as the biggest governance challenges faced by organisations in developing countries? What an amazing way to start. There are some interesting tensions in here, so let me just unpack this a little bit because there are some words and some ideas that some listeners may wonder why I’m using them. Do you mind if I just - Please. - expand on this a little bit? Absolutely. Right, so the first word is called "colonialism". Yes. So here in New Zealand, we're in a post-colonial nation; we’re a dominion in our own sense. Generally speaking, the African continent is there, but in relation to governance now — and I’ve done work in Africa; I’ve been on that continent last year, this year, and next year — there’s an interesting level of pushback going on in relation to their former colonisers. The UK, for example, is upheld as one of the early leading thinkers around how to do governance well, how to do board practice well. And, as you know, whether it’s Kenya, Tanganyika, South Africa, or Rhodesia as it was called, Zimbabwe now, there were many, many countries that were English colonies, protectorates, members of the Commonwealth, now independent nations. The difficulty these countries had early on was that they didn’t know where to start. And so they started with the recommendations from their former coloniser in some cases. Now, an advanced country like the UK, for example, or Germany, or Portugal, or wherever those colonisers are, those systems are really well-suited for the home nations, but not necessarily really well-suited for the developing country. And so you end up with a mismatch. And so these Kenyans, these South Africans, these Zimbabweans are smart people. What I’ve observed, and what I've heard firsthand, there are a couple of things: one, we embraced their ideas because we trusted them, and now we’ve realised that the application of those ideas to our context, our culture — perhaps now we've got to modify them. And so work through that, right. But the other one is this: they were our colonisers, so we don’t want to hear from them. We want to strike out on our own, you know, we want to puff out our chest and move forward on our own strength. But taking note. Now, neither of those cases are necessarily the best way to handle it. But they're situations that I’ve heard and experienced directly in the last 12 months. Right. Okay. From the mouths of people in developing nations in closed rooms, either in a capability-building or an advisory context. And so the challenges are really around, what frameworks can and should we use? There’s a temptation to pick up best practice, and, of course, what works best now for a bank in New Zealand, or a bank in London or wherever, and what works really well for Nedbank in South Africa, might be completely different from a bank sitting in Kenya, or Nigeria, or somewhere else, right. Because you’ve got some other cultural pieces in here. The Kenyans will avoid conflict in conversation. South Africans, come off their apartheid — you know, the return of democracy- Yes. - in 1994, the 9th of May, when they restarted, not started, restarted nation-building, Mandela, Tambo, Mbeki, FW de Klerk, all that sort of thing — they’d come from a strongly suppressed environment, and now here we are, decades on, there are still bits of it that you can see, but generally speaking, they are the Rainbow Nation. But it’s the rainbow for the colour of the people, not necessarily what Westerners think about Rainbow Nations. So, the challenges are around the same sorts of things that we see in other countries by sector or by organisational size, but now it’s by cultural development. In India, they’ve got a very compliant culture, so their focus comfortably is on the compliance aspects of governance, whereas other countries, with a more entrepreneurial mindset, are on the performance aspects. Just because it’s written in a code doesn’t necessarily mean that it’s the right thing to do in this country. Then, another overlap — and this is the last of the three that I just want to mention — the other overlap is to do with the extent to which there’s democracy in the country, autocracy, or almost, let’s just call it monarchy, but I use that with a small‘m’ and in a loose frame. I’m not necessarily referring to the Gulf Cooperation states, but certainly, through there, we’ve got a dominant family. And it’s not necessarily royalty in a monarchical sense, but it’s dominance. Democracy, as we know it in the Western nations, is less well-developed; corruption is rife. I’m not saying corruption in Saudi or the Emirates is rife, but just speaking generally. And so, what we do well in a Western culture, where corruption, doing the right thing, corruption is low, doing the right thing is high. We can’t necessarily rely on  that because they don’t have that institutional development in place yet. Yes. So those are some of the challenges, and if you come in and say, "Here’s the white man’s way of doing it," they’re actually quite good at showing you the door. Yes. And I think rightly so. Yeah, absolutely. So, there’s some language that I decline to use in the advanced nations, and it’s been good practice to make sure I absolutely do not use it in the developing nations, and that’s the term "best practice". There’s no one right way - sorry, that always trips me up - of doing things. Yes. Because there are people involved. And we need to seek first to understand, and that’s what we’re trying to do. Yeah, it feels like, as you say, although the colonial nations have been governing in some form for a long time, as we’ve talked about in an earlier conversation, governance is still a developing practice. Yep. So, you have this Western idea of what governance is that’s then potentially being picked up and dropped into a completely different context. It brings me to mind of the road layout of Dunedin, where it was designed in Scotland and had no idea of the topography of the country, and then picked it up and slapped it onto this place that was full of hills and things and ended up with the steepest street in the world. It’s amazing, isn’t it? It is, it is indeed. But it feels kind of like that, doesn’t it? Whenever you pick up a particular framework from one nation and drop it into another nation where the infrastructure isn’t the same, the cultural norms are different, you have issues like corruption, you have a regulatory and political landscape that’s very, very different. 100%. Yeah. And, you know, and just a really seemingly simple but highly practical demonstration. In Nairobi, I was in Kenya, working with some people there, and we were going out from Nairobi to the Rift Valley for a two-day offsite. It was, I don’t know, an hour-and-a-half's drive, two hours’ drive, whatever it was. And there, on the side of the road, the side of the highway, two metres back from the tar seal, were farmers with boxes and stalls and pallets and fresh fruit and vegetables that they had grown on the land immediately behind. There’s no infrastructure for that; if they don’t sell their vegetables, they haven’t got any money; they’ve got no income to sustain themselves. So it’s sustenance farming. And then we go on a little bit further, and we stopped at what us Westerners would call a lookout or a viewing spot, and we looked over the Rift Valley. It was just magic. It was green, it was wonderful. And there was a shack, and it had the word "toilet" written on it. And next to it, there was a very seemingly old woman knitting, but there was a little roadside stall right there, and I asked the question, not of the lady but of my driver. That's where she lives. And the toilet is part of her house. Right. But it's also part of her income source?’ Yes. And so, it’s a very real demonstration for me, you know, the sights and sounds we talk about but the smells as well, that in these developing nations, we simply can’t rely on the infrastructure. No. They’re not there. But we still want to govern. And so governing well in a developing nation looks incredibly different from governing well in a developed nation, and a small-medium enterprise and a NASDAQ-listed corporation, they're as different from each other. And so it is between an advanced nation and a developing nation. Yes, right. You made the comment earlier about seeking first to understand. Yeah. As a Westerner consulting to these boards of - Yeah. - major entities in these developing nations, how do you then step in and guide them in governance practices to enable them to adapt what we may consider as developing practice to their own local needs? I really enjoy food, and I use a term that many will understand: "breaking bread together". So, when we eat together, it’s a great leveller, and when we eat together, our formal guard is down a notch. Now, it’s not about getting underneath people’s skin; it’s not that. But when we’re eating and sharing a meal and some drink together, we’ve got the opportunity to ask questions about their families, about their situation, and I do that, and they to me. That’s about building a relationship, because if I’m asked to come and offer some advice, make some comments, whatever, we actually need a platform to be able to do that. And that’s a platform based on trust. And trust requires itself a platform, which is relationship, and the best way that I know how to build a relationship is to break bread together. So, when I go in, I seek those opportunities. I also seek, as much as I can, to withhold making judgements or statements until quite late in the piece, because the material risk is that you’ll patronise. Yes. Don’t want to do that. And I think it’s very, very easy, particularly for Western males, to make comments, because I’m going to say everybody — everybody that I’ve met in a developing nation over the past, I don't know, decade, whatever, has been highly capable; they’ve just had different experience. Yes. And, you know, the number of PhDs that I’ve met, the number of mechanical or water engineers; you know, these are smart people, they’ve just had a different pathway. Yes. And so, to talk to them as if they’re 12-year-olds, people like that don’t get invited back, and rightly so. Yes. So, I’m speaking generalities, but that’s the sort of thing that I do. Yes, I know what I want to talk about. And one or two occasions I’ve not talked about it, because the Q&A [questions and answers] and the discussion has gone somewhere else. Yes. And you need to be prepared to go with it. Right, okay, thank you. So we’ve talked about a couple of these issues. Yep. Let’s start then with the regulatory environment - Yep.- and the legal and political environment in the country. What impact does that have on governance? And, you know, you haven’t just worked in Africa; we’ve talked a lot about Africa so far. You’ve also done a lot of work in Eastern Europe - Yep. - and Asia and other parts of the world as well. So, what role does adapting governance practice to local needs, how has, is that impacted by regulation and political environment, and so forth? So, let’s go to Eastern Europe.

Until 1989, let’s use Winston Churchill as the example: 14:47

there was this great Iron Curtain from the — where? — the Baltic to the Adriatic, and it was this line down the map, behind which Russia grabbed everything. And the Baltic states, that we know them today — Lithuania, Latvia, Estonia — were not marked on the map; they were just part of Russia. And many others, as well. So, what’s happened — and I’ve been, you know, I’ve been in that part of the world many times now — what’s happened is, with the emergence of democracy in those nations and the rediscovery of their history, they’ve looked beyond, and they’ve seen what some of the advanced nations are doing. But the first thing that happens is they don’t go from a socialist or communist world immediately over to capitalist; they step their way in. And the government, who had all of the cards in the game previously, doesn’t just give them out, but it feeds them out over the years and over the decades. And so, the first thing we see start to emerge is state-owned enterprises, and then we see the selling off of some of those assets to private enterprise, maybe in a staged way, and we’ll see the entrepreneurial upswell, as well, and that’s when it starts to get really interesting. So, in the case of Lithuania, what they did with their state enterprises is they actually had to look at what some of the other nations were doing, and they looked to the UK and they thought, "Yeah, you guys are leaders, you’re doing some reasonable stuff; okay, we'll take note of that." They looked to the Germans, the Swedes, the Americans. They decided they didn’t really like what the Americans were doing, but that’s fine. But they felt most comfortable with the Swedish, and so that formed the basis of some of their structural framework. There, I’ve been in their parliament, in Vilnius; they have a semicircle, not unlike Americans. They don’t have a Westminster system with the "aye"s and the "no"s, where it’s combative. So all of that plays back to culture. And so, for them, what they effectively did was they knew they needed a government — sorry, not a government — a statute for a Companies Act. So, they built one of those. And it’s interesting: it’s on a page with an English side and a Lithuanian side, and they're parallel on the page, a bit like a parallel Bible. But then, when they did their code, which is their guidance for listed [companies], they, in effect, picked the eyes out of multiple nations and reassembled so it was culturally and contextually relevant for them. And it works really well. When I first went there, I was surprised at how quickly they’d come on from 1989 until I first got there, and I remember saying to my wife that this is a nation that’s achieved more in ten years in terms of governance development than many Western nations have achieved in 30 to 50 years. Yes. Because they had the benefit of those pioneering elsewhere, and they could look at those activities and what worked and what didn’t, and then start picking the eyes out of it and dropping it into their own context. And so, that’s one example. But next door, you’ve got Belarus, and next door, down a bit, you’ve got Hungary. So, you’ve got the political layer and the command and control that goes with that. So, my observation is that some of these post-Soviet states actually look quite Western now; others don’t. And when you’re in a situation where state control is still real, then your expectations around what effective governance looks like can and should be different. Absolutely. As I said, I’ve just recently come back from Russia, and - Yes. - it would be very interesting; I might have to try and see if I can develop a couple of leads for a conversation around governance in Russia, because whatever they’re doing, Moscow is an amazing city now, and it feels like it’s really got— whatever it’s done, it feels to have done well. And, you know, at the time of the fall of the Soviet era, they had some very rough periods, some very dangerous periods, but now, incredibly safe city, very well run, very well planned. So, it’d be interesting to see just how they’ve changed as well. Did you go into the metro? Yes, the metro is amazing. It’s one of the — I’ve not been there — it’s one of the best metros in the world in terms of the architecture under the ground. Yes. I’ve heard. Very big, open, and spacious. So lots of room to walk past people, unlike the cosy little tunnels in London. And I think the Moscow metro makes the London metro look small. The network’s huge. It’s huge. So, the interesting thing, you’ve, I guess, observation that I would make from that example is, the countries that have some sort of authoritarian basis, or some sort of not-democratic, or only a degree of democracy, often are quite safe. They're, because they run on quite strict lines. And, you know, Singapore would be the modern example in the Asia-Pacific part of the world, where, yes, it’s a democracy, but effectively it’s a one-state - Yes. - sort of set up. I remember as kids hearing stories of people that had been there, and you’re not allowed chewing gum. Everything’s clean. I heard that, too, yes. Everything’s clean. And they’ve gone from basically a swampy patch on the end of the Malayan Peninsula to a global leader. In 1972, they didn’t even have an airline; now, it’s the best airline in the world, and has been for some time. So, I think that, you know, democracy sometimes is a bad option, but it’s the best option we’ve got. Yes. But sometimes, as you’re building these nations, something other than democracy is an intermediate, and I’m not advocating that everybody should be authoritarian. No. But from a board governance perspective, from a company-building and nation-building, some degree of strong leadership can be really helpful when you’re going through that phase, and then moving it to a, what looks like a more democratic model can be quite helpful. The other part of the world that I find interesting, but only from afar so far, is the Middle East, because the way it works there with the Islamic flavour is entirely different. And so, we apply Western principles to that environment to our peril, I’m told. And I’ve got some dear friends in Germany, here in New Zealand, and elsewhere, that are active in Iran and Iraq, know the culture there, and the comment is, "Peter, you’d struggle. Not only culturally;"you’d probably enjoy it culturally, but you’d struggle first". Yes. "But most of what you know and rely on"works really well around the place, other continents. But in that environment, because of the religious layer"— so Christianity versus Islamic — "there’s a world of difference." And so, there’s a complexity, there’s a richness in the fabric. And I’m sitting there thinking, "Persian universities"pre-dated Western universities." There's some amazing history there, and depth. And some of those countries are portrayed as unsafe, but they're incredibly safe. Yes. That there are vibrant companies. Now there are some things from a social perspective that we don't like. Got that. But there's a lot to learn. Certainly is. Now, in these developing countries, as we've talked about, they often have issues around things like political instability, corruption, weak institutions. Yep. What strategies have you found effective to mitigate the governance risks? We've got to learn how to be open. So, I think in these developing nations, there's some good advice around breathing in, taking time, looking at both sides, or multiple sides, of the situation, then trying to make an assessment and working hard to do that. But also holding close to the reality that you still might be completely wrong. Yes. Yeah. And so, corruption — when I work in Asia, somebody else pays the money. Right. For example. So I don't have to worry about that. That's real. The informal economy in many countries, so, you might have 30% unemployed in a country officially, but when you take the actual population, it might be 50% unemployed. That there are backhanders all over the place. It's amazing who gets into high office — friends of friends. These, you know, we see it reported in the media, the mainstream media in the West from time to time. It happens, people disappear. And I've been really fortunate because I've been, not directly exposed to any of that. But I know enough to know that it's real. Yes, it feels, as well, like one of the key things that a person could do, if you're involved in an entity that isn't within their own cultural norms, within their own jurisdiction that they're comfortable with, is leave your assumptions at the door. Try to challenge yourself on everything. Assume nothing. Assume nothing, challenge, look in the mirror. It becomes very real. The other piece that I would — can I put some practical? Please, yeah. So, get a minder. And that's not necessarily a body minder, although in some countries that's appropriate, right. But get a cultural minder. So, for these countries for which life is different, and that's almost every country outside New Zealand, but in particular in these developing spaces that we're talking about, find the person who's sponsoring you in. But find people who are prepared to sit down and speak with you before, help you during, take you aside — "Don't do that. Do do that. More of that."Less of that. Peter, what did you do that for?" And be prepared to learn on the way. Because there are live examples, many of them, where it's quite acceptable to do one thing in one country, but in another cultural environment, it's completely unacceptable. Yes. And so for the farm boy who grew into an engineer, and then into boards and governance, anthropology has become important. Yes, yeah, absolutely. And I think for us as directors, we talk about diversity. I have photographs now where I'm the diverse candidate, if I can use the populist language. Friends of mine have said,"How did it feel to be the only white guy in the picture?" Yes. You know. And it just improves your appreciation. And yet these people didn't think of me as white, and I didn't think of them as black. We just thought of ourselves as a bunch of people in the room learning together to get something done. Yes. I think travel is really good to give you that kind of outlook, just travelling to different parts of the world and experiencing those different things as much as you can. It helps. Yeah. I like to walk. I like the sights, the sounds, and the smells. And sometimes the smells accost my nasal nerves big time. But it's just about learning. Absolutely, you know. Yeah. Well, in these countries where, as you say, you're working with very smart people, not necessarily experienced in the skill set of governance. Yep. What sort of effective ways do you have to strengthen the governance capability in those countries and in those boards? We need to start, if we can invoke Stephen Covey, begin with the end in mind. So, what are we trying to achieve? And then what is necessary to achieve that? Start there. Yes. There are optional things above that. And so for other countries, necessary might be higher up the ladder. But the first thing is to say, what are we trying to achieve as business? Why do we think we want this governance thing? What might the benefits of this be? And I've sat in rooms, even in the last 12 months, but certainly over time, where we've struggled to put our finger and reach agreement on what that benefit might be. And what that tells me is there's back stories or other stuff going on. That might be cultural, it might be relational, it might be corrupt, it might be political, it could be anything. That, to, as you've noted before, to overlay a Western view onto a not-Western context can be an incredibly dangerous thing to do. So, they're just some comments to take us into this. Right, right. At the risk of being a Westerner trying to impose our values on another culture, - Yep. - we have a rise of corporate social responsibility [CSR],- Yep. - ESG, environmental social governance issues. What is the role of governance in developing countries and promoting those ends? You know, the minimising modern slavery, all of those kinds of issues that we think are a big deal in a country where putting bread on the table might be more important. Often is. So, blood diamonds in South Africa, I've bumped into that. But I've also, you mentioned ESG specifically, so just take an example. And this was in an African nation. I'll not identify the nation, because it doesn't matter. Yes. But we were working with a group of about a dozen capable and experienced company directors doing some capability building around,"How do we build a high-performing board?" That was the sort of thematic, and it was a capability-building workshop over a couple of days. And they asked that we have a conversation about sustainability. So great, let's do that. And so we got to that part — this was a highly engaged group — we got to that part of the discussion, and I said,"Right, we'll have a chat about sustainability and ESG," and it was like flicking a light switch. They all disengaged. And it was as stark as the effects of a light lamp extinguishing when you flick the switch. And so I thought about it, 10 seconds later, I felt uncomfortable, so I posed a question and waited, and waited... and it felt like three minutes, it was probably 30 seconds, you know. And I said, "It looks like we've got a problem here. What's going on?" And one of the ladies in the room just said, "Skip." I looked at her, "Excuse me?" Because I thought she said "S-K-I-P, skip," as in "move past". Yes. But I wasn't sure with the accents, right. So she repeated it, no eye contact, and she had been one of the high eye-contact people to that point, so I now knew that I had a cultural problem, a topical problem, potentially even a trust problem. I said, "Okay, that's fine, we're not going to pursue this question. But can you please help me to learn?"Something's gone wrong. What is it?" And then it came out. One of the men explained that,"We are so busy running our country, our companies. Sustainability to us means being able to"come back to work tomorrow." To your point. And so some of these Western frameworks — and ESG from a United Nations, EU [European Union] perspective — is seen as a nice-to-have for them, and a not-to-have for us, because it's a burden. Yes. And so whether it's ISO 37000, which is the corporate governance standard that emerged out of South Africa and elsewhere — actually, it's not a standard, it's a set of guidelines, principles, good on paper but in practice trying to be everything to everybody— or whether it's Sustainable Development Goals, United Nations, which are good, subsets of it are fantastic within-country but not necessarily all, or whether it's ESG, there's a really important, it's a bit like Maslow's five levels [hierarchy of needs]. We need to get food and physical security sorted out. Yes. Then build, then build. And some of these frameworks are further up the triangle. Yeah. We need to be humble enough to discover where they're at, and then build towards, over time. It may be that what we understand as ESG today is not part of the equation. We might simply just say, we need to have a conversation about sustainability so that we've got a set of reliable constructs, so that you can employ people, you can make things and/or produce services, and you can earn money from your customers. And you can perform at a level that those participants in that activity or group of activities can put food on the table with some sort of regularity and reliability. Because most of these nations do not have a social welfare system. Yes. And so if you lose a job, you're done. Yes. And it's not just you, it might be your immediate family and your parents and your wife's parents, and. So there's some high stakes here. Absolutely. So, why would I spend time on some sort of GDPR [General Data Protection Regulation, EU] or ESG [environmental, social and governance] or TCFD [Task Force on Climate-Related Financial Disclosures], or some other. Now, I'm not suggesting they're bad things, please. Absolutely, but I can't get there until I've got the basics. Yeah, I think your analogy of Maslow's hierarchy of needs is a really good one; you've got to get the foundation right before you work your way, before you move up. Sorry, that was a reasonably extensive response, but hopefully it was helpful, because there's quite a bit going on here. There is, yeah. Peter, that's been a really interesting conversation. Thank you very much again for your time. No problem. I look forward to catching up again soon, and seeing you next episode.