Sunday, September 13, 2020

Corporate Governance Clarity and Disciplines

Governance is indeed about how well an organization is being run and if set upright, it should effectively oversee the achievement of the vision, mission, and objectives.

The business environment today becomes more dynamic and uncertain than ever, governance ensures business effectiveness by enforcing accountability and collaboration. The more diverse, the more regulated, the more geographically dispersed an organization is or becomes, the more important an integrated or federated governance discipline should be. 

In fact, governance needs to be the frequent conversation of top leadership teams such as corporate board and C-level. Taking part in governance discipline should be seen as a leadership style and effective tactics to achieve high-performance business results. The challenge in this discussion includes:

Governance vs. Management: There are varying degrees of understanding of the concept of governance and there is a distinction between governance and management. Corporate management is an overarching concept covering multiple disciplines such as strategy management, change management, information management, people management, or performance management, etc. Corporate governance needs to have direct links to each business management discipline and its processes to make sure that management is doing its job properly. It’s the act of guiding, influencing, and regulating the decisions and behaviors of the entire workforce, management included, to drive sustainable value-creation to the shareholders in a structural way.

Effective governance facilitates the successful functioning of an organization and ensures boundaries are appropriately set and adhered to and there are adequate controls in place to operate responsibly in accordance with its values, but not to the extent of restricting the aspiration to achieve its vision. Among executives in the company, if using the word "governance" in conversation, the mental model that they refer to should include the process for developing a strategy and creating the plans to execute on it.

The corporate board's role is to pull management out of the trees to see the forest by enforcing governance disciplines. Setting policies is the co-responsibility of the governance body and management team. Implementing policy is a management activity, and monitoring policy compliance is a governance activity. The distinction between these activities is essential to understanding the difference between management and governance, make them work collaboratively, with the goal to achieve high performance of the business.

The scope of corporate governance: Governance provides monitoring, measuring, and enforcement mechanisms to corporate management. The more complex contemporary organizations become, the broader scope of corporate governance turns to be. There is no standard model for corporate governance because the context for corporate governance includes a wide range of circumstances and capabilities which are subject to constant organizational variability. There are varying degrees of understanding of the scope of corporate governance such as governance framework, principle, structure, process, mechanism, practice, and metrics, etc,

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. When the management responsibilities keep evolving for adapting to the business dynamic, the governance structure, process, or practices should also make adjustments accordingly around the areas such as Operation, Sourcing, Vendor Management, and Control, Organization Structure, Learning, Leadership Development, Data, Process, Architecture, Security and Compliance, etc.

There are varying ways in which governance operates: Corporate governance is where resources are allocated to turning the strategy into a reality, from “as is” into “to be” state of the company. At the board level, how governance operates depends on whether the corporate governance entity is explicit or implicit, and whether it is fulfilled by all executive directors, or non-executive directors, or a mix. Technically, there should be a governance mechanism embedded in all crucial business processes, and there are governance practices to enforce accountability at every level of the organization. There are varying governance activities such as delegation of authority, auditing, strategy monitoring, etc.

Governance is about enforcing decision effectiveness, and getting the people, culture, accountability, and performance right. In the simplest terms, governance is who you are and how you do it. Governance mechanisms can be embedded in the myriad day-to-day decisions and behaviors taking place at all levels of the entire organization, and then, governance is about guiding and regulating those decisions and behaviors to serve the fundamental purpose for which the organization was created in the first place. The best practice of governance takes a value-creation approach.

The digital environment is constantly changing forcing the business to keep adjusting accordingly. In fact, today’s organization has become much more dynamic, informative, hyperconnected, and interdependent. Governance is indeed about how well an organization is being run and if set upright, it should effectively oversee the achievement of the vision, mission, and objectives. Needless to say, effective governance leads to effective management and reaches a high level of organizational maturity.


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