What they look like, and how to be sure you’re on the right track.
When we talk about governance, we are almost always talking about the good side. When everything goes smoothly and everyone works towards the collective good of the company without turning to corruption or deceit, that’s good governance.
Bad governance sometimes happens when the ol’ cardinal sins like pride, greed, or sloth rear their ugly heads - but it’s not always so extreme as that, and reality is always much more complicated than speculation.
Let’s take a dive into six different aspects that characterise good governance, and how bad governance might turn them on their head.
Committing to being disciplined in your governance means, basically, consistently adhering to the rules. The procedures, processes, and authority structures of your business, usually outlined in its bylaws, will define exactly what that means in the context of your company, and those will have been written with global norms in mind.
Having a ‘laissez-fair’ attitude to governance leads to trouble when audits, takeovers, and other paperwork-heavy events take place, and you’ll be left scrambling.
This is your communication. How easy it is for everyone surrounding the company to know what the company is doing. Whether that’s the general public, a parent company, the government, so long as your company is transparent, you’ll be able to avoid being caught out in any embarrassing situations.
Bad transparency causes a web of lies and deceit that can be tough, even destructive, to break from, and can lead to a complete lack of faith from stakeholders.
Independence here doesn’t mean the company operates in a vacuum, but rather that there are mechanisms in place to prevent any conflicts of interest from occurring within the board or management team.
These mechanisms would be thoroughly outlined in the company’s bylaws, and dictate things like the composition of the board, committee appointments, or auditor powers.
If not correctly adhered to, a lack of independence can lead to two or more groups coming into conflict, usually with one person caught in the crossfire, and both groups coming out the lesser for it.
When an individual within a company makes a decision, that decision becomes their responsibility – they are accountable for it.
Accountability comes from outside that individual: from stakeholders, investors, the board, the public, etc. If the decision they made goes south, they are held accountable and can be punished in an appropriate way by those outside forces.
A lack of accountability means that there’s no consequences for a company’s actions and can lead to extremely harmful situations.
The systems of governance within an organisation should be balanced so as to take into account all those who have a stake in the company and its future. By respecting the rights of all groups within their stakeholders and giving each of their opinions equal consideration, the company creates a fair and balanced environment.
Without this, some demographics within the stakeholders might be given an unfair advantage in some way, or incidences of things like societal discrimination might occur. This leads to problems similar to those seen from a lack of transparency, where the company will lose the faith of many of its stakeholders.
Responsibility comes in a few forms, but primarily it boils down to a combination of accountability, fairness, and duty – systems of governance that direct the company towards its goal, allow for corrective action, and deter mismanagement.
Knowing your company’s responsibilities and codifying them within your governance should always be one of the board’s top priorities. Responsible governance encompasses all the above points, and adhering to these will undoubtedly improve your company’s reputation and productivity.