“No Surprises” – The Essence of Corporate Governance

This blog is derived from a keynote I presented at a client’s seminar on Listing on the Stock Exchange. I was asked to address Corporate Governance.

Corporate Governance starts at the very highest level – the Board, and filters throughout the entire organization, with management having the responsibility for implementation. It is something that you MUST take seriously.

What is Corporate Governance? Basically, there are 2 aspects:

1. Rules, controls, policies to dictate BEHAVIOUR i.e. your CULTURE & VALUES
2. Framework for ensuring that you achieve your objectives i.e. your STRATEGY

These are underpinned and defined by 3 pillars, or principles – transparency, accountability and security.

Sometimes we view Corporate Governance as an unnecessary imposition – something we know we have to do, but think it’s difficult and time-consuming and don’t see the value to us. But good Corporate Governance has some real benefits to the firm:

1. It encourages good decision making by instilling discipline and a commitment to the prescribed framework for governance.
2. It helps manage risk by ensuring that you operate within regulatory frameworks and oversight.
3. Most importantly, it builds trust – when people know and can see that the organization is well run, transparent and accountable, all have faith that you are doing the right thing, and will be happy to do business with you, and buy your stock!

This leads to a greater likelihood of vibrant growth, sustained success and higher stock prices!
Good governance makes for good business.

Who is responsible for Corporate Governance? The Board is critical and must ensure good Corporate Governance – it’s their #1 job. Whilst the Board leads, the Management implements and is responsible for carrying out the day-to-day execution of Corporate Governance. This requires that one manages relationships with:

• Customers
• Employees
• Suppliers
• Creditors
• Auditors/Regulators
• And the Board

If you are a publicly company, the number of stakeholders significantly expands to include:

• Investors
• Regulators
• Analysts
• Media

All have varying needs and expectations which must be met. You don’t know them, and they don’t yet know you. This might seem overwhelming, but it doesn’t have to be… REMEMBER: GOOD CORPORATE GOVERANCE IS GOOD FOR BUSINESS!

But how do we therefore manage all of these?

There are 4 areas to consider, and the earlier you do so the better.

1. THE BOARD OF DIRECTORS:

A great Board does not happen by chance, but by careful design and deliberation. Some things to consider in developing a great board:

1. Size & tenure – how large do you want your Board to be? And how long should they be on the Board?
2. Mix of:
   • External/Internal directors – External directors can be very valuable as they know the business, but are not in it day to day, so can give advice from a fresh unencumbered perspective.
   • Industry knowledge
   • Technical expertise – understanding of the operations and technicalities of the business
   • Functional expertise e.g. HR, Marketing
3. Strategic connections – there might be need for directors to access their networks
4. Integrity & Reputation – how well are your directors regarded? This says a lot about your firm.

2. STRATEGY:
The Board is mandated and indeed required to hold the management accountable for results. It does this by having a clearly articulated Strategic Plan. The Board must insist that the plan is developed, with their input and guidance, and then use it to hold management to account. Some things to consider about your strategy:

1. Should be developed with the involvement of the Board and Management
2. 3 to 5 years planning horizon, depending on your industry
3. BUT articulate a longer-term vision that guides the planning horizon
4. Have clear metrics, targets in these 4 areas (Note: this is the Balanced Scorecard model)
   1. Financial
   2. Customer
   3. Operations
   4. People

Good Corporate Governance means that you produce the results for which the organization was established, and this can only happen through the implementation of a clearly articulated strategy.

3. CULTURE:
More and more as I do this work of strategy development and implementation, I appreciate the importance of culture. It’s not soft skills, kumbaya, airy fairy stuff – it’s the hard work of making sure that people behave in the way they should. It is critical to good Corporate Governance which emphasizes the values, and practice, of Transparency, Accountability and Security. Some things to consider:

1. Culture is all about how people behave and getting them to behave in ways that are in alignment with your strategy
2. Clearly articulate your Core Values & Behaviours
3. Incorporate them into Performance Management (including the Board)
4. Operationalise the values to guide policies, procedures

LIVE THE VALUES – people do what you do!

4. POLICIES:
This is where many organisations start with implementing Good Corporate Governance. I recommend that the other 3 (Board, Strategy, Culture) should be in place, or at least defined, for the policies to be meaningful, and most importantly, adhered to. Some things to consider:

1. Articulate and document Corporate Governance policies, procedures. Document in an interesting, engaging way e.g. videos, photos, illustrations, to make it interesting and easy to read
2. Consider the exceptions – be clear on e.g. ethical violations
3. Communicate, train ALL in the organization in Corporate Governance policies – at orientation and at least annually

The ultimate aim of your Corporate Governance is to ensure that there are NO SURPRISES.
This means you must:

1. Monitor and report on your Strategic Plan relentlessly and rigourously
2. Learn, adjust, learn. Your plan will change, as unforeseen instances will arise. But you will be prepared and able to adjust
   Communicate – your stakeholders will cry out for information. You don’t want a vacuum, as you know what fills it – RUMOURS! When you have a Good Corporate Governance System you will have performance facts at your fingertips, and will be clear on the underlying reasons. You can also reassure that procedures are in place and your people trained.
3. Act quickly and be transparent – err on the side of transparency when there’s bad news.

Remember: good corporate governance is good for business.