Policy Making and Contemporary Governance in the United Kingdom - Case Study Example

Policy Making and Contemporary Governance in the United Kingdom Governance is referred to an exercise ity and a system of management or government which is an issue of concern in all organizations including large corporations to small governmental agencies ranging from profit to non-profit organizations. Within an organization, it is the board that takes care of the accountability of an organization to its “owners and stakeholders”. The essence on governance particularly relates to public traded organizations that mainly focus on accountability, responsibility and profitability. Corporate governance has all the more taken a significant position than it had in the earlier times (Jackson, Derose & Beatty, 2003, p.4). It was after the release of the Cadbury report in the year 1992 that corporate governance became a major concern in the UK. The focus of the Cadbury report was quite restricted to the financial parts of corporate governance. However, several other reports followed the Cadbury report and include “the Greenbury report (1995), the Hampel report (1998), the Smith report (2003), and the Higgs report (2003)”. The reports derived from these cases of UK imply that only particular issues in regard to corporate governance have been dealt that included the revelations of compensations of directors and executives of the organization, appraisal committees, and the responsibility and efficacy of non executives in the company (Plessis, Hargovan & Bagaric, 2010, p.312). Although governance has been an old concept, however, it is recently that concerns have been given more importance on issues regarding good governance in an organization. Thus policy governance came into play and has been refined and articulated by different authors at different points of time. Policy governance refers to the theory that governs the business of public. The boards of organizations take the responsibilities towards achieving the organizational goals and objectives for which suitable corporate governance is highly necessary (Jackson, Derose & Beatty, 2003, p.5). This report would deal with a study on the approaches to the study of policy making that best help to understand the nature of contemporary governance in the UK. Corporate Governance in the UK: The Early Times: Corporate governance was defined by the Cadbury report as a “system by which companies are directed and controlled” (Keasey, Thompson & Wright, 2005, pp.22). Cadbury had realized that following good governance within an organization assists the organizational members and the authorities to deliver measures effectively thus driving the companies forward towards success. Failures in corporate governance may occur owing to inefficient performances by the organization which results in decrease in the level of profits. Secondly when an organization earns huge profits there may be a tendency among its members to share some amount of that profit in the way of excess remuneration. Thus to incur corporate management to provide effective and efficient performances, a good governance is a requirement (Keasey, Thompson & Wright, 2005, pp.22-23). It can be said that the governance reforms in the UK particularly started with the establishment of the Cadbury Committee that focused on issues relating to exercise of “creative accounting devices”, failures at the corporate levels, and public dissatisfaction over increasing rates of compensation of the executives of an organization. The recommendations of Cadbury focused mainly on the responsibilities of the executive officers within an organization. Thus the role of executives and non-executives were taken into concern and tried to be strengthened by the Cadbury recommendations along with additional progress (Keasey, Thompson & Wright, 2005, p.5). “Executive pay arrangements” offer a predominantly appealing argument for confirmation for corporate governance reforms. Several reformers have stressed their efforts on improving the transparency of remuneration process, trying not to affect the executive officers determining a strengthening mechanism between the performances of the executives of the organization. A remuneration committee was dictated by the Cadbury committee that could access to external consultants for payments and be answerable to the shareholders of the company (Keasey, Thompson & Wright, 2005, p.5). Development of Corporate Governance Codes in the UK: Since the time of the formation of the Cadbury committee and the publication of the Cadbury Report, the structures and practices of the corporate governance within the companies in the UK have undergone considerable changes in counter to the recommendations of various groups and reports. The Combined Code of corporate governance that came into existence in the year 1998 was represented by a document that contained principles and codes to encompass the Cadbury, Greenbury and Hampel recommendations together. However, since the time when the Combined Code was published, as well as developments in the Labor Government in the year 1997, there have been significant changes and developments in the corporate governance policies with change in emphasis from an approach that was based on self regulation of organizations towards an approach that is based on legislations or threats of legislations (Keasey, Thompson & Wright, 2005, pp.21-22). This report would make a study on the developmental changes in the policies followed since the time of the Cadbury recommendations till the present day. The Process of Policy Making: The policy making decisions are generally taken by the executives. The policy communities greatly influence such decisions. Such communities include “informal networks” which have extensive knowledge and access to those sources and personal connections that are responsible for policy making. Thus a cooperative style is adopted for the purpose. Over the years, broad changes have arisen in the organizational principles and practices of governance and greater concerns are being taken to maintain good governance that ultimately represents the effective participation of the organizational members towards betterment of organizational performance (Kesselman, Krieger, Allen & Hellman, 2008, p.81). Several models of policy making are based on such assumptions or implications that involve a sequence of stages through which public policies proceed and which therefore constitute the process of policy making. These stages include setting up of agenda, and then the policy moves through the sequence of the stages involving problem recognition, consideration of options, deciding upon the most suitable option, introduction of new policy guided by rules and regulations, and finally implementing the process. Different originations may show variations in this model of policy making; however, the fundamental of a policy making process following a sequential number of stages remains the same for every organization (Dorey, 2005, p.4). In general, policy makers identify different issues and problems thus warranting attention of the management and organizational members of a company. The different roles and ideas of individuals within the organization are also recognized, defined and developed. After problems are identified they are socially constructed to classify the problems as good or bad and determine their influences and effects on the social or ideological principles of the organization. Such problems require the policy making process to be followed to bring out solutions to such problems thereby dealing with them and finding out appropriate measures. It has been found in general that in every organization there are some key persons who mostly consider these issues and come out with suitable measures of good governance. The problems that are identified are accommodated with apposite policy “deemed by its proponents to be the solution” (Dorey, 2005, pp.8-29). Key Aspects of Corporate Governance in the UK: In the United Kingdom, a distinct and particular board is cooperatively in charge for the ultimate success of an organization. A separate chairman and chief executive head the board of directors; there is a balance between the number of executive and non executive directors; committees for audit and remunerations purposes are separately maintained; and performances are evaluated annually. Also such organizations maintain transparency on aspects of activities and rewards. The UK Corporate Governance Code functions on the basis of the ‘comply or explain’ principle and is reviewed on a regular basis in discussion with “companies and investors”. The regulation of businesses in the United Kingdom focuses more on values and principles than on rules and regulations. This reduces the outlay of the company to “global businesses” of introducing procedures required to conform to comprehensive set of laws, which many times restrict “business practices and innovation” (FRC, 2010). The approach of corporate governance followed by the UK companies maintains high standards but with lower costs and expenditures. The UK companies are capable of facing and dealing with broad range of situations that may include several difficulties or problems arising out of internal and external factors. The UK follows a “market based approach” enabling the board of the company to reflect flexibility such that the company can organize itself and perform its responsibilities being effective to its accountability towards its shareholders. This is mainly done through the codes of the corporate governance that are maintained by the FRC or the financial reporting council. The codes define measures of good governance for the board as well as the management of the organization, and also take into concern the risk management and other internal controls of the company. The above mentioned approach enables the organizational members to take decisions and evaluate the performances of the entire organization. Also the company takes care of the information that they need to provide their shareholders with (FRC, 2010). Governance and Policy Making in the UK: This would throw some light on the governance policies and schemes followed not only within the organizations but also give it a holistic approach in consideration of the United Kingdom as a whole. It is the responsibility of the local and central governments to set up and maintain the public policy making in the UK. The central government under the supervision of the parliament formulates and publishes policy proposals for consultations and approvals. During the period of the current government, several changes in the policy making structure with the devolution of some policy making powers to certain institutional bodies. The policy making decisions focus on several issues; a major issue is the sustainable development encompassing social, economic and environmental goals (OECD, 2002, pp.281-283). The government policy prevailing currently in the UK for sustainable development is based on a strategy that recognizes not only the importance of sustainable development but at the same time focuses on the needs of new elements for institutional prospects recognizing the participation of different communities at different stages. The strategy provides the basis for policy development and assessment in different courses of action at different levels. In the past, the environment was given major significance. Currently, there is a considerable shift in the theory of policy making and now social and economic issues are given equal weight. However, the policy is supposedly weak in terms of its method of implementation (OECD, 2002, pp.281-283). The program of sustainable development in the UK has been significantly expressed in the broader policies of the developments of the regional, urban and rural areas. Another aspect of the sustainable development that has been realized is that along with focusing on goals of policy making, the conflicts arising from policy decisions also need to be resolved between the objectives of policy. Thus the essential values and judgments of public policy are significantly considered and importance is also stressed on how principles and values are determined in policy making decisions (OECD, 2002, pp.285-287). The bodies forming the institutional structures in the UK perform their responsibilities depending on the roles in the policy making. National responses are upheld by the departments of the central government and related communities. Different roles and functions are part of the mechanisms followed by these departments for the rationale of achieving sustainable development. Departments of the government are essentially concerned with formulation and reformulation of policies and in the context of policy making, these different departments mainly stress on using the sustainable development strategy for new policies. Several national bodies are also involved in identification of problems, and making evaluation of the progressing activities. There are audit committees that work on making judgments on the effectiveness of the decision making on part of the governments evaluating the integration of sustainable development in the policy making (OECD, 2002, pp.288-290). To maintain improvement in the policy making and appraisals, monitoring procedures are also applied in which particular sets of indicators are used for reviewing the progress on sustainable development. The legal intensity in comparison to further levels in the government has been found to be less important in the quest of sustainable development in governance in the UK. This reveals the convention of UK in the use of unrestricted approach to policies of the situation moderately than an “essentially legalistic approach”. The major issues related and stressed on the judicial aspects include the functions of the planning system, the assessments of environmental issues and other developmental factors. Roles of the government offices in the regional areas are all subject to reviews to govern over the coordination levels of the national policies at the national and local regions; however the central government has no role to play in this respect thus not contributing in assisting any local level policy making (OECD, 2002, pp.293-296). The cost and quality of a service is considered significantly by the inclusion of providing the duty of “Best Value” with intentions to improve the “economy, effectiveness, and efficiency” of delivery of services by local and national authorities. Targets are also set and performances are reviewed reflecting to the issues related to challenges of a service being provided, the comparisons of performances against parameters set at the national level, the consultation with local community members to know about their views and opinions, and the level of competition in delivering continuous improvement. Local authorities are continuously encouraged and assisted in shifting from a restricted form of service deliver to taking up a broader leadership role (OECD, 2002, pp.293-296). The non-governmental organizations in the UK also play a major role in the framework related to policy making decisions in the governance measures and implementing sustainable development with considerable influence on the development of the governance structure. The UK pays substantial attention on the policy making methods and schemes. The roles and responsibilities of the governments are defined in clear dimensions and improvement measures are taken care of such that the governments are able to consider policies in terms of strategies thus identifying important issues and avoiding risks. The current policies have been found to take serious concern over such measures by applying appropriate policy making decisions to enhance the governance in the UK (OECD, 2002, pp.304-306). Approaches to Policy Study: There are certain models, theories, approaches, and concepts that have been developed by several political and social scientists that analyze policymaking and decision making issues. These theories facilitate the policy making through helping with guidelines, facilitating with communication, and suggest potential rationalization for policy decisions. The different theoretical approaches include “the political systems theory, group theory, elite theory, institutionalism, and rational choice theory”. The application of such theories helps in directing the importance of different political phenomenon, help in clarification and organization of thinking, and recommend explanations for political activity or public policies (Anderson, 2010, pp. 18-19). Political Systems Theory: A political system is comprised of such activities and policies that have a binding on society. The environment consists of the social system, economic system as well as the biological system that are external to the boundaries of the political system. Thus a political system can be analytically separated from other components of the society. Demands and supports are the major inputs in to the political system. Demands represent the claims for actions that are performed by individuals and groups satisfying their interests and values. The level of “support for a political system” indicates the degree to which it is regarded as “legitimate, or as authoritative and binding on its citizens”. Outputs of the political system include “laws, rules, and judicial decisions” and constitute the public policy (Anderson, 2010, p. 19). This theory does not discuss much about the procedures and processes of decision making; however it represents the demands that are expected of the governments and how they are attended. This theory throws light on some important features that include finding out the environmental factors affecting the content of public policy and the functions of the political system. Also, the effect of the public policy on the environment can be determined through this approach. The ability of the political system to convert the demands into public policy is also an important issue focused on through this approach of study (Anderson, 2010, p. 20). Group Theory: According to this theory, “interaction and struggle” between diverse groups are the major issues of a political system. A group tends to show political interest when claims on governments are found to arise. Political preferences are mainly protected by group performances where individuals play the roles of participants or representatives of a group. “Access” is the main conception of this theory. According to this study, in order to help government to take appropriate decisions in a most influencing manner a group needs to have “access or opportunity” to get in touch with and articulate its views and opinions to the decision makers (Anderson, 2010, pp. 20-24). Policymaking would not be affected if communication between the group and the decision makers is not successful and effective. Public policy depends on the loss or gain of power and influence of the different groups. The group theory focuses on the key vibrant essentials in formulation of policies. Institutionalism giving stress on the official or structural aspects of institutions can be beneficially engaged in analysis of policies. These include different behavioral patterns that can affect decision making and the essence of public policy (Anderson, 2010, pp. 20-24). Rational Choice Theory: This theory involves using the philosophies of “microeconomic theory” in the study and rationalization of political actions. Individuals, who are involved in decision making processes, possess individual preferences that may vary between different individuals. Through this rational approach the argument is presented on the basis that individuals are capable of comprehending and categorizing their preferences from “most to least desired”. These preferences guide them in making decisions thereby enhancing the maximization of profits. This theory also believes that actions of an organization and different groups can be explained in terms of the “behavior of a model individual”. Some of the theorists have realized the effects of “incomplete or imperfect information” that may lead to uncertainty in policy making. The results and consequences are generally uncertain. This theory throws light on both the importance of an individual’s interest that acts as a motivation, as well as the significance of policy making thus providing a better understanding of decision making and policy making (Anderson, 2010, p. 25). Critical Analysis: The intention of this report is to identify the policy making approach that can best help to understand the nature of contemporary governance in the UK. This report has thus made a study on both the governance measures that are followed in the UK in terms of the nation as a whole as well as the corporate governance prevailing in different organizations. As it can be derived from the studies, the governance measures followed in the UK seem to follow a combination of the above mentioned theories or approaches including the political theory, the group theory and the rational choice approach of policy making that clearly explain the rationality and importance of decision making be it in an organization or for a nation in its entirety. If the corporate governance within organizations is considered in the UK, it can be found that organizational firms in the UK follow a systematic approach towards governance measures. This includes proper identification of problematic issues, making out progressive plans and programs toward formulation of strategies and solutions with intentions to achieve organizational goals. Particular individuals are more responsible in taking such decisions. This can be related to the rational approach which implies that individuals may have different preferences, but they are capable of ranking their preferences thus ultimately choosing the correct options benefitting the governance within the organizations accomplishing organizational goals. Also decisions within organizations are consulted among different groups whose views and opinions are equally important. Considering the nation as a whole, the governance measures can be seen to follow a combination of the approaches mentioned above that effectively involve individuals as participants or groups, and develop measures focusing on the governance through the use of public policies. In the political systems, the emphasis is mainly on the effects on the society, economy and environment. As the political theory represents the demands on the governments, a study on the governance of the UK presents the relation in respect to the approach followed as the political system in the UK has its focus on the impacts on the society a whole and as such decisions are focused based on such theoretical implications. As for the governance procedure being followed in the UK, be it in any organization, or in the overall political, social, economic or environmental systems of the nation, the policy making strategies can be found to be a combination of the political theory, the group theory and the rational choice theory. The three approaches of policy making clearly facilitate in understanding the nature of contemporary governance in the UK. The political approach relates to how the governance of the UK takes measures considering all the impacts on the social, economic and environmental factors. The group approach has provided with the relation of the governance measures as different decision and policy making process internal or external of organizations take place within groups and individuals take responsibilities that are ultimately consulted among groups for the governance measures to be successful and perform for accomplishment of goals and objectives. The rational choice approach suggests the importance of the interests of the individuals but at the same time the individuals being able to position their preferences and determine measures that ultimately intend to achieve the objectives to gain success. Thus from the combination of the three approaches, the nature of governance being followed in the UK can be realized through the study being done through this report. Conclusion: Governance being defined as a system or authority of management that may include managing organizations or a nation as a whole has nowadays been provided greater importance than earlier times. Corporate governance can be found to be followed in almost all organizations be it a large organization or a smaller one. Corporate governance codes are followed in the UK that specifically mentions the rules and procedures to be guided through for appropriate implementation of those governance measures. As the policy making decisions involve identification of problems, then setting up of measures to attend those problems thus finding solutions to them. If the corporations are considered then it can be found that mainly the codes are maintained and the principles are followed to maintain suitable governance structure. Moving out from the organizational aspects, if the nation and its political, social, economic, and environmental issues are considered, then the governance is found to follow a systematic procedure to implement its measures that are based on proper policy making decisions considering all impacts on the society. The policy makers take utmost responsibility in these respects and bring out the best values that they can provide that would not only benefit an institution but the entire society as well. The policy making theories provide with certain approaches or models of decision making that are greatly helpful in use while deciding on measures for governance. These include the political theory, the group theory and the rational theory, a combination of which clearly relates to the governance being followed in the UK. The nature of the governance policies being followed in the UK can be best understood through these three approaches that can be found to be followed in both the organizations as well as the government at local and national levels. The governance measures studied clearly explain how the measures take care of the society and the impacts on the social, economic and environmental factors, how individuals and groups participate together in formulation of strategies based on policy making steps, and how rationality of measures are determined and accordingly steps are approached to achieve ultimate governance. Reference 1) Anderson, J.E. (2010), Public Policymaking: An Introduction, Starnford: Cengage Learning 2) Dorey, P. (2005), Policy making in Britain: an introduction, India: SAGE 3) Financial Reporting Council- The UK Approach to UK Governance (2010). FRC, available at: http://www.frc.org.uk/images/uploaded/documents/UK%20approach%20to%20corporate%20governance%20Oct%2020101.pdf (accessed on August 5, 2011) 4) Jackson, C.A. Derose, K.P. & A. Beatty (2003), Governance for whom and for what: principles to guide health policy in Miami-Dade County, Issue 1703, California: Rand Corporation 5) Keasey, K. Thompson, S. & M. Wright (2005), Corporate Governance: Accountability, Enterprise and International Comparisons, England: John Wiley and Sons 6) Kesselman, M. Krieger, J. Allen, C.S. & S. Hellman (2008), European Politics in Transition, Starnford: Cengage Learning 7) OECD. (2002), Governance for sustainable development: five OECD case studies, France: OECD Publishing 8) Plessis, J.J. Hargovan, A. & M. Bagaric (2010), Principles of Contemporary Corporate Governance, Cambridge: Cambridge University Press . Read More