In an era when trust in business is at a premium, and scrutiny from stakeholders is ever wider and more intense, it has never been more important for organizations to behave in accordance with their core purpose and principles in order to protect reputation and trust. Corporate governance is a vital mechanism through which boards can ensure that the behaviors of their workforce are aligned to the organization’s purpose and principles – and that corporate goals and values are translated into their people’s decisions and actions.
Our latest thinking is that good corporate governance can be summarized under three main themes.
First, effective corporate governance is grounded in a clear view of what matters most to the business, the full range of risks facing the organization, and how these risks relate to the business and its strategic priorities. Only with an understanding of these areas is it possible to say what is or isn’t a risk. Second, it begins and ends with the board, which is responsible for crystallizing a clear corporate purpose, exhibiting the right
values, and ensuring these are being acted upon. Third, behavior and decisions in the ‘moments that matter’ represent the ultimate test of good corporate governance – not least when a crisis hits.
When boards succeed in creating and sustaining effective corporate governance, it generates a range of business benefits that combine to create higher trust, stronger resilience and enhanced competitive edge. So this is not just an ethical responsibility for the board, but a strongly commercial one as well.
At root, the best corporate governance creates a clear and visible line of cause-and-effect from the board’s mandate, purpose and values all the way to the cultural norms and everyday behaviours exhibited at all
levels. A business that can demonstrate this linkage will be well placed to outperform its competitors and provide a step further to achieving their goals.
The five pillars of corporate governance
Our view is that effective governance is founded on five pillars, all of which are interrelated, and each of which must be in place and functioning well for governance to do its job (see Figure 1). The pillars are:
Leadership strategy and culture
The way a business’s leaders conduct themselves and communicate on a daily basis – and the ethics and values they exhibit
in doing so – are instrumental in setting the ‘tone from the top’. This tone shapes every action, decision and relationship across the organisation. As a result, the right leadership tone is the starting-point and bedrock not just for corporate governance, but also for