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.
Boards should see the plethora of laws, regulations, standards and codes around the topic of corporate governance as a ‘box of tools’ intended to help organizations identify best practices which should improve their governance. Deciding ‘what’ best practices should be adopted and ‘why’ is, however, only part of the governance equation. Practitioners in governance have realized that ‘how’ these best practices are implemented and maintained effectively in an organization creates true governance and the benefits which are associated with it. True governance re-volves around how the Board of Directors operationalize the infrastructure of structures, policies and procedures which they have put in place. If the infrastructure is appropriate for the organization, people are focused and work well together, resources are used effectively, information flows so decisions are also made effectively all leading to a successful sustainable organization. If the infrastructure is not appropriate for the organization, then the anticipated ‘cultures’ will not be developed. Those within the organization will develop their own cultures which as they are not being managed often leads to bad practices, such as, failure to follow policies, the misuse of resources, breakdown of important relationships etc. This in turn threatens the performance and long-term sustainability of the organization.
Since no two organizations are the same, there is no ‘one size fits all’ corporate governance solution. Boards, therefore, have to consider which best practices to adopt to help their organizations to develop sustainably and create better performance and increased value. This requires organizations to have the capacity within them to recognize which practices should be adopted at what stage of their development. This has been lacking and has led to either an avoidance of corporate governance best practices or the bland adoption of inappropriate practices. It has also led to a belief by many entrepreneurs and senior executives that corporate governance is costly bureaucratic and something to be avoided.
Author: Mrs. Alison Dillion Kibirige is an affiliate of the Caribbean Corporate Governance Institute. She is a global expert on Corporate Governance. Alison has worked globally for over 25 years as a governance professional, previously as Secretary in several SMEs. Alison has also been involved in numerous consultations with governments, regulators and industry and professional bodies in Africa, Europe and the US.