Transcript of One Question Podcast – Using corporate governance to support objectives:
Welcome to the One Question Podcast from O’Brien Governance Design, who specialise in corporate governance for the public and not-for-profit sectors. I’m Will Francis, and in each episode I ask Trish O’Brien a different question about corporate governance. So in this episode, I ask, how can I explain the purpose of the Code of Practice for the Governance of State Bodies or the Charities Governance Code? We’ve talked about a range of governance topics over this series of podcasts, including external evaluation, induction of Board members, keeping Board business strategic, and risk. For this episode, you want to talk about the purpose of the two governance codes that we’ve been referring to. Why are we talking about this now?
Well, I thought it was important that we looked at some aspects of the governance codes before we took a step back to talk about the purpose of the codes in kind of a holistic sense. So what I’d really like to talk about in this episode is the interconnected nature of corporate governance and how all of its parts should be working together, to contribute to the organisation’s objectives.
And I presume that’s because you feel that’s not always how it’s approached.
Well, I think corporate governance is often approached as a series of tasks that have to be completed. It’s generally considered to be, I think, a fairly dry topic of interest to those who like rules and regulations. But in truth, I actually think corporate governance goes to the core of an organisation. It’s about, you know, working out what you want to achieve and trying to implement that. And at the same time, it’s about power, and it’s about people, and it’s about politics.
Yes. That’s definitely the sense I get. And when you work with an organisation on its corporate governance, are you getting some insight into those things?
Yeah absolutely. When you look at an organisation through its corporate governance, it tells you so much about how clearly it’s thinking, how inclusive it is, how power is exercised and shared, how well it understands itself. And also just how well it’s, it’s actually meeting its objectives.
Yeah. And how do you think that people can be more engaged in the topic of corporate governance and understand the contribution that it can make to how an organisation works?
I suppose our primary reference point for these podcasts has been the Secretary to the Board and, you know, they have an especially important role in elevating corporate governance from sort of a set of administrative tasks, to something that’s core to the business, but they can’t do that alone. They have to be supported by the Chair of the Board on one side and by the CEO on the other. And I think those three individuals really need to come to a joint understanding of the value of corporate governance, you know, beyond a regulatory framework, if that understanding is going to permeate down further into the executive, into the staff as a whole, and also into the Board members as a collective.
I can see that those three roles are key. How would you like those individuals, the Secretary, the Chair of the Board and the CEO to view and promote corporate governance within an organisation?
Well, I think primarily we’d like them to think about corporate governance as providing a set of tools that supports them in meeting their objectives.
Okay. So can you talk us through that? You know, how does that work?
Okay, well, I’m going to try to make connections between what we’ve been talking about in previous podcasts, so that we can take more of an aerial view of corporate governance, which is I think what we’re advocating that others should do. So I think first, if we put corporate governance to one side, it’s useful just to think about the nature of organisations. And I think we can probably agree that every organisation has a purpose and it has objectives, or else it just wouldn’t exist. And in the public and not-for-profit sectors, those objectives are described in legislation or in their constitutions. And organisations are responsible for identifying and taking actions that will support the achievement of those objectives. To fulfill those actions, they’re going to need resources, probably human resources, certainly human resources, financial resources, possibly capital resources.
And they also set up policies and procedures to help them to operate consistently towards the delivery of their plans and in line with their values. And then you have, with public and not-for-profit organisations, they also have a responsibility to their stakeholders to operate ethically, without conflict of interest, and to be accountable in carrying out their business. And again, their goal should be to review how they’re doing in terms of their business, in terms of how they’re operating and continuously improving. Any organisation has to do that or else they’re going to get stale. So if we kind of accept that as an outline sketch of an organisation then I think the role of corporate governance is completely aligned. It’s about helping the organisation to remain true to its purpose and objectives.
Right. So talk us through how corporate governance lines up with what you’ve just described.
Well, corporate governance, I think, is putting it up to you to act in the way that you’ve said that you’re going to, and it does apply some standard regulations, but it largely is actually taking its lead from the organisation itself. And I think, you know, taking those characteristics we just talked about, that are standard to any organisation, I think if we could look at those again and work through them in terms of layers and how corporate governance is helping and supporting each one of those, and we’ll do this briefly. I think if we take it that, you know, agreeing roles and responsibilities: an organisation has legislation or it has a constitution, the first thing that everyone has to know is what are the responsibilities? You know, whose doing what, whose accountable for what? Corporate governance rules, Codes, etc., will expect terms of reference for the Board and for committees.
And it pays a lot of attention to fleshing those roles out and assigning accountability for actions and decisions. I think that’s critical, before we go any further, I think that’s critical. Roles and responsibilities have to be clear. The Board has to be clear on what it’s doing. Staff have to be clear on what they’re doing. The codes will prompt that clarity. And sometimes that clarity doesn’t come from within, it actually requires that external prompt. So I think corporate governance is supporting Boards and staff in terms of roles and responsibilities. The next thing then we said is that, you know, organisations, they have objectives, they have a strategy, they have a plan, they have something that they’re trying to achieve. And you know, corporate governance again, it assumes the development of a strategic plan that is informed collaboratively and it expects that there is a plan for the delivery of that strategy that’s taken account of the resources that are available. So every organisation, it exists for a purpose and for a reason they have to decide where they’re going, how they’re going to get there. Corporate governance, those codes and regulations, are simply assuming that fact. They are requiring that how you’re going to get there is documented, is planned for, and resources are assigned to it.
Linked to that then is, when you’re thinking about where you’re going and how you’re going to get there, have you thought about things that could impact on you fulfilling your role? And, this is where again, corporate governance can assist in terms of requiring that you start thinking about risks, you know, are you identifying where there’s uncertainty that matters? And do you know what you’re going to do about it? You know, in your risk appetite and tolerance, risk register, and your reporting: all of those things are keeping risk on your agenda, keeping uncertainty on your agenda, and you have to anticipate if you’re going to succeed.
The next area I think is around again, just trying to work through roles, responsibilities, strategy, the next thing is around resourcing. You know, are you using your resources in the way that you intended? Are you implementing your agreed procedures? Corporate governance, in terms of your Audit and Risk Committee is helping you to keep on top of that, internal audits help you to see whether you’re implementing policies and procedures as you intended. And if you’re not, you know, why isn’t that happening? Management accounts keep you on track. They tell you what you expected to spend on what, and how, and why, and whether that plan is unfolding as it’s intended. So, again, I think corporate governance is keeping the organisation on track. It has objectives, it’s got a strategy, it’s got resources, it’s got policies and procedures. You know, corporate governance is providing the prompts to make sure that things are operating as you intended that they should.
On another few related issues: I think one is acting ethically and certainly for the public and not-for-profit organisations that we work with, you know, operating ethically and in the interests of stakeholders is absolutely critical. And, you know, we’ve all seen, when proper ethical provisions haven’t been in place and when there’s been issues and problems of corporate governance. There are significant reputational issues that arise from that, and I think corporate governance plays a very important role in providing some of the tools to manage that, you know, providing declarations for Board members to agree with it, it prompts, you know, inspections of compliance with values. and it also provides the means through which staff members can raise the alert if things are not as they should be, you know, through, whistleblowing and other provisions like that. So acting ethically is such an important part of how public and not-for-profit work together. And again, corporate governance I think is absolutely underpinning that and supporting it,
Working with stakeholders? We’ve mentioned the public and not-for-profit organisations. They have to work with stakeholders, fulfill their role, and those stakeholders can include government officials, funders, regulators, beneficiaries, and others, and the corporate governance codes. They set out some of those interactions. You know, they talk about how the organisation works with government Ministers, etc. but they just also serve to remind organisations, to look outwards and to seek input through consultation, and to ultimately be prepared to be wrong, to challenge their thinking, and to change course. So I think, having those corporate codes is critically important in terms of that. And then I think the last aspect is just reviewing and improving. I think that sort of takes us into that final area of our sketch of the role of an organisation, is that it should wish to review and improve, and we know corporate governance expects evaluation of activities through internal and external audit, through evaluation of Boards, and through evaluation of committees, through interim reviews and strategies and plans. So, you know, essentially I think organisations need to take ownership of corporate governance in the same way that they take ownership of the running of their organisations. And if they can make corporate governance requirements work for them then I, I really think that’s going to help them to achieve their objectives.
Yeah. I can see what you’re saying. But most people seem to see corporate governance in a regulatory way, just a list of things to be complied with. How do you kind of move that perception on?
I think we’ve talked before about, you know, how difficult it can be to change people’s perceptions of certain things. I think professionals in this area really need to advocate for a more business orientated and business improvement attitude towards corporate governance. And again, you know, this goes beyond the Secretary, it’s absolutely in the domain of the CEO and of the Chair of the Board. I think, you know, the field itself is probably quite young, in some respects, as are a lot of regulatory frameworks introduced in different fields. And so it’s probably going to take a bit of time to develop our thinking on this. But in the meantime, I think professional development supports for those working in these areas [is needed], we need to emphasise the strategic use of corporate governance. And you know, I suppose we’re aiming in a small way to contribute to that advancement through these podcasts and the development of other resources.
Yes. And hopefully that’s the case. Well, thanks, Trish. It’s been good to be reminded of the links between the topics we’ve talked about before and to move past thinking about corporate governance as just a set of regulations. Thanks a lot.
Thank you will.
And that’s the end of this current series of podcasts from O’Brien Governance Design. We hope you’ve enjoyed them, and that they’ve helped you to implement effective corporate governance practices. Trish O’Brien and her colleagues welcome any questions you might have on any of the topics we’ve discussed over the 10 episodes. You can contact them through their website: obriengd.ie. Thanks very much for listening.