My company is failing to maintain its laid out corporate governance principles and I am concerned as a senior manager that this will ultimately impact our employees. How could the resulting conflicts of interest, lack of board diversity and lack of procedural follow through hamper productivity and staff morale? What can we do to mitigate any fallout? WH, Abu Dhabi
Corporate governance is the system of rules, practices and internal controls and processes by which a company is directed and controlled. It is the way a corporation polices itself through installing its own customs, policies and laws applicable to all. The idea is to create collective responsibility and accountability that guides both management and employee behaviour to protect the financial and reputational interests of all stakeholders. Ultimately however, corporate governance is only ever as strong as the board’s desire to enforce it.
A good corporate governance structure should have channels whereby employees and managers can air concerns without fear of retribution. Strong institutions welcome feedback from stakeholders – both positive and negative – so that they may address problems before they harm the rest of the organisation. If employees fear retaliation then problems will fester unaddressed and risks to the long-term viability of the organisation will grow. It is also the board’s responsibility to ensure this is not the case.
Business writers have often directly linked company disasters to poor corporate governance. Although every case is different, there can be serious implications when internal audits are not in order or audit recommendations ignored. A recent example of this came from the automobile giant Volkswagen, where management for years allowed the use of a so-called “defeat device” software to enable its diesel cars to pass strict emission tests. The result was an unmitigated disaster that hit the company’s brand, financial performance and share price significantly.
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At your firm, if you feel there are conflicts of interest, a lack of board diversity and a lack of follow through, then these are clear warning signs. However, in your position as a senior manager you will only be able to respond to this context rather than change it completely. Certain corporate governance factors can only be achieved at a board level, such as clarifying their role in the organisation’s strategy, making sure there are diverse skills and perspectives on the board and holding themselves accountable for their own performance.
What is in your control and the control of other leaders in the organisation is the culture you shape through behaviour. Many organisations, including yours, may reward drive, risk and results irrespective of how they were achieved. Good corporate governance can still operate in this results-driven environment but it really requires humility, caution and care, with people working together rather than seeking to win at all costs. You are in charge of managing morale within your own area of responsibility; doing this well can help influence a culture nudging the organisation in the direction of better governance.
Another thing you can do personally, alongside other senior managers, is to personify the principles of good corporate governance at a managerial level, even if this may not be the case at the board level. You can make sure you follow an ethical approach, balance the objectives of your team in line with the corporate strategy and provide real role clarity for your people. Involve them in the decision-making process and give a voice to different stakeholder groups. Also, manage projects and teams where accountability and transparency are part of the fabric of their existence.
Finally, one way to address bad behaviour and to empower your people is to allow them to speak their mind when they feel something unethical or unjust is taking place. This can feel risky but if they have the support of senior managers like you, they will know when to act on their values despite pressure from those around them. It is almost like a neighbourhood watch system that self-governs and then steps up when people feel something is out of line.
Corporate governance is a system to help organisations stay on the right track. Although seen by some as a barrier, it is what enables companies to grow responsibly. Unfortunately, it can be completely undermined at the most senior levels from the board to the chief executive. Managers and leaders like you can be the community that shapes the cultural waves of change simply through enacting these characteristics yourself and with your people.
Alex Davda is business psychologist and client director at Ashridge Executive Education, Hult International Business School, and is based in the Middle East. Email him at email@example.com for advice on any work issues