Corporate governance — forging a new standard and a new mindset
Corporate governance — forging a new standard and a new mindset
Stakeholders are gradually adjusting their expectations of how governance and the role of boards of directors should look — as a leader, you’re expected to be more involved, informed, and accountable than ever before.
Your primary responsibilities as a board member include oversight of:
- Organizational strategy
- Workplace culture
- The “E” and “S” aspects of ESG
- Business relationships and partnerships
- And more
Your responsibilities can seem overwhelming, but as you divide labour, delegate efficiently, and surround yourself with the proper expertise, you can shift your mindset on governance and adopt more effective governance practices.
While it’s true that governance — the “G” in ESG — doesn’t always garner the same media attention as environmental issues such as climate change or social issues such as pay equity, governance is often the primary driver of an organization’s performance. In fact, the news stories we see about organizational downfalls are almost always stories about a lack of governance best practices, even if they don’t mention it explicitly.
Whether you’re a director, business owner, executive, or other organizational leader, you need to be open to shifting your mindset on your governance practices.
The new expectations of governance
Stakeholders are gradually adjusting their expectations of how governance and the role of boards of directors should look— the prevailing norms that dictated your behaviour in past decades may not be sufficient now.
Today’s boards of directors need to take a more hands-on approach to ensure that their organizations are adopting the right strategy and that the strategy is being successfully executed. They also need to take the lead in overseeing the “E” and “S” elements of ESG.
Even today, governance is still too often centred around “checking boxes” pertaining to environmental compliance, social policies, organizational culture, strategic planning, and other items that fall under the purview of executives and board members.
You must always be forward-thinking, looking through the windshield rather than the rear-view mirror.
Here are some examples of questions you can ask during your leadership meetings:
- What role will our board of directors play in the organization’s strategic priorities?
- Do our board members and top executives understand the organization’s current ESG priorities and related metrics?
- What expectations do our team members, customers, and stakeholders have around reporting and transparency? How should we communicate with them?
- What risks will our organization take on if we take too much of a “hands-off” approach to governance?
Historically, boards of directors have been responsible for hiring and firing the CEO and approving the strategy as it gets presented to them. Today’s board members face a higher standard of getting to know the management team and understanding what they’re doing. As time passes, even those far removed from the day-to-day operations will find it harder to claim ignorance or downplay their responsibility if things in the organization go awry.
Get clarity on today’s most pressing issues
The benefits of strong governance practices
Governance best practices can vary between different organizations and industries. But many indicators of good or bad governance are remarkably consistent wherever you look.
Below are some indicators that can help you assess the quality of leadership of oversight in your organization:
- Employee retention: Strong governance practices usually lead to improved organizational culture, which is one of the primary factors contributing to team members leaving or staying.
- Customer and vendor satisfaction: Successfully building the confidence and trust of your stakeholders is an indicator that board members and executives are focused on the “G” in ESG. You can look to key metrics like your Net Promoter Score as indicators of the quality of governance.
- Quality of products and services: If you see a higher rate of manufactured products being returned, service requests being cancelled, or customer needs otherwise being unmet, your governance practices are one of the first things you should scrutinize as a cause, or at least a contributor, to that trend.
- Handling of complaints and reports to management: A final indicator of how well your governance practices are working is how your organization responds to internal reports and whistleblowers — ensuring your team members have the tools and confidence to be heard, they’re treated fairly, and that their concerns are quickly addressed, almost always starts from the top.
What it looks like in action
Our firm has dealt with many organizations whose commitment to governance is inspiring and instilled in their leadership team.
Some habits are as simple as ensuring every board meeting is an opportunity to socialize and mingle with the executive team. For example, it could be a dinner the night before or another team-building exercise. This helps fulfil the expectation that your board will become better acquainted with your executive team.
When the CEO or another executive does give your board members a presentation, don’t simply take the information at face value and send them on their way.
Ask specifically about their goals and approach to the “environmental” and “social” aspects of ESG.
Invest in training your board members and top decision-makers on Equity, Diversity, and Inclusion (EDI) items. Involve them in scenario planning and business resiliency planning when appropriate so your organization is sheltered against future risks.
Boards of directors that form special committees to look more deeply at certain priorities or areas of concern are also more likely to spot opportunities quickly or diagnose problems before they get out of hand. This division of labour can improve your organization’s risk profile and agility.
Getting started
If fulfilling all your governance responsibilities as we’ve described them seems overwhelming, know that you’re not alone. A positive first step is to start thinking about how your organization can raise its governance standards and be willing to change your mindset towards best practices. Making small changes always feels manageable if you make governance a priority.
You also don’t need to take your journey alone. A qualified ESG advisor can walk you through what you’re already doing well and what you need to prioritize in the domain of governance.
Contact us
To learn more, contact:
Mary Larson, MBA, ICD.D, Partner
[email protected]
514.228.7905
Kevin Joy, MBA, Partner
[email protected]
514.228.7898
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