Friday, June 5, 2015

Governance as an Enabling Professional Discipline

Good governance is less about structure and rules than being focused, effective and accountable.

Corporate Governance as a professional discipline has over recent decades been subject to numerous influences. Most boards of directors accept that a soundly based and structured governance document is one of the most significant disciplines and corporate behavior enablers contributing to a company’s success. Gone are the days when a corporate “` Mission Statement “ was viewed as the guiding light in which all corporate wisdom would be asked to worship. Gradually governance as a discipline has been accepted by most professional business practitioners as an enabling vehicle that provides a platform for determining sound corporate behavior and structured decision making.

It needs to be remembered that governance as a discipline is a living breathing entity: As the governance discipline has in the past continually changed its shape and matured, there is no doubt it will continue to do so as the winds of change in the corporate world blow across the business community. It needs to be remembered that governance as a discipline is a living breathing entity that continually requires stroking and attention, otherwise, it will stagnate and lose its ability to be one of the prime enablers contributing to above-average board performance. It presents there is a very real risk that governance as a discipline will begin to lose focus of its prime purpose if it does not address strategically important emerging issues. As a result, it risks being relegated to status to a simple process driven ideology rather than an enabler to address future pressures and provide the structured platform required to meet new challenges required by today’s market.

Governance as a discipline is naturally divisible into various sectoral accountability groups: Some of these groupings are entirely process driven with clearly identifiable boundaries, while others are more judgmental by nature, being influenced by experience and current market conditions, but still being applied within designated boundaries. It's important to accept that governance documents require continual review and refreshing in order to fulfill their purpose as one of the most important strategic enablers available to board members. Chairmen demonstrate their leadership of the board in many ways including being the sponsor and controller of the governance document and as such providing guidance to the directors on the application and accountability of the various factors shaped within the document.

It is important to provide a structured communication bridge between shareholders/ investors and the board: Most current governance documents remain relatively silent on the key issue of shareholder communication. From the growing influence of the shareholder activist groups, this is an issue that won’t go away, and in some cases, it is becoming a festering wound. Some suggest that within the governance document, there should be a highlighted section on how the board manages shareholder communication. Such detail on this extremely important issue will ensure the governance discipline can fulfill its purpose as a high-level corporate enabler by providing a structured communication bridge between shareholders/investors and the board. Naturally, there will need to be discussions with the major shareholders and agreement reached which would certainly take the distrust out of the current argument. In addition, it would cement in place the role of the governance discipline as a high-level enabler towards achieving corporate excellence.

Good governance is less about structure and rules than being focused, effective and accountable: Structures and rules are tools to be focused, effective and accountable, but structure and rules are not good governance in and of themselves. The governance frameworks are needed, but more than anything, you need the right "tone at the top" - a tone which, like the Captain of his/her ship, is able to work the engine (actions) and rudder ( framework) to steer the vessel through choppy waters and reach the desired destination. Furthermore, if any company becomes an amalgamation of processes, eventually they may lose their way. While processes are important, they cannot navigate the course of business. They are simply tools for navigating. In other words, the governance concern is that businesses will lose sight of their prime purpose. While ensuring a company or board has the right framework and governance structure is very important, it is relatively easy to accomplish. The more complex equation is getting the people, culture, accountability, and performance right. In order to thrive, both elements are essential.

The core of the tension with many shareholder-owner relationships seems to come down to 'power.' That hubris and other similar attributes abound in the boardroom don't help either. To define how the board and shareholders should correspond and work together is one thing. To get boards and shareholders to comply is something else. There is a very clear division of labor between the owner, the board, and management. You have to turn your mind to this problem of how to achieve the appropriate tone from the top, at the same time, there are many savvy shareholders who can be extremely valuable to management and the BoD. Therefore, it is in the best interest of boards and shareholders to have collaborative communication. Otherwise, it can be hubris on the board’s part and an example of squandering critical intellectual capital. Therefore, governance as an enabling discipline is a high-level enabler towards achieving corporate excellence.


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