From Box-Ticking to Measuring Results: How Corporate Governance Best Practices are Changing
The increasing interest and involvement of society in how a company conducts itself is impacting corporate governance practices, according to a report entitled Tenets of Good Corporate Governance from the Association of Chartered Certified Accountants (ACCA). The organization and its governing board are no longer locked behind corporate firewalls that can only be unlocked by gatekeepers. In today’s digital world, shareholders and the public typically have access to a public company’s or a nonprofit’s financials, as well as other corporate communications. These have to be able to stand up to outside scrutiny. Becoming a good corporate citizen through realignment of the board and a properly implemented corporate social responsibility (CSR) program is necessary to survive and thrive in the current global economic climate.
How Corporate Social Responsibility (CSR) Drives Profits
The report asserts that functioning in a transparent manner and being a good corporate citizen drives long-term value for the organization as a whole. In its implementation guide for corporate responsibility initiatives, the Government of Canada cites two studies that show that significant value is created for an organization with a properly implemented CSR program. The first was conducted by MIT Sloan Management Review and the Boston Consulting Group in 2013, and it showed that 60% of companies which had adopted sustainability initiatives in management practices reported increased profits from those initiatives.
The second was a study of 275 global Fortune 1000 companies. Shareholder returns over a five-year period were 38% greater for the top 50 most sustainable companies versus the least 50 sustainable companies in the study. That study was commissioned by UN Principles for Responsible Investment (PRI) and UNEP Finance Initiative and was conducted in 2011.
Canadian businesses have embraced CSR. Fred Pinto is senior vice president, head of asset management NEI Investments at Aviso Wealth, a leading Canadian wealth management company. He states that “In general, compared to global peers, we have found that Canadian banks and insurance companies are less likely to be involved in the most serious ethical controversies – money laundering, corruption, market manipulation, fraud and major breaches of consumer protection responsibilities – although there is always room for improvement.” Aviso Wealth is just one of the organizations interviewed for this article about how the Canadian financial sector has reaped multiple benefits from CSR initiatives.
How Boards Can Address Paradigm Shift
Because of this paradigm shift from operating in a corporate silo to operating with new transparency and a need for accountability, boards are no longer ticking boxes to ensure that corporate policies and government regulations are being followed. Instead, they must analyze the effect that the organization has on society and ensure that the organization is a good corporate citizen of society. One of the conclusions that the report draws is that by addressing the needs of the society it operates in, a business will naturally create long-term value. There are specific steps it outlines that a board can take to enable the goal of fitting in and serving society
1: Put Diverse Voices in the Room
The board, according to the report, must hear and accept diverse viewpoints. Steps to take to ensure those voices are in the room involve putting those voices in the boardroom, include having stakeholders as guests in board meetings and the recruitment of non-executive directors. Board succession is also a key factor; as the report authors argue that board and executive experience is often given more weight than professional experience, which can limit the recruitment of directors with essential skill sets such as familiarity with digital technology.
2: Board Chair Should Take Active Role Facilitating Rigorous and Open Discussion
It is not just enough to have the right voices in the boardroom. The board takes its cues from the chair in terms of how directors respond to those voices. The role of the board chairperson, according to the report, is to facilitate rigorous discussions and encouraging active listening, even if they personally may not agree with the views being expressed. Overall, board members and stakeholders should feel like they are free to engage in open and honest discussion, and it is the board chair’s job to facilitate a welcoming environment for all ideas and to not let dominating personalities monopolize the conversation.
3: Addressing information imbalances
Non-executive board members may have less information about the everyday operations of the business compared to executive board members, but this can be used as a strength. A view of the company that does not get bogged down by operational details can be very beneficial, and the information gap can be addressed by encouraging a free flow of information between executive and non-executive board members.
Another way to keep information flowing freely at board meetings is to use board portal software to keep meetings on track, retain directors from using their personal emails for board business, and to secure sensitive company data. DiliTrust Exec does all of this with digital security that goes beyond industry best practices, an easy-to-use dashboard that allows for simple facilitation of board meetings and transfer of documents, and more. Contact us today to find out how you can digitize and simplify your board meetings.