The role of a Director in governance is very important as organisations are led from the top. The Board’s approach to governance is usually the one that is reflected through-out the organization. Boards have a responsibility to introduce and maintain a governance infrastructure and monitor the organization’s management to ensure that they operate within it and ensure it is integrated into the culture of the organization. This governance infrastructure includes policies and processes and establishing the strategic direction of an organisation. It also includes introducing and maintaining an effective system of internal controls and risk management.
But what is corporate governance? It is often misunderstood and the term misused. In many parts of the world it has become synonymous with compliance and many organizations, as was evidenced by the 2008 global financial crisis, still see corporate governance as a mere box-ticking exercise against laws, regulations, standards and codes rather than an important tool which if truly embraced can lead to better performing and more sustainable organizations. Many organizations see complying with the letter and not the spirit of laws, regulations, standards and codes as sufficient as seen in the recent ‘tax management’ cases – Starbucks, Apple, Google and Amazon among them. In the Starbucks case, the company actually issued a statement which said that they had done nothing illegal. They had complied with the law, which they had. This response, however, created a backlash from the media who did not seem to care whether what they did was right or wrong in terms of the law but whether it was right or wrong morally. Simply complying with regulations, standards and codes seems to create reputational risk the management of which can create challenges for Boards of Directors. Boards should see governance as ‘Doing the right thing’ which may take them above the letter of the law which after all is a minimum standard.
‘Governance’ also refers to the way in which something is governed and to the function of governing. All organizations, therefore, practise governance. The question for Boards of Directors should be how well they their organization is practising governance. Common sense should tell us if they practise it well their organization should survive and flourish…..