The corporate obligation for good corporate governance of an entity is significant due to the ability to improve corporate performance and extensive due to the sheer volume of governance components that must be implemented, executed, monitored, and automated.
On top of that, safeguarding the stakeholder interests requires a clear understanding, commitment to fulfilling the requirements, and understanding of the principles and practices of good governance. Unfortunately, many organisations continue to take the checklist approach, often resulting in check-the-box exercises to ensure governance compliance without creating value.
Environmental, social and governance factors have increasingly gained importance in business due to growing awareness among consumers, investors, regulators and society.
Therefore, directors and senior management must zoom in on their “G” and respond appropriately with concerns on the governance trends defining 2023 and beyond on the correct implementation of ESG criteria.
Make plans to develop and operate sustainable supply chains that support good jobs and inclusive growth while producing sustainable products and services essential to achieving a net-zero, climate-ready world.
The plan should further retool the supply chains to create products that meet the highest socially and environmentally responsible production standards for vendors and suppliers to upgrade their operations to compete in an agile, digital and sustainable world.
At the Global Corporate Culture Day on the 19th of October 2023, we address the ten pillars of good governance as structured guidance for governance accountability, transparency, assurance, integrity, leadership, and stakeholder management.
1. Accountability and responsibility
The Corporate Governance Institute recommendations make management accountable.Corporate governance sets clear rules on the organisation’s structure and accountability. For example, the board must present an accurate and unbiased company position. This creates transparency through accountability and clear disclosures and reporting systems that highlight areas for improvement.
Solution: Boards of directors and senior management must identify the specific interests of each stakeholder—customers, workers, suppliers, communities, shareholders and others—determining their values, strategy and the general direction of the company. Allocate a dedicated owner of each component and hold them accountable. Communicate this responsibility as a sign of recognition toward all stakeholders since the company’s operation influences them in one way or another.
2. CSR/ESG Sustainability
The Corporate Governance Institute also guides bribery, anti-corruption, fraud, ‘gift’ restrictions, and CSR/ESG in the corporate governance social responsibility and governance guidelines.
Solution: Work with leading brands and retailers to retool their supply chains to create products that meet the highest socially and environmentally responsible production standards while supporting thousands of suppliers to upgrade their operations to compete in an agile, digital and sustainable world.
3. Corporate Culture, Ethics, and Integrity
As part of the guidance on improving cross-cultural management and promoting inclusion, ethnicity, equality, etc.
Solution: The Corporate Governance Institute guides to attract and safeguard talent and rewards;
- Are employees paid and rewarded for their efforts?
- Is work-life balance and a work-late culture in the organisation acceptable?
- Is succession planning in place?
Ask the questions to avoid high turnover and ensure that training, awareness, and related governance and compliance issues occur.
The Corporate Culture guidance includes ethnicity, diversity, bullying, sexism, or inappropriate behaviour/use of work equipment with strict discipline, punishments, or consequences.
4. Management is effective and efficient.
Corporate governance components improve economic efficiency by holding the administration accountable. Management decisions go through an assessment and approval process that is critiqued and analysed, reducing the number of bad decisions a firm makes.
Solution: Implement a compelling and actionable corporate government codex that can look at the impact of its business on the environment and its stakeholders, which is a current factor of success and measure the performance. Not only does the economic value of the company matter, but also the coherence among its actions, values, and purpose of the time, resources and skills that reinforce board and senior management performance.
Stock-listed companies have additional governance policies that give investors greater insight into the company’s functions. Compliance with policies can demonstrate how decisions are made, showing investors’ confidence that the company is effectively and efficiently run and can document and demonstrate good governance.
Solution: Board performance evaluations represent an opportunity to improve effectiveness and strengthen corporate governance because they help identify strengths and weaknesses and demonstrate a commitment to continuous improvement. These evaluations also promote good leadership by reviewing the board’s structure, dynamics and decision-making processes while favouring stakeholders’ trust. Self-evaluation is the most common way established by boards to evaluate their performance. However, companies can also consider getting an external evaluation from a third party to help improve objectivity.
6. The rule of law
The comply or explain component ensures that the board of directors are accountable for explaining decisions they have made which are non-compliant or have gone wrong and identifying and addressing the risks to make objective decisions.
Solution: The growing compliance demands from oversight authorities, regulators, investors, and consumers impact the companies’ profitability and financial results if the compliance component is not committed to ESG criteria. Prioritise this issue strategically to mitigate risks and position the business as a successful and sustainable corporation. Communicate and disclose sustainable actions with clear agendas and measure the effectiveness of their results so these practices go beyond marketing.
7. Stakeholder management
Corporate governance enhances investor confidence and creates a framework by which the business functions and addresses conflict-of-interest issues. As a result, the stakeholders and investors have trust and confidence in the board and management.
Solution: Identify all stakeholders that helped the business. Build integrated strategies for customers, competitors, corporations, oversight authorities, civil society and government. Communicate, involve and engage the stakeholders at multiple levels for good relationships, maximum collaboration and business advantage.
Clear responsibilities identify the individuals who make bad decisions that affect the whole company without hiding behind the corporate mask.
Solution: The stewardship decisions are based on diversity criteria, such as gender, nationality, age, disability, ethnicity and even race. In allocating the stewardship responsibilities, emphasise the value of diversity across the organisation and allow them different perspectives and experiences to make better decisions. In addition, diversity contributes to more incredible innovation, creativity and flexibility.
9. Sustainability and how to minimise waste
The Corporate Governance Institute guidelines protect integrity and eliminate fraud and corruption. In addition, the procedures help reduce waste and processes that limit utility expenses. Admit that the growing demands from regulators, investors and consumers impact companies’ profitability to be able to commit to ESG criteria.
Solution: to avoid a reduction in profits and performance, identify and prioritise the issues that strategically mitigate risks. Position the business successfully in sustainability and emphasise sustainable actions with a clear agenda. Measure the effectiveness of the sustainability results so that these practices go beyond marketing.
Having effective corporate governance, capable of watching the business impact on the environment with success factors, the economic value of the company’s coherence to actions, values, and purpose.
Applicability and appropriateness of transparency is the basic principle of corporate governance. In the long run, transparency creates a constructive relationship between stakeholders and participation in qualitative and quantitative corporate performance. In addition, corporate governance improves transparency and accountability for better decisions that the shares are priced appropriately.
Solution: To get started, transparency across the processes, organisation and disclosures requires that the management is independent and that senior executives do not have commercial or personal relationships that could compromise their impartiality. Implementing true transparency will allow the business to develop a broader vision of the business and improve the organisation’s communication. It is essential to periodically evaluate the consequences of transparency on 3-5 Corporate Governance components annually.
Based on the above ten Corporate Governance pillars of ESG and Sustainability, we must create a roadmap and framework that sets the operational and decision-making foundation. The Corporate Governance framework will form the basis of the governance oversight to administer the actions and decisions of the board, hold management accountable, identify liability for poor choices, and clarify the limits and delegation of authority and the appropriate approval flow in the organisation.
Therefore, drop the checklist approach and structure the corporate governance execution from the governance committee’s charter and composition to implement the pillars to ensure performance and targets to be competitive, operational, reputational, new business opportunities, or regulatory changes.
For further guidance, participate in the annual Global Corporate Culture Day on the 19th of October, 2023. Register here.