Governance Dynamics: Change Driven by Cases and Principles

Why does decision governance change in a firm? There may be new decision situations which would benefit from new rules. There may be decisions which challenge existing governance, requiring it to change. Finally, we may have principles that we want governance to implement, and it does not do it to the extent we want.

In these three cases, change to decision governance is motivated by either the implementation of principles, that is, abstract rules, or from specific cases of decision making. 

The two approaches are different. The approach by principles is less sensitive to new information: if we want governance to be responsive to new cases, we adapt it to cases, based on what we generalize from cases. 

This text is part of the series on the design of decision governance. Decision Governance refers to values, principles, practices designed to improve the quality of decisions. Find all texts on decision governance here, including “What is Decision Governance?” here.

There are other differences. The distinction between these approaches is known in law, and specifically in research on comparative law, where it has been nicely laid out as follows. Below, common law corresponds to governance developed from cases, and continental law to that driven by principles. 

“The tradition of the English Common Law has been one of gradual development from decision to decision: historically speaking, it is case law, not enacted law. On the Continent, the development since the reception of Roman law has been quite different, from the interpretation of the Justinian’s Corpus Iuris to the codification, nation by nation, of abstract rules. So common law comes from the court, Continental Law from the study; the great jurists of England were judges, on the Continent professors. On the Continent lawyers, faced with a problem, even a new and unforeseen one, ask what solution the rule provides; in England and the United States they predict how the judge would deal with the problem, given existing decisions.

These differences in style run through the whole legal system. On the Continent lawyers think abstractly, in terms of institutions; in England concretely, in terms of cases, the relationship of the parties, ‘rights and duties.’ On the Continent, the system is conceived as being complete and free from gaps, in England lawyers feel their way gradually from case to case. On the Continent lawyers delight in systematic, in England they are skeptical of every generalization. On the Continent lawyers operatp with ideas, which often, dangerously enough, take on a life of their own; in England they think in pictures; and so one could continue.” [1] as quoted in [2].

If we want to ensure that decision governance adapts quickly to new information, then it should be possible to challenge governance anytime a decision needs to be made. The problem is that if this challenging is done inefficiently, governance starts being counterproductive, as it does not result in faster and better decisions: in any decision situation, both the decision and the governance are at stake. In practice, this can be handled by ensuring that people with sufficient seniority, who have authority to override governance, are involved, and that only some decisions, those consequential enough by some agreed-upon measures, can give rise to challenges to governance. 

Focusing on frequent adaptation is important, but should not be done in such a way that principles are disregarded. The practical approach is not so much to question principles, but to consider his decision governance is coherent with values that are promoted in the firm. Also, it is important to keep in mind that principles to implement can come from regulatory requirements, and when this is so, it becomes harder to challenge them – we can only challenge how they are implemented in governance.

References and Further Reading

1. Zweigert, Konrad and Hein Kotz (1987). Introduction to Comparative Law. Oxford: Clarendon Press.
2. Porta, Rafael La, et al. “Law and finance.” Journal of political economy 106.6 (1998): 1113-1155.