Skip to content

31 May, 2023

Subscribe Advertise About Us
  • My Account
  • Register
  • Log In
  • Log Out

Board Agenda

  • Governance
  • Strategy
  • Risk
  • Ethics
  • News
    • Categories

      • View All
      • Board Moves
    • ESG battle

      ‘Change fiduciary laws’ to end ESG battle in US

      Academics suggest a truce between left and right, based on separating political issues from investment...

    • McDonald's antibiotics News round-up: this week in governance

      Investors challenge McDonald’s over antibiotic use; Norges Bank’s ESG push criticised; diversity box-ticking; revolt at...

    • boost audit Corporate governance code review boosts internal controls

      UK watchdog’s proposals include giving audit committees greater reporting responsibilities and addressing ‘overboarding’.

  • Insight
    • Categories

      • View all
      • Governance
      • Strategy
      • Risk
      • Ethics
      • Board Expertise
      • finance
      • Technology
    • Climate finance

      How climate change alters the financial landscape

      To achieve sustainability, companies and boards will need to look not only to their operations,...

    • generative AI

      Five AI issues to consider right now

      We may not know what AI will mean for us all in the long term,...

    • sexual misconduct

      How to prevent sexual misconduct in your organisation

      Revelations about the CBI may be shocking, but there is no place for complacency and...

  • Comment
      • View all
    • hybrid AGM

      Hybrid AGMs maximise shareholder participation

      Avoid virtual-only annual general meetings: although pragmatic in an emergency, they water down shareholders’ rights.

    • ESG break up ESG: Should E and S break up with G?

      In the world of investing, maturity has revealed significant practical shortcomings in combining environmental, social...

    • controlling shareholders The politics and geopolitics of controlling shareholders

      Shareholders with a controlling interest influence not only financial matters but can also wield great...

  • Interviews
      • View All Interviews
      • Podcasts
      • Webinars
    • information resilience IT transformation sees boards moving to ‘continuous’ management

      Data analytics available on demand requires a resilient—and selective—approach to sharing information, a webinar panel...

    • life sciences podcast Reform of NHS levy ‘harms UK competitiveness’

      Boards in the pharmaceutical and life sciences sector face increasingly difficult decisions, according to a...

    • Board priorities 2023 Board priorities 2023: tact, trust and transparency

      We asked key figures what would help boards this year. The answers ranged from 'smarter...

  • Careers
      • View all
      • Selection
      • Board Moves
    • board survey 2023 Board appointments fell sharply in 2022

      Companies appear to be sticking with experienced leaders—to the detriment of progress—suggests FTSE 350 boardroom...

    • diversity statistics Diversity statistics challenged by new scorecard

      Companies can ‘hit the target, but miss the point’, say academics researching a more ‘holistic’...

    • CEO turnover CEO turnover rises steeply

      The researchers say political changes and business difficulties may have accelerated turnover, which has risen...

  • Resource Centre
      • White Paper Downloads
      • Book Reviews
      • Corporate & Advisory Services
    • Mazars c-suite 2023

      Mazars C-suite barometer 2023

      The Mazars C-suite barometer is based on responses from more than 800 C-suite executives from...

    • CFO Career Survey Report

      Our survey, in December 2022, of almost 200 CFOs across the public, private and non-profit...

    • The Engagement Appeal: The Path to Inclusive Investor Engagement

      The Engagement Appeal: The Path to Inclusive Investor Engagement

      The Path to Inclusive Investor Engagement highlights the need for greater engagement between companies and...

  • Events
  • Search by topic
    • Governance
    • Strategy
    • Risk
    • Ethics
    • Regulation
    • ESG
    • Investor Relations
    • Selection
    • Board Expertise
    • finance
    • Technology

Governance concerns the whole organisation, not just the board

by Estelle Clark

The 2017 Good Governance Report paints a positive picture of the quality of boardroom decisions in our largest organisations, but the focus must now turn to ensuring that the writ of the board is driven down through the organisation.

good governance, corporate governance

Image: pichetw / Shutterstock

The Institute of Directors’ 2017 Good Governance Report is positive news for the FTSE100. The quality of governance, based on traditional key indicators such as audit and risk, board effectiveness, remuneration and reward, is excellent and speaks to the serious and professional approach that our most high-profile companies have taken.

The Good Governance Report is evolving, just as society’s ideas of what constitutes good governance is changing.

However, the Good Governance Report is evolving, just as society’s ideas of what constitutes good governance is changing. Increasingly we are moving away from the narrow definition of financial performance towards a broader definition that takes into account an organisation’s impact on all its stakeholders.

Yes, there are very few companies who now have a joint chairman and chief executive role, and the audit and remuneration meets regularly, but governance is about much more than that.

Key questions

I believe the issue of operational governance is becomingly increasingly critical and in this area there is still much work to do. The key questions we need to answer are: How can the board ensure that its writ runs through the entire organisation? How can we ensure that operational divisions, joint ventures and, crucially, the supply chain, understands what the board wants and is operating in accordance with the rules set down at the highest levels of an organisation?

It is not enough for the board to assume that its instruction runs through an organisation or that its employees across the world understand what it wants.

To address the issue of operational governance, the 2017 report includes a number of key indicators that relate to the ability of organisations to take the aims and ambitions of the board down into the body of the organisation. Specifically, the report asks whether a company is signatory to the UN Global Compact and the Prompt Payment Code, for example.

Faults occur when decisions made at board level are not effectively translated into the operation of a business…

But, important as these are, operational governance is about much more. Faults occur when decisions made at board level are not effectively translated into the operation of a business, or where the decisions that are made are left open to interpretation.

Nobody can tell me that the board of directors at Tesco instructed their buyers to purchase horse-meat burgers, or that the most senior people at Bell Pottinger encouraged one of their account teams to incite racial division in South Africa.

These are clear failures of operational governance, made out of sight of the board, but which have had enormous impact on the organisation, its employees and its shareholders. When the audit and remuneration fails to function, the result is a high-profile spat at the annual general meeting with irate institutional shareholders. When operational governance fails, the results of years or even decades of hard reputation-building work can disappear in the blink of an eye, and the knock-on commercial effect can be devastating.

It would be easy to think that such things could never happen in your own company. But in any organisation, the danger of “group think” is a very real one. Assume everything is alright, neglect the processes that are crucial to best practice, and complacency can rapidly set in across the organisation. From there, it can be only a matter of time until a major issue arises, whether as a result of a “cock-up” or a “conspiracy”.

Anticipate and adapt

There is a need for boards to anticipate and adapt to avoid these types of crisis from the start. A clear way of doing this is to consider not only what the intended results of an instruction could be, but also the unintended results. This is something that is done as a matter of course in the development of new products and services, but can be neglected in the case of strategy development and direction.

In my role at Lloyd’s Register, for instance, we took a very practical approach to this issue. Having worked out what could go wrong from an ethical and reputational standpoint, the resultant communication would include both the intended action and the way in which the instruction shouldn’t be interpreted—in very basic terms what we did and did not want to happen. It sounds like common sense, but this type of check could have prevented some of the most-high profile scandals in recent times.

Operational governance is about how directors and executive teams convey their aims and ambitions across the broader organisation…

All of this makes the role of operational governance crucial. It’s about how directors and executive teams convey their aims and ambitions across the broader organisation—the bridge between the people who set strategy and those who turn it into reality. Without it, the organisation cannot understand what the board needs from it, and so cannot deliver and provide feedback to the board on the results achieved.

In short, operational governance ensures the board’s intent is realised correctly. What is vital is for decision-makers to be clear about their intent, to ensure the organisation interprets that intent, then delivers it; and finally for decision-makers to know what is being delivered and that it will achieve the desired outcomes.

As executive and non-executive directors, it is our role to ensure that the checks are in place to ensure governance decisions and policy are implemented, because if we don’t, the implications for business and society can be catastrophic.

Estelle Clark is director of policy at the Chartered Quality Institute; a non-executive director of Riversimple, the hydrogen fuel cell eco-car company; and a member of the Governance Advisory Panel at the Institute of Directors.

  • Facebook
  • Twitter
  • Google+
  • LinkedIn
  • Mail

Related Posts

  • Ann-marie Murphy joins The Gym Group board
    April 22, 2022
    The Gym Group logo

    Murphy joined the company in April 2018 as director of people and development, and became chief operating officer earlier this year.

  • Good governance relies on gut instinct, not just rules
    November 1, 2021
    Businessman holding image of a stomach

    The DNA of companies varies significantly. This would suggest that there are many criteria of good governance.

  • Nokia appoints three new non-executive directors to the board
    April 13, 2022
    Nokia logo on building in Espoo, Finland

    Lisa Hook, Thomas Saueressig and Kai Öistämö have been elected to the Nokia board following the company AGM last week.

  • Rio Tinto names Dominic Barton as next chair of the board
    December 22, 2021
    Rio Tinto

    Barton has been Canada’s ambassador to China since 2019 and is a former global managing partner at McKinsey.

For thoughtful journalism, expert insights on corporate governance and an extensive library of reports, guides and tools to help boards and directors navigate the complexities of their roles, subscribe to Board Agenda

2017 Good Governance Report, Chartered Quality Institute, corporate governance, Estelle Clark, FTSE100, good governance, Institute of Directors

Search


Sign up to our Newsletter

Receive independent news, thoughtful journalism & expert insights about leadership, corporate governance & key boardroom issues straight to your inbox every week.

SIGN UP

Follow Us

 

 

 

 

Most Popular

  • Corporate governance code review boosts internal controls
  • News round-up: this week in governance
  • New audit committee standards finalised
  • ESG: Should E and S break up with G?
  • Dual class shares have become ‘dual class stock lite’

Featured Partner Profile

Diligent

Diligent

Diligent Corporation, which was founded in 2001, is headquartered in New York, NY with a European HQ in London. Diligent’s modern governance platform empowers leaders and teams at every level of the organisation to digitally transform and create ...

Featured Partner Resources

The Engagement Appeal: The Path to Inclusive Investor Engagement

The Engagement Appeal: The Path to Inclusive Investor Engagement

This is the inaugural white paper from The Engagem...

Stakeholder Engagement: A Roadmap for UK Plc Boards

This guide aims to provide directors and their col...

Digital Boards: How Technology Adoption is Driving Culture Change and Resiliency

Digital tools proved their worth to boards during ...
Leadership in AI report

Leadership in AI

This report from Board Agenda and Mazars, in assoc...
Director's Guide to Internal Investigations

A Director's Guide to Conducting Internal Investigations

An internal investigation must be handled meticulo...
 

ADVERTISE – FREE CORPORATE LISTING

FREE - Add your company profile to our Corporate & Advisory Directory.
ADD

ADVERTISE – PROMOTE YOUR REPORTS & WHITEPAPERS

FREE - Add your company profile to our Corporate & Advisory Directory.
Add Resource

Register Free

Register to receive free article views, selected resource downloads, and all the latest news alerts straight to your inbox. Register


  • Editors & Contributors
  • Editorial Advisory Board
  • Corporate & Advisory Services
  • Media Marketing Solutions
  • Contact Us
  • Careers
  • Board Director Network
  • Terms & Conditions
  • Privacy Policy
  • Cookies
  • Sitemap
|