Corporate governance: What is best practice for and how is it changing?
Before we answer this question, let’s take a moment to answer another very basic one: what is corporate governance and what is its purpose?
In the simplest possible terms, corporate governance is the means by which companies exert self-control to deliver effective management for the long-term success of the company.
According to ICSA, corporate governance also ensures that “businesses have appropriate decision-making processes and controls in place so that the interests of all stakeholders (shareholders, employees, suppliers, customers and the community) are balanced”.
While these models all have their different flavours, corporate governance in the modern world is commonly defined by leaders who are competent, accountable, ethical, strategic on boards composed of diverse members with a rounded view of the world.
So… this gives us a view of both what corporate governance is and the best practice that is needed to carry it out. However, if there’s one thing that most of us can agree on right now it’s that the world in which we operate is changing rapidly. This means the habits and best practices that boards employ will need to change too. But how much do they need to change, and how are they going to do it?
The evolution of the board
Recently the Board Network – The Danish Professional Directors Association took some time to investigate this issue by asking current board members what they think. They came up with interesting answers.
According to the 1,317 respondents surveyed across 64 countries, board directors say they are going to need to:
- Spend more time on “doing their job”
- Embrace disruptive technology as standard
- Develop greater sensitivity to geopolitical instability and climate change
- Continue to increase gender, age and ethnic diversity of board members
- Continue to increase scrutiny on ethical standards
What’s clear from looking at this view of the future of the board is that ways of working are going to have to adapt fast:
- If boards want to create more time to fulfil their role and meet exacting new standards
- If they want to learn about new technology
- If they are serious about Sustainability Development Goals – they need tools that will enable them to analyse business risks from multiple sources and surface actionable insights faster
- If they want to become more diverse in their make-up, seek out better ways to collaborate and facilitate collective decision making
A practical way forward
In essence, what this all means is that best practice for the board of the future will not just be achieved by a change in outlook and the board’s composition. It will also need to be pushed forward by modern, digitally enabled ways of working that reflect changing times, facilitate easier collaboration and support more ways to work faster and smarter.
If you’d like to explore these issues in more detail, there’s plenty more on this topic in our new e-book – The Habits of Highly Effective Boards.