Corporate governance is at the heart of an organisation’s long-term sustainability. It holds together performance and purpose, aspirations and accountability, objectives and outcomes.
Over and above compliance with legal requirements, effective corporate governance establishes consistent policies for managing key social, environmental and ethical issues.
At RSM, we’ve been advising boards and organisations on effective corporate governance and good decision making for many years. We have a four-part method that reflects the various corporate governance codes now in place:
- Compliance and risk
- Oversight and behaviour
- Ethics and transparency
- Purpose and impact
The Governance initiatives often include a compliance element designed to hold organisations and their boards to account for decisions and actions, so it is vital that governance codes are not treated as a ‘tick the box’ exercise.
Effective corporate governance is not achieved just by putting measures in place – the measures must also be assessed to ensure they truly promote integrity and improve corporate culture.
In this regard, the role of the board is twofold. It has to:
- set the tone by conducting itself within the spirit of the governance code being adopted; and
- monitor whether the right behaviours are being displayed throughout the organisation.
All boards should be equipped with the tools they need to exercise their right to challenge senior leadership decisions and effect both cultural and behavioural shifts were necessary.
Without a sustainable corporate governance framework, people can act for their own reasons and without considering the consequences for the wider organisation. A clear and honest approach to people management and doing business will earn the respect and loyalty of stakeholders and employees alike.
- Compliance and risk
- Oversight and behaviour
- Purpose and impact
- Ethics and transparency
Compliance and risk
Compliance and risk
Oversight and behaviour
Oversight and behaviour
- each year, undertake a thorough and reliable annual evaluation of their effectiveness; and
- every three years, seek externally facilitated, independent, professional support to identify areas for improvement.
Purpose and impact
Purpose and impact
‘Purpose driven and stakeholder impact’
The board and the workforce should have a shared culture and work together to reach a common goal. In other words, they should be purpose driven.
To understand the impact of their approach to effective corporate governance, and to direct the executive team effectively, boards need to know who and what they are influencing. We outline some of the numerous stakeholder groups below and highlight core considerations for boards:
Workforce
Does the workforce feel engaged, listened to, and happy to work for their employer? New demographics entering the workforce will now often have higher expectations in terms of the characteristics of the business they work for, the impact that business has on society and how they conduct business.
Customers and the public
Does the general public feel that the organisation is delivering on its promises? Does the organisation enjoy brand loyalty from its customers?
Community
Does the organisation positively contribute to the communities it operates in, and does it have a formal corporate social responsibility plan?
Suppliers
Are payments made in reasonable time to secure sustainable relationships?
Recruitment
Are there any indicators in the recruitment process that the approach provides equal opportunity for all?
By mapping stakeholder and influencer relationships, boards can break down the type of engagement and activity that each stakeholder group needs to ensure effective governance.