Governance – Not Just about Boards

A McKinsey survey reports that institutional investors are prepared to pay more for a “well governed” company over those recording the same performance but have inferior standards as to the rules of conduct. Mr. Ram Charan talks about “advancing Corporate Governance from Compliance to Competitive Advantage”.

To most of us on the street, when we hear the word 'Governance' what comes to mind are reports of financial misappropriation, fraud, misuse of resources and creative accounting or the various regulatory bodies, government bail-outs and once in a while, of visionaries like Mr. Deepak Parekh, Mr. Narayana Murthy. Inside organizations, it is something which happens behind closed doors in those 'Board Rooms' with CFOs and auditors in attendance carrying spreadsheets and presentations.

Over the last decade a combination of regulatory action, investor activism and media reporting has put focus on Board performance and its role in oversight, advisory and good governance. While some Boards are responding by strengthening Board dynamics & processes for better governance, it may not be enough. A large part of responsibility for building the culture for good governance lies with the executive organization. The Boards investment of time and resources in governance can never bear the desired fruits unless the executive organization also believes in and conducts business and work in a manner that reflects accountability for creating responsible legacy and value.

Good corporate conduct can only be institutionalized when all employees understand that their role is to maximize shareholder value while balancing and respecting the interests of other stakeholders including consumers, suppliers, creditors, employees and the environment. This can only be done when structures, people processes, systems & performance measures promote the right attitude to responsibly delivering business results and stakeholder expectations.

Ultimately it is not just effective Board oversight or regulatory action that can ensure good governance. The secret lies in strengthening the way of work & quality of interactions within organisations. In creating an environment of Openness & Transparency where material information is readily available and where sharing and collaboration is valued, where debate is encouraged to improve quality of decisions & outcomes, where the focus is on performance and on doing the right things for all stakeholders and finally where responsibilities & outcomes are not subordinated or compromised by personal interests.

We are familiar with surveys that are conducted to assess organisation energy & employee engagement in workplaces. Many organization aspire to find a place in the ranks of best places to work and take actions that meet standards of what is defined as best place or great place to work. Is it time now to evaluate organizations not merely in terms of how employee friendly it is but also in terms of how governance effective it is? Whether structures, processes, systems & outcomes achieved by organization reflect bronze, silver, gold or platinum standards of good governance- making it the real indicator of whether the company does good and does well.