Governance 4.0

• IAS NEXT, Lucknow
• 31, Jan 2022

Reference News:-

In the post-COVID world, there will be new challenges- failure of climate action, re-emergence of infectious diseases, debt crises and inadequate tech regulation, erosion of social cohesion – which requires different governance model.

• When the institutions are well governed, little attention is paid to them. They are invisible supports for the economy and social order. 

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
  • Tech and economic advances benefited almost everyone.

Governance 2.0

• The Governance 2.0 model, which emerged at the end of the 1960s, affirmed the primacy of material wealth.
• It coincided with the rise of “shareholder capitalism” and progressive global financialization. 
• Managers accountable only to shareholders reigned supreme and had global reach. 
• While the 2008 crisis dealt this model a blow, its narrow vision persisted.

Governance 3.0

• The covid shock ushered in Governance 3.0. 
• Crisis management dominates decision-making, with leaders focusing on operational issues and showing a relative disregard for possible unintended consequences. 
• This trial-and-error approach has led to haphazard management of the pandemic and its fallout.
• Once the pandemic ends, we will need a new governance model (4.0 version)

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.
• Technologies such as blockchain are replacing centralized organizations with decentralized entities, while social, economic and digital inequities are increasing.
• For now, many leaders remain stuck in the shareholder capitalism mentality of Governance 2.0, while some societies still favour the strongman leadership and structure of Governance 1.0. However, these are inadequate to deal with post-COVID world.

What should be the approaches in Governance 4.0?

• Long term Strategic Thinking

• Governance 4.0 must replace today’s 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.
• Replace the tunnel Vision & Top-down approach

• As we live in a complex and interconnected world full of discontinuities, the roles of each stakeholder in society must change. 
• Business can no longer ignore its social and ecological impact, while governments can’t act as if they alone have all the answers.
• Primacy on Society

• 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 Crop of Leader
• Leaders embrace and consent to stakeholder responsibility over shareholder responsibility.