In outsourcing-speak, “governance” means one thing. In the boardroom or Congress, it means quite another. Screwing up one type could mean a civil lawsuit, and goofing up another could mean jail time. If you don’t understand the differences, you had better read this.

by Jay Whitehead, Harry Feinberg

Recently I got an email from the CEO of a mid-sized IT and F&A outsourcing company, who I had never met. This happens a lot. Probably 10 times a week. It makes sense that I get so many requests, since I am the publisher of three outsourcing magazines (this one, HRO Today, and HRO Europe) and the CEO of CRO (Corporate Responsibility Officer) magazine.

The CEO asked me to participate in a webinar—that’s one of those newfangled online conferences that are so popular now. He probably wanted me because he knows I own the largest email lists in the outsourcing world and can instantly draw a large audience for any online conference topic—from bandwidth to billing to bird flu. In this case, the CEO’s topic of choice was governance. But wait, which flavor of governance did this guy want to talk about? I know of three flavors. And mistaking one for the other could spell disaster.

Flavor one is governance of an outsourcing contract. That has to do with who can make what decisions, what to do in case of an out-of-scope request, and how to manage disputes. There are entire books written about how to govern an ITO, FAO, or HRO contract. There are million-dollar-a-month consultants who do nothing but advise on how to manage business process outsourcing contracts. I know a little about this flavor. Well, maybe more than a little. And I know enough to know that there are at least 10 significant lawsuits going on right now between outsourcing providers and their clients over governance issues—civil lawsuits, that is, rather than criminal.

Flavor two is governance of a corporation. That means how a corporation, its executives, and board members are obligated to act in relation to its many stakeholders—shareholders, employees, creditors, regulators, customers, and vendors. As Citigroup Chief Administrative Officer and Vice Chair Lewis Kaden, a recent keynote at my CRO Conference in NYC, put it,“Corporate governance is about whose throat gets choked over a given issue.”

Today, there are at least 250 former senior corporate executives of U.S. corporations spending time in jail because they failed to understand the downside of bad corporate governance. You know some of them. They worked at companies such as Enron, Tyco, Adelphia, Cendant, Worldcom, and Global Crossing.

Flavor three is governmental or regulatory. Governance in the hands of elected officials, bureaucrats, and the like is a different kettle of fish. It involves politics, which is something about which I know nothing other than what I read in the New York Times (which pigeon-holes me as a Northeastern urban liberal type, I suppose).

One of the funniest books of all time is Ambrose Bierce’s 1911 classic, “The Devil’s Dictionary.” Bierce was the guy who defined love as “a temporary insanity curable by marriage.” And a cat as “a soft, indestructible automaton provided by Nature to be kicked when things go wrong in the domestic circle.” He also defined corporation as “an ingenious device for obtaining individual profit without individual responsibility.”

I imagine Bierce would explain the difference between the three flavors of governance like this. His example of “contract governance” would be “the rules for a knife fight in which two combatants’ left hands are tied together with a knife in their right.” For Bierce, “corporate governance” would be “the rules of engagement for blaming others for your stupid decisions or for slapping underlings.” And “governmental governance” would be “the guidelines for avoiding making a fool of yourself and a wreck of your country.” I hope you are clear now.