Best in class Governance as a business imperative

Dr Margaret Cullen, Independent Non-Executive Director, valid8Me.

Corporate governance, the system by which companies are directed and controlled, can often be misunderstood and/or misrepresented as a compliance exercise with a focus on conformance. The terms “system” “directed” and “controlled” are important to allow a full understanding of what corporate governance is all about and necessary for any company to work towards being best in class.

Regardless of corporate context (listed, large private, SME etc.) and indeed industry (technology, pharma, financial services), the board of a company must ensure that the governance system and processes exist to design and execute a strategy that (i) reflects company purpose,  (ii) is consistent with an agreed risk appetite, (iii) is compliant with the company’s license to operate and (iv) is executed within a framework of strong, tested internal controls.

This involves clarity of purpose and a robust approach to strategy setting, strategy execution by management, and strategy oversight by the board. It also involves:

·       understanding the risks inherent in strategy execution,

·       agreeing the risk parameters,

·       creating an appropriate risk-taking culture and managing the inherent risks through a robust system of internal controls via policies and related procedures,

·       understanding the legal and (if applicable) regulatory context within which the company operates and integrating a compliance culture into the business to ensure the company is always compliant with its license to operate.

The board must create accountability in the boardroom as to the efficacy of this system of internal governance and have strong, dependable sources of assurance in relation to strategy execution, risk appetite/management, the system of internal controls and compliance.

Start-up context

One of the advantages of being a start-up organization is the capacity to design a corporate governance system commensurate with context almost on a blank page. From board composition to articulation of company purpose to designing the system of internal governance to policy setting to agreeing corporate strategy/risk appetite, the non-linear system of governance is created.

It is an excellent opportunity to get it right from the start and to keep it right.

The board must ensure that strategic ambitions do not get ahead of the capacity of the company’s internal governance framework. As business grows, the juxtaposition between revenue and resources is both a fundamental governance challenge and opportunity that must be managed closely by the board.

Getting out of the blocks with a philosophy of doing things right will stand a company in good stead as it will feed into their approach to client acquisition and subsequent service.

The corporate governance system must be agile and evolve not only with business growth but in response to stakeholder expectations, evolving best practice, risk trends (e.g., cyber threat sophistication) and regulatory changes, amongst other things.

Company characteristics

Every organisation has unique characteristics and these characteristics, including who the company’s key stakeholders are, must be reflected in the system of governance. Creating accountability in the boardroom is necessary for any company but the stakeholders outside of the company to whom the board and management are accountable will of course vary by corporate context. Understanding who those stakeholders are along with their expectations of your company is critical to success.

If you have corporate customers or clients, their expectations of your company should reflect their own system of corporate governance.

If you are providing a product and/or becoming an outsourced service provider, you become an extension of your client’s governance echo system. In the evolving world of ESG and related regulatory responsibilities and accountabilities, this fact is becoming increasingly pertinent and will be reflected in the due diligence processes of your clients.

All companies should position their approach to best-in-class corporate governance, along with the agility to evolve with business growth, as a core value proposition. Recognise where you fit within your clients’ governance echo-system (performance and conformance).

Understand their business and related risks and how you can provide assurance that your product or service is consistent with their strategy, culture, and related risk appetite. This reciprocity in governance understanding protects everyone and allows well intentioned companies to thrive and survive.

That, after all, is what corporate governance is about.

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