There is no such thing as good governance, only 50 shades of maybe

 In this direct and highly readable article, our latest guest writer, independent consultant Barry Hammond, looks at why many companies fail to even begin implementing corporate governance and what can be done about it.

I read with interest the article about Governance and mapping it across a business [Corporate governance and investing institutions, 23 Sept 2013]. I wholeheartedly agree with its sentiments. It seems to me that the only people who really know what is going on in a firm are those who work in it—not necessarily for it. By that I mean those who do the day to day roles, not the managers. It is they who can see how customers are reacting long before it shows up in the figures, it is they who know who is cutting corners. It is they who know that the rule book is not being followed because it demands perfection. Unfortunately most, if not all, employees are very reluctant to step forward, either because they cannot prove something, are in fear of retribution or because their concern is about a “soft “ problem. These soft issues particularly are often ignored or ask for an absolute response when raised. Sadly it can be a soft issue, like loss of reputation, which can being down a business.

To my mind the biggest problem a firm has is that its employees actually don’t “feel” comfortable working in it. I know sometimes nothing can be done, but at least if someone says “I know, and I am sorry” it can make a world of difference.

What the real problem for firms is that they fail to realise that the effect of not listening to their employees is that this is where good governance starts and ends. The Board can make as many Mission Statements it likes, but, for example, if the Finance Director is given information by people who do not respect them, their work has to be suspect. What the Board also need to realise is that there is no such thing as Good Governance. It is this that frightens many firms off and not starting at all. They know they cant be 100% “Good”, so are scared to begin because they don’t know where to start. They also don’t know how to face up to criticism.

What needs to be done?

Firstly, it has to be acknowledged that perfection is impossible, there are always variables that have to be taken into account, so what governance really is, is struggling to bring as many parts up to an acceptable level at any one time, and having in place a process which can spot when one is improving and another slipping.

Secondly, the firm has to acknowledge that it has to inject an atmosphere of trust in its employees by asking them some straight questions, and openly dealing with their answers in a democratic way. They have to declare “anonymity”.

Can this be done?

Yes, but not by using  the established “clipboard interview”  technique. This is impersonal, clunky, time wasting and expensive. What is more, once the report is produced the circumstances have altered. I know of a process which can do a simple Governance survey across the core Governance topics, especially tailored for any firm, by using the internet. It asks every employee & Director to score, with comments,  all questions. The results are available when the survey is completed and can be printed on the spot. The simple to understand report shows what the worst issues are across the firm. The Firm then has a signpost to where to begin, and how to focus effort and money.

With a transparent response by the Board, the staff will see reaction to their effort, and respond accordingly. Sometimes they tell hard truths, but better these truths come out now rather than too late. How many events can you think of in recent times where it is clear that the employees knew of errors in the process, but somehow what they knew did not reach the ears of the decision takers?

If such a process is done repeatedly a trend evolves, and once the worst issues have been stabilised the “Risks to the business” as they can now be called can be put into a risk register and ranked  on an on-going basis. This can apply to both “hard” and “soft” issues. A question might be “What is the chance that our recruitment techniques are not effective in getting the best new entrants?”

This Risk Register is what the firms stakeholders want to see—in real time! With transparency it is possible to turn this into an effective marketing tool.

Any stakeholder respects a firm which strives for Good, knowing that as it moves along the graph the level is always getting higher and therefore unachievable.

It seems to me that if this process moved into usage the level of management skills and success would increase almost overnight.

Barry Hammond

October 2013


Related: 

Corporate governance and research: designing and implementing research programmes as you aim for good governance.

The Applied Corporate Governance Blog



Search this site:

Subscribe and receive a free ebook!
* indicates required
Don't worry, your email is totally secure - we promise only to use it to send you updates from Applied Corporate Governance.