Improving corporate governance – a way forward
the conduct and governance of large companies, whatever their legal status, has a sizeable impact on the interests of employees, suppliers, customers and others
Government Response to Corporate Governance Reform (2017)
These are important words and it’s worth breaking this down to properly understand their meaning.
What does “conduct” mean? This relates to a firm’s behaviour towards its customers, suppliers, employees and how it behaves towards the market and its competitors.
What does “governance” mean? This relates to the organisation and the processes and systems it has in place to manage its business, support its customers, work with its suppliers, and manage its employees.
But perhaps the greater and more important meaning is revealed when the two words are brought together – conduct and governance. Conduct without governance not only poses unacceptable regulatory risks to the firm itself, but also to all its stakeholders – employees, suppliers, and customers.
Equally, the poor design and implementation of governance systems can be bureaucratic, ineffective and can fail to serve the purpose for which it was intended. Many businesses continue to see governance as a separate activity that is an obstacle to be overcome and one which gets in the way of business operations.
There have been some very recent high-profile examples where poor conduct and poor governance have resulted in significant regulatory fines: The Prudential Assurance Company and Standard Life Assurance company were both fined in 2019 for breaches of the FCA Principles of Business 3 (management and control) and 6 (customer’s interest).
To address the conduct risks associated with poor governance, regulators across the globe have introduced “accountability” regimes whereby the senior executives are now liable individually for the conduct of the business. In doing so, regulators hope that good conduct and governance will become part of the DNA of the business. Time will tell.
But is having strong accountability regimes enough? To embed these increased levels of accountability, businesses need effective and supporting systems and processes (which board and committee members can engage with and understand) and which encourages them to take responsibility and ownership.
Part of the solution can be board portals. The use of portals brings many benefits – particularly around the distribution of papers and the ability to navigate through quite often very large meeting packs. But the following questions remain:
- How to embed senior management accountability?
- How to ensure that key business decisions are reviewed and approved by the right committees at the right time?
- How to address the underlying and complex processes of preparing board and committee papers – pack size, late papers, quarterly spikes in activity.
What is needed is an approach which is both holistic and pragmatic. That is an approach that not only addresses the needs of the board and committee members to easily access and navigate meeting packs, but which also helps to embed accountability, ensures decisions follow the correct “route to approval” and which supports and helps the business to effectively plan and prepare for these meetings – to flatten and smooth out the spike of quarterly activity.
Sicsic Advisory has successfully developed a 4 Step approach to address these questions:
- Review terms of reference to ensure clarity and ownership of duties
- Create a calendar for each terms of reference
- Introduce a “route to approval” schedule for all terms of reference
- Introduce standard and consistent committee working practices for all committee stakeholders.
Once embedded, such an approach will provide committee stakeholders with more time to prepare for meetings, review minutes and complete actions. Equally importantly, firms with a well thought out, integrated and embedded strategy to manage governance and conduct will mitigate the risks of regulatory intervention and have considerable competitive advantage in achieving sustainable success for the longer term.
Sicsic Advisory is currently supporting firms to develop an overall strategic approach to these matters. Our experts are on hand to talk through how the numerous challenges firms are experiencing can be dealt with in a co-ordinated and sustainable way.
Stephen Rosling, Senior Consultant