Good corporate governance
Good corporate governance is an open acknowledgement that the organization has a responsibility to humanity: that any organization is just one part of a global system and has to play its part accordingly. It is recognising that it has responsibilities outside and above its immediate financial and operational needs. Good corporate governance can only start from a good purpose that offers society the best possible value without wasting any of the world’s resources or inflicting any undue harm.
The essential ‘goodness’ of this purpose stems from the fact that using the world’s resources to best effect is also, intrinsically, a moral purpose. So, legitimate corporate governance cannot be founded on serving the needs of a particular, vested interest (shareholders or executives); nor can it be sound if it is plundering the world’s resources without any care or concern for the future.
Effective governance requires an effective organization at the top and this starts from a separation of roles between Chair and CEO. Allowing one person to simultaneously hold both posts is simply wrong in principle and pernicious in practice. Yet this situation exists in many organizations today. A company might be lucky enough to find a Chair/CEO who possesses a perfect combination of capability and integrity but any corporate system has to be based on the highest probabilities, not luck. For example, John Stumpf was deemed a suitable candidate to hold both posts at Wells Fargo until the disastrous customer account scandal[i] under his leadership surfaced. Subsequent to this event he has now been replaced by a separate Chair and CEO.
Good governance also requires board members and executives with specific human governance expertise, who understand how all people connected to their organization are sources of value, and if managed badly, can become sources of significant risk. Boards and executive teams must have integrity with highly capable, independently minded, people working in harmony (not acquiescence) and setting a good example to all stakeholders in that organization – society at large. They cannot fulfil their roles to the best of their abilities and inclinations unless their organization has the necessary systems in place to help them achieve this, such as the right kind of executive reward. They also need to be able to pass the test of maturity.
What is a healthy culture?
A healthy culture is dependent on a healthy governance structure. Culture has been summed up as ‘the way we do things around here’. If the ‘way we do things’ is only to comply rather than enter into the spirit of good governance then misbehaviour will ensue. For example, a healthy culture is one where people are encouraged to speak up if they believe they are witnessing the ‘wrong way to do things’.
A healthy culture is also one of never-ending improvement, learning and innovation. A healthy culture is one of evidence-based, collegiate and consensus decision making; it cannot be dictatorial. Organizations create healthy cultures when they aim to make the most of the physical and intellectual capabilities of all of their people. This requires an environment where talent, capability and effort are not impeded in any way by divisional, functional or territorial rivalries.
Healthy cultures do not have whistle-blowers because people are encouraged to speak up, within a well-ordered communication system; one where they rarely need to speak up because everyone is behind the organization’s purpose and trusts their leadership to make the right, long term decisions, coherently and consistently. They have a systematic, positive and constructive process in place that welcomes ideas and innovations whilst encouraging an ongoing critique of the organization and its operating methods.
Based on our extensive recent work and, in particular, our Banking Governance and Culture project, the Maturity Institute will shortly be releasing our global standard for Good Governance and Healthy Organizational Culture. If you would like to receive a copy, or engage with us on our new standard please contact firstname.lastname@example.org