Does your board have these 3 good corporate governance attributes?
It’s clear from the final report from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry released today, that the connection between governance and misconduct is real. But there are simple steps that every board can take towards good governance. The report investigates three ways that governance and misconduct are related: the role of the board; the entity’s priorities and accountability. Here we take a quick look at each.
The role of the board
“Boards cannot operate properly without having the right information. And boards do not operate effectively if they do not challenge management.”[i]
The report shared examples of how bank boards failed to engage management to effectively gain the answers they needed to make informed decisions or exercise sound judgement. Red flags were left uninvestigated, effectively meaning that management weren’t held to account by the board and that problems were left unaddressed.
GGI’s Head of Governance Simon Arcus stresses the importance of boards engaging with management in meaningful ways.
“It’s vital for information to flow freely to ensure that the board has the information they need to govern effectively and in the best interests of the organisation and stakeholders,” he said. “If management aren’t providing the right answers, the board needs to hold them to account and ensure they get them. If they’re not getting the right information or the answers that they need to build a complete picture, they need to ask themselves why it’s not forthcoming. Asking for more, and asking why can make a world of difference to how an issue is understood – and the subsequent actions taken.”
“Proper governance requires setting priorities. Setting priorities requires choices.”[ii]
Arcus says that this is an area where many organisations need to think more broadly to see the big picture and long-term goals rather than just focus on immediate priorities.
“The report talks about financial institutions too often pursuing profit over other priorities. I absolutely agree with the statement in the report that it’s not right to treat shareholder and customer interests as opposed,” he said.
“I’ve always been a firm believer that good governance requires consideration of all priorities over the longer-term and if this happens there will be flow-on benefits for the organisation, employees, customers and society more broadly.
“There are some very encouraging observations in the report about the convergence of stakeholder interests over time, as well as long-term financial advantage for organisations that adhere to high standards of conduct with relation to employees, customers and shareholders.
“I think – and hope – that the report will mark a turning point in how once ‘competing priorities’ will be viewed and treated in future.”
“Clear accountability is vital to effective governance. It ensures that issues are resolved, and resolved effectively. It fosters a culture where risks are managed soundly.”[iii]
Accountability is vital to good governance, but Arcus says that often the larger an organisation is, the greater the danger from lack of accountability.
“Often in large structures there are multiple teams or individuals that share ownership of a small piece of a puzzle, but there is no one actually putting it all together so it’s unclear who the ultimate responsibility rests with,” he says. “Part of good governance is ensuring clear lines of responsibility and role clarity. If these aren’t established, it’s like a building that’s founded on varying ground conditions – some parts might be solid, others will sink – but in the end the integrity of the entire structure is compromised and won’t stand up.”
To read the full Royal Commission report visit Here.
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[i] Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, 1 February 2019, 396
[ii] Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, 1 February 2019, 401
[iii] Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, 1 February 2019, 407