Time for Directors and Boards to prioritise their development
The Wates Review on Corporate Governance highlights the importance of director behaviours in adopting good corporate governance and helping organisations to meet the new corporate governance requirements going forward.
For the first time private, as well as listed, companies are included in the corporate governance regime. This is because the link between director behaviour, corporate governance processes and collective, not individual, leadership is proven to improve organisational capability and performance.
James Wates the author of The Wates Review, writing in Governance & Compliance, the journal if the ICSA, Feb 2019, points out that good director behaviours improve corporate governance and help make business “a force for good”. This article focuses on the need for better boardroom behaviours and adoption of the relevant corporate governance codes not only because larger private companies have no choice but also because investors, lenders and customers are increasingly concerned with it following recent corporate scandals.
Our experience working with clients on corporate governance shows that shared decision making, embracing the importance of a director`s fiduciary duties and shared decision making at board level not only keeps a director out of court, but improves organisational effectiveness and, ultimately, the bottom line.
Ramsey Hall & The OPG has advised numerous boards on director leadership and corporate governance and already advocated the key changes many boards need to make including:
- Having a clear corporate principle and, we would argue, corporate mission and values.
- A strong board with directors who provide leadership behaviours including an ability to manage strong shareholders. This is a key area which, we observe, is often ignored by organisations who fail to prioritise leadership development.
- A diverse board with clear roles and responsibilities defined and understood. Wates highlights the importance of including subsidiary boards in this.
- Proper director accountability and an emphasis on fiduciary duty as well as risk management are all essential. This is not just a rehash of section 172 of The Companies Act 2006, or a box ticking process, but rather a critical aspect of compliance with the law, corporate governance codes and, ultimately, risk management.
- A well thought out remuneration policy for directors and executives which balances reward with leadership and performance is needed. Our experience is that many organisations simply do not have professionally devised compensation plans for key staff.
- Better stakeholder engagement which includes employees, customers, community interests and suppliers.
Why corporate governance and board leadership matters
Many organisations with which we work have historically neglected their senior leadership`s development, board effectiveness and corporate governance processes and this will increasingly concern investors, lenders and thus become a feature in any management due diligence process as part of M & A activities. The simple truth is that organisations are more sustainable and profitable if they are led by a strong collective team and not just by a powerful, single shareholder. Why would you not want to work better together? The cost is, after all, small.
We recommend that organisations review their leadership, governance and board effectiveness by benchmarking and reviewing practices annually internally and 3-yearly externally. Our team of board advisors includes ICSA qualified consultants, organisational psychologists, remuneration experts and experienced board directors. Our white paper on governance and board effectiveness prepared last year pre-dates The Wates Review, but still mirrors its findings.