Few would argue against the importance of governance in modern business. The way organisations behave and operate grows ever more important, with enormous fines for businesses that fail to meet compliance targets and potential longer term issues around the viability of the overall brand to consider too.
But what exactly constitutes ‘good’ governance? Governance is an amorphous thing but essentially it requires the right culture, policies and procedures and leadership. Without those qualities, any organisation will struggle to govern itself effectively, but how well are businesses doing on that front? Are senior management teams leading from the front in terms of setting the agenda for the rest of the organisation?
The importance of governance
Governance, and the way businesses are perceived, has become much more prominent over the last decade or so. This is partly because of the changing business, economic and political climate in which we now find ourselves. As a result of the 2008 financial crisis, governments all over the world set up review programmes to look at why it had occurred and what could be done to prevent it happening again.
One such programme in the UK was headed up by the economist John Kay, and focused mostly on the UK equity markets and how they impact the long-term performance of UK business. The report that was eventually published in 2013 found that the crash at least partially occurred as a result of bad corporate culture, and in particular a lack of personal responsibility.
Such responsibility has to start with the board and senior management of a company – they set the tone for the rest of the organization - but it’s an area where many organisations are coming up short.
A central role for company boards…but where are they?
In April 2017, eShare conducted research with 1,000 UK employees across a variety of different sectors to see how visible and transparent the boards were at the companies in which they worked. The results revealed just how ‘invisible’ many UK boards have become.
39% of respondents were unable to name a single member of the board at the company they work for, while 18% of respondents said their board is barely visible, with a further 17% saying the board is not visible at all. Around seven in 10 respondents said the board at their company could do more to be visible to employees.
31% of respondents said that they do not understand what their company's vision and values are, suggesting that UK organisations need to work much harder at bridging the gap between leadership teams and employees. Around half of those surveyed were in the dark about board decisions, feeling those decisions were not clearly communicated to the rest of the company.
In terms of specific roles within a board, the Chief Executive Officer (CEO) was most visible to UK employees, although only 36% of respondents could name the CEO at their company. The least visible was the Chairperson, with only 8% able to identify that role in their organisation, with 14% able to identify the Chief Information Officer (CIO) and Chief Financial Officer (CFO), and 13% able to identify the Chief Marketing Officer (CMO).
Getting governance on track
Most businesses are better governed than they ever have been, but need to demonstrate this much more effectively. Good governance in 2017 means knowing what you are and why you exist, being a well-run organisation from top to bottom and having the right internal values and behaviours that are perpetuated externally across the world.
This lack of transparency and visibility highlighted in the research means that many boards are failing on some of the elements outlined above. Here’s how to improve matters.
Identify the culture you want – good governance doesn’t just happen. Deciding what your company stands for, what it wants to achieve and the type of company it wants to be is a good place to start.
This will inform the current and future culture of the organisation and encourage good behaviour across employees. eShare was founded with this in mind, but you must also bear in mind to revisit and refine as the company grows – what was effective at one point may not be a few years later.
Policies and procedures – these play a huge role in long-term good governance and culture. We developed our own software to manage procedures when we started out, which helps greatly and gives reassurance we are in control. If people know what behaviours are expected of them and what will happen should they not do so, it helps greatly with governance.
Strong leadership – equally important is the building of a cohesive leadership team, filled by individuals with industry expertise, ethics and integrity, and who must act as a team. The leadership team’s qualities can then permeate throughout the organisation as it grows and expands.
Transparency in decision-making – when the board, or leadership team makes a decision about the future of a company, knowing how that decision was reached and the thinking behind it can reassure internal and external stakeholders that the board has best interests at heart. Consistent communication is the best approach, so after every management meeting, agree what needs to be shared and go share it.
Assign responsibility - ensuring an organisation stays on top of industry-specific regulations and compliance can be a challenge, as can adhering to more general rules of business with Companies House. Governance requires investment, in tools and technology, and resources, in terms of someone to make it happen and remain on top of it. So it’s vital that someone is given the responsibility to make this happen, otherwise it can fall through the cracks.
Two key elements of good governance and a strong corporate culture are the visibility of the leadership team and a strong employee understanding of what that company stands for and is aiming to achieve. UK boards must do more to demonstrate transparency, to engage better with their employees and communicate their vision more effectively. That is what lies at the heart of strong governance.
Alister Esam, CEO, eShare
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