GOVERNANCE can be all encompassing and at the same time, ephemeral. It has increasingly become a topic of interest to those in the financial sector, driven by high impact and embarrassing failures both at home and abroad and implications for the wider economy.

With the interest of the wider economy, it could mean many things to many people. So perhaps we should start with definitions.

There is legalistic governance, as practised in the US, where senior management has to 'sign in blood'. Should they be caught at breach, they shall face wrath in courts -in theory.

The key benefit of this approach is that it is relatively easier to enforce in a consistent and robust manner. On the other hand, this approach lacks consideration of an organisation's distinctive features, including culture.

There is also behavioural governance, as practised more commonly in the EU. This is where the regulators task firms to demonstrate key principles or behaviours, leaving it up to the firms to design its own approach.

This is, to some degree, the opposite of legalistic governance. Consequently, when firms take the initiative to design approaches themselves, the solutions themselves have sustainability built in. However, they can find it challenging to explain to stakeholders, including the regulator, why a less common approach is suited, and can have repercussions.

In my years as the governance and risk subject matter expert at the Bank of England, we would often have to balance both the above aspects. We aimed to ensure that we provide incentives for culturally effective approaches (behavioural), while making clear that there are repercussions to not meeting the regulatory requirements (legalistic).

Bangladesh Bank's approach matches this too. Essentially, it aims to encourage firms to not only meet the letter of the law but also, the spirit of the law.

Simply put, good governance is about having processes to make and implement decisions in a disciplined yet adaptable way. It is not about making correct decisions, but about the best possible process for making those decisions.

When analysing what the differentiating features of resilient firms are, a few common themes emerge. These are

a high degree of personal accountability at the board and senior management, while being sensitive to the difference between responsibility and accountability. The board also demonstrates a robust risk culture and is able to access any information and provide effective challenges.

The risk culture emphasises the importance of understanding risks, managing risks, promoting accountability and acting responsibly thereby protecting the firm and its stakeholders.

Above all, these firms have culturally tailored their approach to governance - appreciating that not only do they have to do things better, but also do better things.

In designing governance solutions for clients, I made sure that the firms understood the regulatory view (UK and EU) - that the regulator is likely to be somewhat

sympathetic of firms that have good governance processes, but made some sub-optimal decisions compared to firms that have made good decisions without due process. I also found the governance issues harder to remedy at the latter types of firms.

This ethos broadly holds true for firms in Bangladesh as well. Good governance, in the front line, feels like good decision making. As such, it evidences organisational discipline, consistency of approaches, fairness of the decisions, efficiency of the processes, and high quality behaviours of management.

These dimensions hold true, be it governance of modest projects, complex organisations or within governments. Some organisations argue that these feelings of fairness and discipline are nice to have, but ultimately, does it improve

the bottom line, and if not, why should they care?

I have been asked this question, more aggressively, by the CEO of one of the top three US insurers. At that time, I impressed upon him how intelligently designed “governance layers' can proactively manage the risk profile, saving both financial and public embarrassments.

Increasingly, research is showing that good governance provides the foundation for strong risk management practices and superior operating performance for organisations and that share prices implicitly assume sound governance, which leads to severe erosion of value once governance failures surface.

At a discussion forum with CEOs of all the banks, the topic of governance came up. They highlighted areas such as the role of independent directors, the importance of sound governance and risk culture and how to have high quality and disciplined interaction between boards, management and divisions.

The banks' role as financial intermediaries has a major bearing on how efficiently the economy allocates its resources between competing uses. Put simply, it is the heart of the economy, pumping resources where it is needed. This has some distinct implications for us.

First, as banks play such a critical role in the economy, when they 'sneeze' all of us are bound to 'catch a cold' -be it directly (such as a collapse obliterating our savings) or indirectly (such as collapsing funding of critical development projects). As such, banks in both developed and developing economies are regulated tighdy and, in theory, held to the highest standards.

We would be wrong, however, to think that these standards are for banks and related institutions alone. There is an increasing gap between what the Companies Act requires of all firms (legalistic governance) and what effective governance means (behavioural).

There is a saying that 'some learn by seeing, and some learn by doing'. As we target the goal of becoming a middle income country, we cannot rely on Team by doing'. Quite frankly, we do not have the time.

Now is the time to have discussion at all levels on what good governance means for your organisation - by taking the standards set for banks as principles and tailoring them to upgrade how decisions are made.

The writer is an adviser at Bangladesh Institute of Bank Management and was previously the enterprise risk director at Moody's (Europe).