Better Governance Across the Board

Creating Value Through Reputation, People, and Processes

John Zinkin

• Éditeur: De Gruyter
• Année: 2019
• ISBN:
  9781547400959
• Édition: 1
• Sujet: Betriebswirtschaft
• Sous-sujet: Unternehmensführung

Better Governance Across the Board is a practical guide for achieving good corporate governance of organizations regardless of whether they are for profit, listed, state-owned, family owned, or widely held. It delves into the questions boards must ask if they are to fulfill their fiduciary duties, taking account of regulatory issues. Part 1 defines corporate governance, explaining the four reasons why it matters and how it applies to a wide range of organizations. Part 2 explores the "Five P" framework of Purpose, Principles, Power, People, and Processes that helps boards to create sustainable value. Part 3 concludes by showing how the organization's long-term "license to operate" is achieved by boards focusing on the three most important assets of the organization: its reputation; its people, and its processes.

This book explores the dilemmas that currently exist in modern approaches to corporate governance and suggests ways of overcoming them. Based on ten years of teaching more than 1, 500 directors of publicly listed companies, it integrates key principles of leadership, ethics, branding, and governance into a unique five-factor framework to help directors make good decisions in strategy, risk management, succession planning, internal controls, and stakeholder engagement.

Part One:Anatomy of Corporate Governance

This part consists of six chapters. The first two chapters set the “conceptual” framework of corporate governance. The next four chapters explore “operational” considerations affecting boards.

Chapter 1
What Is Corporate Governance and Why It Matters

You will find this book to be a global look at governance issues. This chapter is presented in three parts: the first defines corporate governance showing how it has changed over the years to include long-term outcomes and stakeholder considerations, no longer focusing just on satisfying shareholders; the second explores why governance matters; the third discusses two caveats regarding implementation.

What Is Corporate Governance?

Corporate governance (CG) is a relatively recent idea,i though the principles on which it is based are as old as humanity’s invention of organizations requiring people to come together to achieve a common purpose.

There are too many definitions of CG to do them all justice. The basis for this book is one I like for its completeness:

Corporate governance is defined as the process and structure used to direct and manage the business and affairs of the company towards promoting business prosperity and corporate accountability with the ultimate objective of realising long-term shareholder value while [considering] the interest of other stakeholders.

Corporate governance provides a framework of control mechanisms that support the company in achieving its goals, while preventing unwanted conflicts. The pillars of corporate governance such as ethical behaviour, accountability, transparency and sustainability are important to the governance of companies and stewardship of investors’ capital. Companies that embrace these principles are more likely to produce long-term value than those that are lacking in one or all.

Proper governance identifies the distribution of rights and responsibilities among different participants in the company and outlines among others the rules and procedures for decision-making, internal control and risk management. Corporate governance is not only concerned with shareholder interests but requires balancing the needs of other stakeholders such as employees, customers, suppliers, society and the communities in which the companies conduct their business.ii [Emphases mine]

This definition of CG widens the areas of responsibility and accountability of directors to include long-term outcomes and the needs of other stakeholders, going further than just focusing on the needs of shareholders. It reflects the transition from shareholder capitalism of the 1980s and 1990s to stakeholder capitalism in the twenty-first century. This progression can be seen when comparing earlier, narrower definitions of CG, which do not really take stakeholders into account and do not specify the importance of long-term outcomes, for example:

Governance is a system of rules, procedures and processes by which a company is directed and controlled. Specifically, it is framework by which various stakeholder interests are balanced and efficiently and professionally managed.iii

Corporate Governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate Governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.iv

These earlier definitions were accepted worldwide and served their purpose well. After all, the Cadbury Committee Report was the foundation document for all CG; the Organization of Economic Cooperation and Development (OECD) Principles of CG were the reference document for regulators in IOSCO.v Limited reference was made to stakeholders, reflecting the twentieth century emphasis on shareholders. They also seemed to assume CG frameworks could be applied universally without too much difficulty. As jurisdictions began to take CG seriously, they discovered applying the principles of CG proved to be more challenging than expected. As a result, the OECD redefined CG in 2015, recognizing “one size does not fit all”:

Effective corporate governance requires a sound legal, regulatory and institutional framework that market participants can rely on when they establish their private contractual relations. This corporate governance framework typically comprises elements of legislation, regulation, self-regulatory arrangements, voluntary commitments and business practices that are the result of a country’s specific circumstances, history and tradition. The desirable mix between legislation, regulation, self-regulation, voluntary standards, etc., will therefore vary from country to country. The legislative and regulatory elements of the corporate governance framework can usefully be complemented by soft law elements based on the “comply or explain” principle such as corporate governance codes in order to allow for flexibility and address specificities of individual companies. What works well in one company, for one investor or a particular stakeholder may not necessarily be generally applicable to corporations, investors and stakeholders that operate in another context and under different circumstances.vi [Emphasis mine]

The 2008–2009 Global Financial Crisis highlighted the need to include ethics as an element of good CG and other failures raised questions about should be done about pension funds. I quite like this definition of CG, which recognizes the diversity of jurisdictions, articulates the need to consider ethics, long-term stakeholder expectations, and includes recognizing the rights of workers past, present, and future:

Different countries have different ideas as to what constitutes good corporate governance3. ... In essence we believe that good corporate governance consists of a system of structuring, operating and controlling a company such as to achieve the following:

–A culture based on a foundation of sound business ethics fulfilling the long-term strategic goal of the owners while taking into account the expectations of all the key stakeholders, and in particular:

• Consider and care for the interests of employees, past, present and future
• Work to maintain excellent relations with both customers and suppliers
• Take account of the needs of the environment and the local community
• Maintaining proper compliance with all the applicable legal and regulatory requirements under which the company is carrying out its activities. vii [Emphasis mine]

Why Corporate Governance Matters

Too often when discussing the issue of good governance with directors, I have been met with responses that it is a waste of time and effort; it is a regulatory burden4 which only the largest companies can afford to deal with; that the reporting requirements for public listed companies are increasingly complicated and of relevance only to academics and the odd analyst who has the patience to wade through long documents that are really another form of PR greenwash.

Countering their arguments is made more difficult by the fact that although there is a correlation between good governance and better financial performance over the long term, and there is evidence that good governance leads to better performance, there is also evidence to the contrary. On balance, however, it seems good CG does in fact lead to better results in terms of higher profits and better dividends.viii

Aside from the lega...

Table des matières

• Cover
• Title Page
• Copyright
• Acknowledgments
• About the Author
• About the Series Editor
• Foreword
• Contents
• Introduction
• Part One: Anatomy of Corporate Governance
• Part Two: The “Five P” Framework and Good Governance
• Part Three: Creating Value Through Reputation, People, and Processes
• Index