Governance 4.0

• 20 Jan 2022

This editorial is based on “Envisioning Governance 4.0 For a World that must not Fail its Kids” which was published in Livemint on 20/01/2022. It talks about the evolution in the model of governance.

For Prelims: Davos Summit, World Economic Forum, Fourth Industrial Revolution

For Mains: Need for a new approach in public and corporate governance.

In the upcoming year, the covid pandemic and the myriad crises it spawned may start to recede but a bunch of other challenges ranging from the failure of climate action to the erosion of social cohesion do not seem to go anywhere.

Addressing these challenges will need leaders to adopt a different and a more inclusive governance model. However, in recent times, the faith of the people in their leaders seems to be fading away.

A good governance model is an invisible support for the economy and social order. It is time now that the world shifts from its previous, unsuitable models of governance to Governance 4.0, proposed in the Davos Summit of World Economic Forum, which focuses on rather long term strategic thinking with more inclusivity.

Governance and Models

• About: ‘Governance’ is the process of decision-making and the process by which decisions are ( or are not) implemented. It can be used in several contexts such as corporate governance, international governance, national governance or local governance.
• Models of Governance:
  • Governance 1.0: In the Governance 1.0 period after World War II, both public and corporate governance were marked by the rule of a “strong leader".
    • This type of leadership worked well in a society where the cost of information was high, hierarchical management functioned relatively smoothly, and tech and economic advances benefited almost everyone.
  • Governance 2.0: This model emerged at the end of the 1960s and affirmed the primacy of material wealth, and coincided with the rise of “shareholder capitalism" and progressive global financialization.
    • Managers accountable only to shareholders reigned supreme and had global reach. While the global financial crisis of 2008 dealt this model a blow, its narrow vision persisted.
  • Governance 3.0: Crisis management dominates decision-making, with leaders focusing on operational issues and showing a relative disregard for possible unintended consequences.
    • The covid shock ushered in Governance 3.0 and the trial-and-error approach of this model has led to haphazard management of the pandemic and its fallout.
• Consequences of Poor Governance: Poor or weak governance is a driver of disaster risk, and is linked to many other risk drivers such as poverty and inequality, and poorly planned urban development.
  • Bad governance often results in the suffering of the most vulnerable, the poor, the weak, women, children and environment.
• Need for a New Governance Model:
  • Global governance has an unresolved problem: both the institutions and the leaders are no longer fit for their purpose.
  • As the Fourth Industrial Revolution and climate change continue to disrupt the current lives, public and corporate governance needs to change.
  • A new governance model is crucial for the world that keeps the focus on the primacy of society and nature instead of prioritizing the business and finance world.

Approaches in Governance 4.0

• Long-Term Strategic Planning: Governance 4.0 must replace the current short-term management with long-term strategic thinking.
  • A focus on problems such as the pandemic, socioeconomic crises and people’s mental health must be complemented with action to tackle climate change, reverse biodiversity loss and environment damage caused by human activity, and address related challenges such as involuntary migration.
• Businesses to Take Responsibilities: The new model shall replace the tunnel vision and top-down approach of the past. In the complex and interconnected world full of discontinuities, the roles of each stakeholder in society must change.
  • Businesses shall no longer ignore their social and ecological impacts, and also the governments must be held responsible for assuring that the businesses take accountability.
• Evolving Priorities: The emphasis on a narrow conception of economics and short-term financial interests must cease. Instead, the primacy of society and nature must be at the core of any new governance system.
  • Finance and business are vitally important but they must serve society and nature, not the other way around.
• New Leaders: Many leaders are keen to pioneer a new age of governance including business executives advocating environmental, social and governance metrics, and some political leaders.
  • Such leaders should be welcomed who act outside of their narrow interest as trailblazers and argue for specific action to fight climate change and address social injustice.
  • The best gauges of responsible and responsive governance today measure the extent to which leaders embrace and consent to stakeholder responsibility over shareholder responsibility.
    • Although the measurement of stakeholder accountability is still in its infancy, the development of consistent metrics will enable us to judge whether leaders are taking a broader view of their role and responsibility.

Drishti Mains Question

“The world has changed and public and corporate governance must change with it. The post pandemic expects a new model of governance that is not only inclusive of environmental health but also focuses on long term planning for overcoming different socio-economic crises”. Comment.