Rule 5: The Importance of Corporate Communication

Well run organisations that fail to recognise the importance of corporate communication are like the proverbial mousetrap in the middle of a wood. This is true not only of sales and marketing but of good corporate governance, and regularly communicating with stakeholders (of which customers are key, of course) helps keep all relationships open and healthy.

So our Fifth Golden Rule of Corporate Governance is that effective systems of stakeholder communication are in place to ensure transparency and accountability.

The other Golden Rules have focussed on there being an ethical approach to running the business (we define business ethics here), the need to align business goals, to have an effective strategic management process in place and an effective organisation capable of delivering the strategy and achieving the agreed goals. The underlying importance of corporate communication in all these rules is clear. From finding out what our stakeholders think of the company (including how good our communication is!) to disclosing full details of how it is run, (eg directors' remuneration), communication plays a vital role throughout.

The various codes on corporate governance have also honed in on the importance of corporate communication, though purely in this limited sense of disclosure. They require stakeholder consultation, but very little mention is made of incoming communication - it's all outgoing. This seems perverse to us as surely the only way we can really tell if the whole company and its culture is ethical and well run for allour stakeholders, is by talking and listening to all our stakeholders.

As we discuss in our third golden rule about the importance of strategic management, it is also logical that in order to know how well we are doing in implementing our strategy and achieving our goals, we need a monitoring and reporting system which is connected directly to the stakeholders upon whom that success depends.

The requirements of such a system and the resources required to put it in place will be part of the Business Plan. A good system provides the instruments whereby management and all the other stakeholders can be made aware of progress in implementing the agreed strategy. Without first-class systems there can be a dangerous lack of necessary information, or worse, wrong information. All too often, monitoring and reporting systems are designed without adequate regard for the big picture, and with an almost total focus on financial aspects.

In this Fifth Golden Rule, we are looking at setting up channels of communication and how these channels - and the reporting system as a whole (i.e. including internal, operations monitoring) - should be used to

• ensure all stakeholders are happy with the proposed strategy
• monitor progress from point A to point B in the strategy
• ensure that stakeholders are receiving all the information they require

Logically, therefore, we need systems which have the following characteristics:

• they serve all the significant stakeholder groups, that is:
• customers
• owners
• employees
• suppliers and other trading partners
• local communities
• in total they communicate the intention to run the company under systems of good corporate governance, and in particular they have very specific objectives in relation to each target group. Following the methodology, then, They will thus include the four elements of:
• Ethics: projecting the ethos which permeates the company, and thus communicating to all stakeholders an image of the ethical company which the board is striving to create and operate
• Goal: reporting on the progress made by the company towards the agreed corporate goals, and in particular fulfilling the specific interests of the particular stakeholders addressed in the actual communications received by them
• Organisation: show that the company is organised effectively to achieve the goals that have been communicated to all the stakeholders, and to look after their individual interests
• Reporting: demonstrate through the high quality of the communications that the accountability and transparency rule of good corporate governance is both understood and being adhered to
• in their execution, high standards are in place to ensure that the communications are easy to understand and do indeed provide the information required by the recipients, in line with their expectations referred to above the systems provide regular communications to all stakeholder groups, and whilst there is an appropriate weighting between the needs of the various groups, no group is neglected, for instance through allowing address lists to become out of date.

The above comes from our unique methodology we have developed over nearly 20 years of corporate governance experience. This methodology, described in this site and in more detail via downloadable ebooks, is based on our conviction that good corporate governance is essentially just good management. So the systems outlined here could as well sit in a site about general management, which may well be how you came upon this site. In fact you may not have thought about corporate governance before at all, and view the subject as the realm of accountants and risk management specialists.

If you have read other parts of this site you will realise we have a rather more positive view of corporate governance and the importance of corporate communications than these groups. If we have applied all these Golden Rules and learnt the lessons from communicating with stakeholders, we can be confident that we are in tune with the majority of opinion. We can then use this knowledge to produce much more sincere and confident communications than the boilerplate corporate governance statements that appear in many company reports.

Of course there will always be times where bad news needs to be communicated but that only reinforces the need for the channels outlined above to be in place. Without them, it will be much harder to deliver bad news and it will be more unexpected. With them in place, there will be less of a shock when final decisions are announced as the stakeholders will have known about problems since the beginning. While this will not eliminate disagreement and even dispute, the latter will clearly be much more likely to happen if communicating with stakeholders is left to these negative announcements and not a continuous process.

We would conclude, then, that the importance of corporate communications is not down purely to the need to protect the public face of the company but more fundamentally, to the smooth running of the company - specifically the delivery of the strategy and goals of the organisation. 


This is the fifth in our series on Best Corporate Governance Practice - the Golden Rules of corporate governance: 
Rule 1: The Importance of Business Ethics
Rule 2: Towards a Common Goal - Align Business Goals
Rule 3: The Importance of Strategic Management
Rule 4: Organisational Effectiveness for Good Corporate Governance
Rule 5: The Importance of Corporate Communication

Return from the Importance of Corporate Communication to Best Corporate Governance Practice 

Go to the Applied Corporate Governance homepage 

Our corporate governance seminar series and small group workshops are a great way of learning our unique methodology and how to apply it to your own organisation. This methodology is also explained in our corporate governance course, a series of ebooks delivered direct to your inbox over 6 days.

We also have plans for an eLearning platform to deliver personalised corporate governance training to a wider audience at your convenience. If you would like to talk to us about implementing a corporate governance programme in your company please fill in the contact form.