Is Corporate Governance becoming “ non traditional”?

 Corporate Governance is the foundation of every successful organization. Weak Corporate Governance led to many organization’s failures, these failures after the turn of the century had a substantial negative impact on the global economy. The implementation of the US Sarbanes-Oxley Act of 2002, designed to ensure a greater level of transparency and accountability in senior management, was not enough to avoid the financial crisis of 2008 which nearly brought the entire financial system to its knees.

For more than a decade now, the issue of corporate governance has headlined media and political agendas, with both regulatory pressures and public opinion ensuring that it remains in the spotlight.

With the term corporate governance so often mentioned, there may be a tendency for senior executives to disengage when the subject is raised, especially if they feel comfortable with the existing corporate governance framework. This, however, may jeopardize their company’s reputation, as the need for robust and vigilant corporate governance continues to grow stronger.

Is Corporate Governance a line of defense?

Corporate governance is seen as the first line of defense against bribery and corruption, as well as other financial crimes. Regulatory compliance requires strong leadership, a clearly communicated corporate policy and a robust culture of compliance, all principles of corporate governance. Without this, companies are vulnerable, despite having a good governance framework in place. It’s simply not enough.

There is no doubt that regulators are looking more closely at corporate governance and culture. Regulators want to see evidence of fundamental change within the organization, evidence of a culture change, over and above compliance procedures and policies, because they know that this is the most effective defense against financial crime, money laundering and terrorism funding.

And the job of ensuring fundamental change does not only lie with compliance departments, but strongly with corporate leadership.

What about Corporate Governance and Diversity and Inclusion?

Yes...…. They are very much related.

Despite the huge pattern we see neglecting this element, It still shows clearly when we face failures. The challenge is that organizations are reactive to this topic, and not always proactive or event active.

Diversity and Inclusion are a core part of effective, efficient and happy leadership. It’s the soul of the company. By setting an efficient long lasting Diverse and Inclusive structure we are ensuring a healthy and joyful environment which will shape our corporate governance.

If we have the Corporate Governance Framework, what about the implementation?

We are witnessing these days that boards are setting the “tone from the top”, but now the pressure is also on middle management to adopt and translate these cultural messages into practical processes and procedures with the appropriate controls, whilst maintaining board engagement.

This is what helps to create an appropriate culture and set the tone within the company and, properly done, it will reduce the opportunity for team members to make bad choices. An employee that belongs to an organization where there are clearly communicated policies and a significant culture of compliance will know, when faced with a choice, instinctively what decision to make. It’s not always easy to spot a shakedown, and there are many grey areas.

The leadership team therefore need to understand the full range of their obligations, know how to communicate effectively to drive the message through the rest of the organization. But given the changing expectation of corporate leadership, this is not always easy to achieve.

In this environment, skills training for board members and senior management will play an increasingly important role as executives battle to stay ahead of regulators. The challenges faced by corporate management teams will increase in their complexity and will continue to expand their remit.

Is Cyber Security a challenge?

An example of a current challenge is the growing issue of cyber security. In the last few years we have witnessed sustained cyber-attacks on global organizations. The question is, however, what will be expected of board members. Will it be enough that they engage with the issue and issue directives to technology experts? Or will they be required to expand their technology knowledge and expertise?

It is becoming increasingly obvious at the time being, a valuable board member will be someone with the ability to adapt quickly to a dynamic situation. They will need to be able to prepare the company for the inevitable cyber-attack and its consequences. When it comes to this kind of crisis, companies will be required to react within minutes of an attack occurring, so the speed of the response will be key.

No doubt this requires a change of skill set and focus for the board and senior management. To be effective in this new age, corporate governance will require constant review, monitoring and updating if it is to stay relevant and effective, with the ability to guide organizations through an ever increasing complex business environment.

In Summary what to keep in mind ?

There are eight main elements of an effective Corporate Governance:

1- Training and Awareness, 2- Reporting, 3- Enforcement, 4- Communication, and 5- Setting the tone from the top, 6- Adopting cultural change, 7- Aligning with technology evolution, and 8-Diversity and Inclusion.

All these elements should be implemented internally as well as externally. Within the organization, we should have proper and clear implementation of these elements, and also externally by the regulator (national and international) to the regulated organizations.

Thank you!