What is the root cause of governance problem and where does the media fit in?

Ajay Ghimire, ACE Finance Company, Kathmandu

We hear the term "Good Governance" everywhere these days. Even the multilateral donor agencies have incorporated the term in their agenda for development. Financial assistance (grants/loan) is flowing in to the country in the name of good governance. I attempt to achieve three objectives through this article:

Give the Nepalese media a perspective to focus on in their attempt to promote good governance.

Encourage them to go beyond symptoms by helping them to understand the root causes of the governance problem.

Goad our media to do more than what they have been doing in promoting good governance.

What is Governance?

Economic and Social Commission for Asia and the Pacific (ESCAP) has interpreted the term "Governance" as the process of decision-making the process by which the decisions are implemented (or not implemented). I think the interpretation of the term "governance" as a process is very insightful. One could argue that it is not the process but the result that a society should focus on. If the result is good, it is good governance. If the result is bad, it is bad governance. True, but the problem is that there is a time lag between the decision and the result. We, we the human beings, do not have al-encompassing knowledge and perfect foresight to predict what the result of a particular decision is going to be. Further, any society has multiple stakeholders with varying interest. A good decision for one stakeholder may not be a god decision for the other stakeholder. However advantage of focusing on process is that a good process of making decisions is likely to lead to a better result on average than a process that is not good. Therefore, in an attempt to promoting good governance the media should focus more on improving the decision-making processes and the processes for decision implementation. I will discuss about salient features of good processes later.

                For example, we see too much coverage of what the important ministers and politicians say in one forum or the other. However, how these important ministers and politicians come to such decisions gets very little coverage. The result is we become too much person-dependent than system-dependent. If our focus had been on the process then we could channelise our energy in improving the process over time and reduce the vulnerability to the whims and fancy of few individuals, no matter how important they are.

                I touch on one more example to emphasize the importance of focusing on the processes. All of us have heard about RNAC (Royal Nepal Airlines Corporation) scandal on leasing aircraft from Lauda Air and South China Air alleging that the corporation paid too much for the lease in return for favor to handful of individuals. Did we have the media coverage on blow-by-blow accounts of the processes that led to such decisions? Did the media analyze where in the process did we either violate the norm or the rules? Which flaws in the laid down rules allow us to make such harmful decisions, if it was so?

What is the root cause of the governance problem and where does the media fit in?

When number of people affected by a decision is large, not all stakeholders can participate in the decision making process, at least not directly. The moment a stakeholder is not represented or is represented through an agent in the decision-making that affects the stakeholder, the agency problem creeps in. The interest of the agent making the decision varies from that of the stakeholders affected by the decision. Thus, agent may not act in the interest of the stakeholders he/she represents. The problem is aggravated when even within the stakeholders the interests vary. Not all class of shareholders may be represented in the decision-making, and even if they were they have divergent interests. To address the agency problem, the stakeholders make rules governing the agents' behavior and put monitoring mechanism in place to monitor that the agents comply with the rules and do not act in manners that is detrimental to the interest of the stakeholders. This explains the existence of laws and regulations, auditor general's office, the court, etc.

However, as an ordinary citizen of a country, each of us has a very diluted interest in the well being of the country as a whole. For example, when there is a theft or robbery of say Rs. 20 million of taxpayers' money, my personal share is about Re 1. I would think I am better of stoically accepting it than spending about Rs. 3000 worth of my own time and money to make an issue to question my agent. Many times I, as an ordinary citizen, do not have adequate information to take up the cause and cost of obtaining such information is exorbitantly high. Remaining other factors unchanged, more is the gap in information available to the stakeholders vis-à-vis their agents, higher is the chances of agents engaging in self-serving behavior detrimental to the interest of other stakeholders. This is where the media 's role becomes important. By obtaining the information and making it available to the other stakeholders, the media could reduce the agency problem. Agency problem described above is the root cause of the problem of bad governance, and media with its power to obtain and disseminate information can play crucially important role in reducing this problem.

If the promised compensation to the agents are not adequate and the process of selecting or electing are very costly to the agents, the prospective good agents will opt out of the competition and bad agents will flock in. This would aggravate the agency problem, as bad agents re more likely to engage in self-serving behavior. The media's power to attract public attention could be used to analyze our processes of selection and election of public agents. For example, I have seen many media coverage on alleged bad appointments of the ministers, secretaries and on re-election of corrupt parliamentarians. However, I have not seen media coverage analyzing the processes that repeatedly gives us corrupt and incompetent officials. The focus should be more on the process that selects or elects corrupt and incompetent officials than those individuals themselves.

What is Good Governance?

If a decision taken by an individual affects that individual alone that is not much of a public concern. However, if a decision taken affects larger group of people, the need for a good process of making decisions and implementing decisions arises. Perfect governance is a utopian ideal. However, a decision making process could be measured on the following parameters:

1-Participation: All the stakeholders participate in the decision making processes directly or indirectly. When the direct participation by all the stakeholders are not possible or too costly, fair and effective indirect participation should be there.

2-Transparency: All relevant information leading to the decisions and their enforcement are available and accessible to those who will be affected by such decisions.

3- Rule of Law: There must be legal and regulatory framework binding the public agents and those rules are uniformly and impartially enforced to all agents.

4 Responsiveness: Decision makers should be able to respond to the change in external or internal environment in a timely manner so that the stakeholders' interests are served in a timely manner.

5 Efficient and Effective: Results produced by the processes are good for the society measured in terms of efficiency and equity. The process should be reviewed continually to ensure that results are tested for efficiency and equity.

6 Inclusive and equity: All stakeholders should feel that they are part of the decision making process and are not excluded from the mainstream.

7 Accountability: Decision-makers should be accountable for the decision taken by them.

What role should the media play?

The media can play the role of watchdog by exposing the cases of bad governance. I suggest that the media should change their approach. Rather than sensitizing the issue by scandalizing the person based on the symptoms, they should concentrate on the issue. Who the stakeholders were, what was the mandate, what was the violation, what effect did the violation have, and what does the agent have to say about such violations? They could also encourage good agents by bringing out the information wherein many agents showed exemplary conduct in protecting the interest of the stakeholders they represent. The media here must understand that unnecessary processes reduce the efficiency and effectiveness of the agent in discharging his/her duties. Many times it so happens that the change in mandate, especially the rules and regulation, takes time and the external environment change. The violation of the given mandate by the agent in the interest of the stakeholders he/she serves. Thus on the one hand the media could act as a deterrent to self-serving behavior of the agents and on the other hand increase the quality of the agents in the market by encouraging good agents.

The media should understand that preferential allocation of budgetary allocation is not the only way the agents can engage in self-enriching behavior. They must understand that power to formulate laws and regulations can be seriously misused to extract favor from the group unduly favored by such rules and regulations. Therefore, the media should bring out the information in public and encourage debate on the proposed laws and regulations prior to their introduction, which normally happens in a very clandestine manner in our country.

The media could play much important proactive role in promoting good governance. It could attract public attention on the existing processes of making critical decisions by public agents. It could act as a pressure group by encouraging public debate on possible improvement on the processes so that many self-serving decisions by our agents, which we have been witnessing repeatedly, are not repeated in the future.

Capacity building on the media companies: It is easier to say what the media should be doing. There are two major constraints most of our media agencies face in effectively playing the proposed role on good governance. The first constraint is that most agencies do not have sound financial position to be immune from the undue influence of their benefactor. The second constraint is that most agencies do not have adequate number of qualified professionals who understand and can analyze the governance problem rampant in most of our public institutions. The first constraint may be addressed by forming few media companies with diversified dependence on many shareholders formed by a dedicated team of media professionals. Once we have financially strong media companies, their ability to attract better quality people should increase and over time the supply of good quality professionals should also increase.

Conclusion:

In promoting good governance the media should focus more on the processes of decision-making and the processes through which such decisions are implemented. Continual improvement in the process will lead to better decisions and reduce the variance in the quality of decisions arising out of the whim of the decision makers. The media should be aware that because of the inherent agency problem in the principal-agent relationship the public agents are likely to engage in self-serving behavior if they are not monitored effectively. The media, because of its power to avail information to larger masses, can play the monitoring role very effectively. In order to discharge the role effectively, however, the media agencies need to increase their own capacity to be independent and proficient. Few companies with diversified ownership formed by the teams of competent media professional could go a long way in improving the role of media in corporate governance.

Paper presented by the author at a national media seminar on good governance organized by the Telegraph Weekly last December 2001- Chief editor.

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