Governance... more than just oil in the machine?
What is corporate governance?
According to Jean-Paul Page, author of the CFA Institute’s comprehensive handbook on “Corporate Governance and Value Creation” published in 2005, corporate governance encompasses all activities associated with exercising power, sharing rights and responsibilities, and organising the various functions of a company. He broader defined the function as follows:
“Corporate governance consists of the legal, contractual, and implicit frameworks that define the exercise of power within a company, that influence decision making, that allow the stakeholders to assume their responsibilities, and that ensure that their rights and privileges are respected.”
Recognising the wider impact of corporate governance is the first step in transforming the function from mere obligation and compliance with norms, laws and listing standards, to a value add for the business. According to Peter Swabey, Policy and Research Director at The Chartered Governance Institute UK & Ireland (formerly ICSA), organisations often conflate governance with bureaucracy. So, he believes that the key role of modern company secretaries is to raise their reputation and influence across organisations by demonstrating their true value to the business.
Many still see governance as a ‘neutral’ role, a sort of invisible, default activity that only becomes overly apparent in its absence. Bad governance, and/or the lack of it, can make news for all the wrong reasons. Good governance, on the other hand, is like the oil in the machine - it ensures everything runs smoothly and nothing blows up. It’s a defensive role - preventative medicine for the organisation.
But, what if there’s more to it than that...
Let’s look at some examples of when governance can create positive value, rather than defensive value. As Peter reminds us:
“... the need to focus on strategy, governance and leadership has increased and is increasing.”
Business strategy, governance, and the evolving role of company secretaries
Strategy, or rather strategies. An organisation will have many. A strategy for growth, a strategy for diversification of offerings, a strategy for digital transformation, a strategy for employee equality, a strategy for environmental benefits, and a resilience strategy, to name a few. These strategies could include acquisitions or disposals of assets, recruitment practices, technology implementations, and supply line audits. Each of these sub-strategies ‘should’ align with the organisation’s overall strategy. And most importantly, the means by which these strategies are implemented ‘should’, ideally, support the other sub-strategies. Or, at the very least, not hinder them. So what does this mean in practice?
As an example, poor governance might allow for a short-term growth strategy to work at the expense of the environmental strategy. This then creates a liability that can pretty quickly undo any positive progress made in the first place.
In contrast, good governance might approve a growth strategy that offsets the impact on the environment, satisfying both criteria and achieving a ‘neutral impact’ in the process.
Great governance will always endeavour to create multiple wins and take the lead to achieve them. Going back to our green example, a company secretary might propose a growth strategy to partner with an environmental charity, the aim of which is to add additional value to all parties involved, and to have a net positive impact. This ability to spot any potential strategic opportunties is one of the fundamental advantages of the company secretary function.
The sales director will focus on sales. The HR director will focus on HR. The Comms director may have environmental impact on their remit. Each one of these functions will be quite narrowly focused on its roles and outcomes.
A company secretary, who’s also responsible for ensuring governance across the organisation, usually has the ability to engage with all of these departments. Indeed they have to in order to ensure compliance within each.
By having an overview of the desired outcomes for each department, and a unique perception of how the different departments interact with each other, the company secretary is actually in an excellent position to envisage cross-departmental strategies.
They’re also in a distinctly independent and unbiased position, having no preference or leaning towards any particular department.
It starts with an attitude that extends governance from a ‘maintenance and compliance’ role into a more active and dynamic business development role.
As Peter put it,
“We all need to think commercially and use our skills to deliver the company’s strategy whilst still remaining true to our core values.”
For company secretaries, this might be particularly challenging; engage with the organisation on a deeper and broader basis, find and envision those opportunities that benefit the entire organisation, and make those perfect adjustments and improvements to system architecture.
Start small, aim big.