Unpacking the importance of modern, sustainable governance in the future of the boardroom Is your company planning for the future of governance?
If you’re a corporate leader, your knee-jerk reaction might be to say, “Yes! Of course, we’re planning for the future… we’re renewing our board; we have an ESG Committee; we’re discussing AI around the boardroom table…we’re hip, we’re with it… [enter Macarena dance]”
These are all valuable and likely necessary actions for Boards (with the exception of the dancing), but in a world that is changing so rapidly, your board needs more than just stand-alone actions like a new committee or agenda discussion topic. To set your board up to tackle complex issues and make tough decisions, it’s critical to ensure you are operating with modern, sustainable governance.
Sustainable governance is the dynamic system that enables a board to define the rules of engagement to enable effective decision making and oversight. It is the how the organization maintains, upholds, defends, and supports how the organization is controlled and directed, continuously, over time, for the benefit of the organization as well as the needs of its stakeholders. It is the way we communicate to hold each other accountable and formalize inclusive direction for the greater good.
The governance frameworks that some companies use can be classified as dinosaurs. They were developed decades ago, a time before hybrid work, cyber security, data management, and ESG, and they have been passed down from Chair to Chair without asking the most relevant question – “If we built our governance framework today, would it look the same?”
If your governance structures were developed before the Myspace era or you have not reviewed your “G” in some time, it’s time for a change. A modern governance framework should be designed to tackle both sides of the G coin…
Wait, what? There’s more than one type of “G”?!
BIG classifies governance into two main streams – Corporate Governance and ESG Strategy. We like to think of it as the G in ESG and the G of ESG. It’s a distinction we make with our clients to define the dual applications of governance.
When we discuss the G in ESG, we’re referring to the traditional elements of governance such as board diversity, board composition, compensation, compliance, risk, data privacy, etc. Your board might already have systems and policies in place to tackle these traditional topics; however, it’s worthwhile to ensure that these systems are up-to-date and adequate to address volatility with defensive and offensive governance. What processes are in place to improve diversity on the Board so that it’s not all Vanilla Suits? How are you formalizing stakeholder engagement? How do you identify disclosure expectations that continue to increase? What about training on issues such as EDI, sustainability, data governance, or AI? How are you addressing compensation in a post-covid, talent-war era? The governance topics that fall under the G in ESG umbrella might be traditional factors, but they are anything but.
The G of ESG is the governance regarding your ESG strategy and how the organization deals with the “E”, “S” and “G” issues. It includes the framework, structure, and metrics that define your company’s goals for sustainability and how you expect to get there. Although governance is at the core of a successful strategy, it often gets overlooked, or worse, there is a conflation between the G in and of ESG. BIG often sees that governance is not a stand-alone category of reporting and disclosure but rather, the governance of ESG strategies that stand in for corporate governance.
If your company doesn’t have anything concrete in place to tackle the G of ESG, you’re not alone. Many organizations make lofty sustainability commitments with no real plan of how to get there. In effect, they have built a house without the blueprints. Instead of a strategy built on a solid governance framework, they have 300-page sustainability report, unratified by the Board or unaligned with their corporate strategy, that screams green and blue washing with no measurable actions or owners that last beyond their company’s IPO.
Meaningful, effective ESG strategy requires the same elements as your corporate strategy. Of course it requires strategic goals, but critical to success is the governance of the plan to get there and the tactics that will drive those goals forward, including how it’s monitored and by whom. If your company isn’t prepared to take these steps, you’re not building a sustainable strategy or upholding good governance – and your house will fall. A 2022 study by Diligent Institute and Spencer Stuart noted that the most common ways Boards incorporate ESG goals and metrics is into their company strategy (71%), followed by integrated risk management planning (52%), director appointments (48%), and executive compensation (46%).
So, if it ain’t nothin but a G thing, how does governance continue to be overlooked?
In July 2022, one of the US’ most influential responsible investors, Anne Simpson, Global Head of Sustainability at Franklin Templeton and formerly at CalPERS, flagged increasing interest among responsible investors to ramp up scrutiny of asset managers’ governance practices, particularly around conflicts of interest. “We have taken 20-25 years to get to a reasonable set of ideas about corporate governance. We are at the very beginning of thinking about investor governance. It’s the next stage in capital markets and capitalism.”
BIG was founded due the critical need for modern governance support. The role of the board has transformed substantially over the past few decades, and so has the global landscape. Not only do boards possess a larger scope of responsibilities than ever before but the issues they’re addressing have become thornier and more complicated. Geopolitical forces, supply-chain problems, inflation, and labour issues are directly impacting companies in every industry. If that wasn’t enough pressure, companies are also expected to be on the forefront of sustainability, EDI, and emerging technologies, all while improving stakeholder engagement, ensuring data privacy and meeting regs and leg responsibilities. How can anyone keep up with this if they are not upholding sustainable governance?
BIG understands that the decisions boards make have an impact on the organization, its stakeholders and reputation for decades to come. The rise of environmental, social & governance (ESG) factors are fast evolving as a strategic business imperative and the complexity of overseeing and managing an organization is fraught with new challenges impacting a Board’s ability to ensure reasonable oversight over everything. As your board attempts to address its enviro/socio-economic issues, your governance framework will be the difference between success and failure. Sustainable governance can ensure that organizations fulfill their stewardship commitments to address these new imperatives.
We’re ready to help ensure your governance framework meaningfully addresses your organization’s most material (financial and non-financial) issues. Since sustainable governance –both the G in and G of, is foundational to the future success of your house, isn’t it time you modernized your governance dinosaur?
Best In Governance (BIG) is a boutique firm with global reach that specializes in providing bespoke, modern, sustainable corporate governance and ESG solutions to transform, elevate, and empower international boards of directors and their executive teams. Contact us today to discuss solutions for your organization.
