The Governance of an Exit. Corporate lessons from the Brexit referendum
A referendum is an irreversible single-point instrument
that disrupts the balance and controls of checks and balance. The crucial
issue is how questions are formed. It is not fair to ask voters if they
want lower taxes, higher welfare spending and balanced budgets. The reply
will be "yes" to all three questions, even though rational reasons must
avoid all three at the same time. Balancing the issues is fundamental to
financial decision-making. However, the referendum is not the right tool
to achieve this.
Countries like corporations must have
political checks and balances. No fundamental change should be easy, without
taking into consideration the consequences of each scenario. The recent
Brexit, the exit of the UK from the European Union, is a good example
for companies to update their governance and charters.
To no one will we sell, deny or delay right or justice
The above caption is from Magna Carta, is not the British constitutional
document. The Magna Carta is a bottoms-up approach to avoid the common
man from arbitrary punishments. The constitution of a country must be
a top-down document which sets out the structure of government and its
relationship with the citizens do not exist in Britain. The British Constitution
is not a written document but an abstract one, based on a host of different
laws, practices, conventions, customs and precedent.
Companies have their own Maga Carta and is known as the various charters
whereby committees and authorities are delegated to a team, division or
a person.
Herein lies the fundamental governance problem. The British tradition
is to settle key issues of national integrity by a simple majority in
referendums. This has led to the Brexit and perhaps result in Scottish,
Irish and Gibraltar’s exit from the UK. (Other countries without a written
constitution are New Zealand and Isreal)
Super-majorities for long term thinking
The Constitutions of almost all other countries require a super-majority
(typically three-fifth or two-thirds) for significant amendments. Ordinary
laws can pass by a single vote, but can reflect the vox populi heat of
the moment rather than cold, considered long term thinking. It is here
that Constitutions can stop the fundamental, difficult-to-reverse decisions
from being taken in the heat of the moment, by creating time-consuming
procedures like super-majorities.
Many other Constitutions requires a two-thirds majority in both Houses
of Parliament, plus a majority of state legislatures. Moreover, the Supreme
Court can also prohibit the Parliament from any amendment of the "basic
structure" of the Constitution. This procedure is called 'checks and balances'
in the corporate world. In the UK however, the Supreme Court can only
interpret parliamentary statutes. The court cannot overrule or repeal
a law because it is unconstitutional because there is none.
A super-majority, on the contrary, should be required to check ill-thought
populism and heat-of-the-moment passions that may create significant changes
that are irreversible, or severe to reverse. This logic should apply to
any future referendum in Scotland or Wales to separate from the UK.
The Brexit referendum was influenced by racism and nationalism
In the current day globalised world, nationalists and intellectuals made
the arguments for greater sovereignty, possibility of making local decisions,
and the vast number of immigrants played a significant role. When economies
are in trouble, the blame game shifts to ethnic minorities, immigrants
and the "foreign hand".
Referendums are democratic as people are voting directly and not through
elected representatives. But a slim margin can be reversed if the election
was held a week later or earlier, and the mood been slightly different.
Backpedalling after winning
Many promises are made during the vote campaigns to sway passions. Politicians
are known to make ridiculous pledges and claims they don't mean after
the election. That is probably a good reason to require super majorities
for significant changes in that affects a lot of people for generations
to come.
From the decision-making process of the corporate world, Politicians and
the parliament have to learn that many issues are so complex that the
blue collar workers cannot be expected to come up with a considered view.
Besides, decision-making requires balancing different considerations unknown
to everybody in the organisation; that is why senior management and the
board make the most vital decision.
Representative democracy, on the other hand, is a more indirect form of
democracy than the holding of referendums. Despite many flaws, it is better
overall. It is more resistant to ugly populism and false propaganda.
None of these are arguments can abolish referendums. Some may be useful.
But they too should require a super majority for fundamental changes.
Perhaps the exit from the referendum could lie in the feature of the unwritten
constitution as the parliament is sovereign and supreme legislative body.
At the 10th annual European GRC Summit, we will conduct a separate parallel
session on the corporate consequences of Brexit for all UK and European
countries. www.grcassembly.com
Inspiration and source: The Economic Times and many other articles on
Brexit.
