ESG stands for Environmental, Social, Governance. The first two terms can be pretty self explanatory but governance is all encompassing so what exactly is it referring to. Effective corporate governance is at the heart of every successful organisation. But how do you have good corporate governance and what is it exactly?
What Is Corporate Governance?
Corporate governance is the system a company chooses to put in place concerning rules, controls and policies to enforce a standard of behaviour. See also, What is good governance?
This can easily be confused with the UK Corporate Governance Code but is in fact a separate concept. Corporate Governance is the more general, holistic approach to governance within a corporation.
What Is The UK Corporate Governance Code?
The UK Corporate Governance Code has been updated several times, the latest of which was in 2018 and divided into 5 sections: leadership, effectiveness, accountability, remuneration and relationship with shareholders. This works in tandem with the UK Stewardship Code which monitors the financial reporting of the corporations in order to avoid a repeat of the Enron Scandal. Both of these are overseen by the Financial Reporting Council to ensure that companies are meeting the required standards.
See also, What Is A Code of Governance?
How To Have Successful Corporate Governance?
Achieving good corporate governance is not that different from general good governance practices. However there are some simple steps you can take to improve your corporate governance:
- Board Diversity:
Ensuring that you have a range of opinions and experiences on the Board will provide you with outside the box options. This will allow you to have good corporate governance because you will be prioritising the best solution at all times. You should also find that your innovation increases because of your Board’s diversity.
- Board Evaluations:
Board evaluations confirm that your Board Members are aware of how they should govern and are managing their tasks effectively. This will help you improve your corporate governance by seeing your governing weak spots and where you can improve. No one is above doing their due diligence, and all your Directors should be up to the job. If that means parting ways with one then you should be prepared to do so.
- Independent Board Members:
Being independent means having no monetary or material stake in the company. It is a legal requirement to have at least 2 independent Board Members but it is also a good governing decision to have as many as possible. Much like the two prior points, this means they will be more willing to make the most level-headed choice for the company.
Audits are an essential part of the compliance process. However, to have good corporate governance you should make sure that you are using independent investigators so your financial reports can be trusted. To improve your corporate governance you should ensure that at every step of the way you have a clear audit trail. The last thing you want is ambiguity or hearsay in your investigative process.
This means publishing reports and making them public. You should do press releases for any financial disclosures and significant company decisions. Your stakeholders have as much right to know the direction of your company as any shareholders!
- Communicate With Your Shareholders:
There should be open channels of dialogue between your executive branch and shareholders at all times. Your shareholders should also clearly know their roles and responsibilities. How much of a say are you giving them in decisions? What should they be doing to represent the company? These are all questions you need to make sure they know the answers to.
You are legally required to hold AGMs, but these events should be interactive allowing your shareholders to feel part of the company and have their concerns heard. In the pandemic this can be hard to do so if you are opting for a virtual AGM, consider what features your software choice gives you.
- Prioritise Project Governance:
You should always make sure that the right manager is assigned to oversee any projects. Project governance and effective project management are the cornerstones of good corporate governance. Good governance goes hand in hand with good management so it is important to prioritise both aspects equally at a Board level.
- Risk Assessments and Management:
You should be able to balance risk appropriately. If you are governing to the best of your ability, very little should come as a surprise. As you may have learnt with the pandemic, even the unprecedented can come to pass so you should be prepared for every situation.
This is not to say good business practices avoid risk, risk is necessary for innovation. However, as for all your processes, you should always make sure you are doing your due diligence. This means reviewing what works and what does not benefit your organisation.
- Improve Your Sustainability:
ESG and sustainable practices should be at the forefront of your mind, now more than ever before. The best way to improve your long-term corporate governance is to focus on the future of your company’s environmental policies. New regulations are likely to come into force in the near-to-distant future as the climate crisis boils over, so taking steps now will not only help the world but will save money.
There is also going to be an increasing pressure on ESG reporting in the coming years. The pandemic has seen a shift in cultural attitudes towards corporations and employers. With the great resignation upon us, an employer’s ESG score and attitudes to not only their community but also their employees will determine where talent goes.
- Manage Your Records Efficiently:
Ensuring your document and audit trail records are easy to access is essential for audit trails and any investigations that may need to occur. It is better to be preventative than reactive in these situations so having a clear audit trail and a user-friendly document library is necessary for good corporate governance.
Beyond just the importance of audits, efficient records will also allow any onboarding CEOs or Board Members to easily access all prior Board Documents easily. Existing Board Members may also need to look back on previous decisions or debates because we may forget things but Meeting Minutes are forever.
How Can Convene Help You To Improve Your Corporate Governance?
Convene is an award-winning Board Portal which can help streamline your meeting processes from start-to-finish. Now available fully integrated with Microsoft Teams, Convene’s wide-range of features make managing your records efficient and meetings more interactive meaning you can focus on what really matters.