The credit crunch and the consequent financial turmoil it has unleashed is a global phenomenon. For those who govern NHS organisations, whether as commissioners or providers, the mantra 'think global, act local' has never been more pertinent.

The impact of the UK government's intervention in the financial markets, alongside a looming global recession, will have far-reaching consequences for all public sector organisations. They will be caught in a vice. On the one hand, they need to prepare to manage withshrinking resources as the government is compelled to rethink its public sector financial commitments - not just for next year but over the medium term.

At the same time, recession in the global economy will drive up local unemployment and the squeeze on personal credit and mortgages will put many families in real jeopardy. This will place immediate demands on local authorities and on local health services as the mental and physical stresses and strains begin to bite.

A prudent and well-governed NHS organisation will already be planning for reduced resources and increased demand. Never has authoritative and effective governance been more important. Arguably, on a global scale, it has never been more scarce.

Market myths

I am currently in the US visiting a range of healthcare facilities and meeting colleagues in the health sector and in universities. Despite the distraction of the presidential election, global financial turmoil has been a topic of debate across all sectors. I have been able to listen to formerFederal ReservechairmanAlan Greenspantestifyto theHouse government oversight and reform committee on how and why the capitalist edifice has been shaken to its very core.

Greenspan was the most radical of de-regulators, believing it was necessary to free financial institutions and others from central prescription and constraint. He firmly believed enlightened self-interest would be sufficient to ensure markets were self-regulating.

But, by their nature, markets are an abstraction. The concrete reality is the organisational entity. In the absence of enlightened governance, the (short-term) self-interest of an organisation can be served in ways that profoundly damage and indeed subvert markets. Once any one organisation reaps the benefits of unregulated speculative risk, others must follow or be left behind - particularly where executive reward is measured by year-end outturn - which (all too often) they can themselves manipulate. The effect is cumulative, not only in terms of competitor herd behaviour but also over time. An organisation's growth curve, once established (however imprudently) has to be sustained if market value is not to be eroded. This is, in every sense, an inflationary principle.

Executive failure

What is clear to a number of my colleagues in the UK and in the US is that the current crisis cannot be explained as a simple consequence of US and global de-regulation. That was a necessary pre-condition to the scale of the problem. But the additional sufficient cause has been a profound and almost universal failure of governance in the boardrooms of financial institutions. In an unregulated and unenlightened dash for cash, boards have lost a grip on the underlying fundamentals of their business.

This, of course, represents widespread executive failure (though, most frequently, here in the US, it is only the CEO who is a member of the board). What it also reflects, therefore, is a widespread, abject and demoralising failure of due diligence by non-executive directors - who have a duty to ensure the legitimate and long-term ends of an organisation are not compromised by the reckless pursuit of short-term advantage.

As Greenspan now acknowledges, underpricing risk has dire consequences - a point echoed in a leader in the New York Times which warned of a "second epicentre of global crisis" as the prudence of governments in the world's emerging economies "was undone by the private sector's obliviousness to risk".

Almost a year ago, a colleague from the UK who advises private and multi-national companies on their governance told me that, in his opinion, non-executives in some of the world's largest financial institutions had lost a grip on their businesses. I failed to understand the implications of his warning which, put simply, is that de-regulation + absence of authoritative governance = chaos.

Lessons for the NHS

Does any of this have direct relevance for NHS non-executives? Well, it was not so very long ago that Monitor (among others) was admonishing the NHS to adopt the rigour and prudence that characterised governance in the banking and financial sectors. Let us hope that foundation trust and other NHS boards did not follow this advice too literally.

The current global crisis and the demands it will impose on local NHS organisations - alongside re-regulation (that is revised regulation - as opposed to de-regulation) under the auspices of the Care Quality Commission - should provide a powerful stimulus to align the approaches to system regulation and to organisational governance to ensure both go beyond the prescriptive rules-based "ticknology" that has so singularly failed in the private sector and increasingly blighted the NHS.

In other words, regulation and governance should be principle and value based - with regulatory rules kept to the minimum that is consistent with clarity, transparency and effective enforcement in the interests of the protection of the vulnerable.

Rules-based systems throttle governance - which, by its nature, is the application of wisdom to uncertainty. I can foresee no early end to uncertainty. Let us all, non-executives and executives alike, do all we can to ensure that wisdom prevails in the boardrooms of the NHS.