Governance: why it matters

meetingBSI explains the essential role that governance plays in creating organisational resilience.

Organisational resilience is the ability of an organisation to adapt to and anticipate changes in the market. An organisation that is resilient is not just one that survives, but one that flourishes.

The four pillars of organisational resilience are:

  • resilience
  • business continuity
  • crisis management
  • governance

Governance is an essential ingredient in this recipe for adaptability – think of it as the block that rests on top of the other three columns, keeping them upright.

What is governance?

If you picture an organisation as a boat, you can view governance as the rudder, helping to steer it towards a pre-set course. It’s important to make a distinction between this and the actual crew who man the boat – that is, the senior stakeholders and managers in a company.

Governance is the mechanism in place to dictate the relationship between company owners/members and managers. It is different from the actual management of a company. Instead, it’s about setting a direction and the means to achieve it, while establishing a framework that ensures that the organisation is heading on course. Accountability, assurance, compliance management, whistleblowing systems and anti-bribery measures are all examples of aspects of this infrastructure.

Communication is vital, and the focus of governance is on reinforcing a critical structure that ensures that information can be filtered down to the key staff and stakeholders.

Governance in practice

The idea of governance has been around for a long time. Traditionally, it was a system to overcome the owner-manager divide – ensuring that those who managed a company did so in the best interests of the owners. From the VW emissions scandal to the Lehman Brothers ‘slip-up’ that brought about its ultimate downfall, recent perceived failures in corporate governance have bumped the issue up on the corporate, government and societal agenda.

The very fact that these issues can occur on such a large scale implies that we need tighter guidance on governance. Whether companies are breaking the law or treading a line of moral ambiguity, wider transparency is needed. Governance is an effective tool to achieve this.

However, governance is increasingly seen as being key when it comes to high-performing organisations, not just as a guard against management failings. Successful organisations require a clear and motivational purpose, as well as highly-attuned systems to ensure that this is delivered. Without this, an organisation can lose its way, becoming directionless and demotivated.

Governance and performance

The role of governance in increasing company performance can be shown by the impact of a move towards more employee-owned organisations (EOOs). Studies have shown that EOOs are more robust and better able to negotiate their path through economic downturn. It’s worth noting that this is only the case where the ownership goes hand in hand with a decisive employee presence in key business decisions. Where employees have a greater stake in the work they do, they’re more likely to go above and beyond for a business.

A study by Cass Business School which compared 49 EOOs against 204 regular companies over the course of the economic downturn analysed behaviour before and after the 2009 economic crisis. The results showed that EOOs were more resilient, with the recession having a less significant impact on these businesses, compared with their privately-owned and publicly-owned counterparts.

But what distinguished these companies from their competitors? It was the relationship between their managers, employees and stakeholders and the communication channels between them. Establishing and ensuring the right culture are therefore central to good governance.

Another example is the role of governors in transitioning to ‘purpose-driven’ organisations – that is, having a clear, enduring sense of why they exist, which is embedded in creating societal value, and delivering this in a way that considers all stakeholders. Unilever and Whole Foods are good examples of this. In purpose-driven organisations, employees are likely to be more invested and driven, which has a knock-on effect on a range of areas, including productivity. Could the core reason for the existence of for profit businesses come to rest in the societal domain? Only time will tell, but if this is to happen it is clear that governance will be at the heart of such a transition.

How is BSI helping develop the idea of governance?

BSI 13500:2013 Code of practice for delivering effective governance of organisations addresses governance head-on and is a useful point of reference for businesses looking to implement governance. The standard works on the premise that good governance positions organisations for success. There are several standards addressing specific sector or country domains of governance, including the G20/OECD Principles of Corporate Governance.

BSI is currently in the preliminary stages of establishing an international standard in governance. The potential for an ISO standard in whistleblowing is also being explored.

Governance is equally useful for all organisations, whether they have 10 staff or 100, whether they’re a public company or a not-for-profit. Although governance would be different for different industries – the financial sector, for example, has significantly more compliance issues to address – there are key principles that can be applied to any organisation.

When it comes to governance, what’s missing in the field of standards is a principle of governance that is universally applicable – one that applies to organisations of all sizes, internationally and within different industries.

Permission to reproduce extracts from BSI Publications is granted by BSI Standards Limited (BSI). No other use of this material is permitted.

This article was originally published on the BSI Member Portal. If you are interested in learning more about BSI and BSI Membership please contact BSI.

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