Good Governance, Corporate Culture and How the CEO Adds Value
The success of an organisation is significantly influenced by good governance and a steadfast corporate culture. The majority of the people might not be aware of which individuals run the company. However, the effectiveness of the board of directors is evident in how the organisation manages its activities both internally and externally. The governing body of a corporation has the mandate to prescribe how the company will run and make decisions which ultimately reflects on the success of the company. According to Hersh, the quality of services offered in the biotech, healthcare, and pharmaceutical companies is significantly inspired by an organisation's governance.
It is recommended for organisations to embrace culture and diversity in its management to enhance effectiveness in managing their activities. Organisations that embrace diversity can better table a variety of perspectives, backgrounds, and experiences that will represent each of their target clients which is vital to the company’s success. One of the common strategies used by organisations to bring in diversity concerns is encouraging gender diversity at the board and within the management of the company.
The CEO and the executive directors are the most influential when it comes to embracing corporate governance and develop strategies that advocate for a sustainable corporate culture that seeks to meet the business objectives ethically.
Importance of corporate governance
Regardless of an organisation’s size, corporate governance should be considered as a vital element to the success of the organisation. Some organisations seek assistance from corporate governance training experts to ensure their teams are well equipped with the concepts. Corporate trainers focus on providing the employees and the management with updated information and knowledge regarding their responsibility to the company.
Most companies advocate the use of the corporate governance framework in developing organisational strategies that align with the corporate culture and business objectives. The success of an organisation is mainly determined by the value gained by their teams through continuous learning which can be achieved through on-job training programs and in-house corporate training. Some organisations invest in their employees and executives to acquire further studies and attend external workshops teaching on leadership, corporate governance and corporate culture.
Corporate governance has also been identified as an essential technique in turning around failing companies. One of the turnaround strategies in corporate governance is implementing a new framework for governing the company such as including gender diversity and rolling out new policies and procedures for decision-making purposes. This means that organisations cannot successfully improve their culture and internal controls without influence from the board and senior leadership. The culture of an organisation can destroy the established plans for corporate governance. Training on corporate governance equips the leaders with better skills of leading organisations and how to align their corporate culture and strategies. I find that my successful masterclasses work, as well as various techniques such as role-playing, case studies and scenario analysis to develop culture, risk management, and leadership excellence.
Issues of gender diversity and the vital role of women
In the United States, companies speak about diversity in the organisations but there is still a small percentage of women serving on boards. Embracing a diversified board is a critical aspect of developing sustainable performance. Whereas having more board members increases the perspectives presented by the top management, gender diversity and diversity of thought brings sustainable success. According to The New York Times, a study from China revealed that having more women on the board is useful in reducing cases of fraud in companies. In China, the women occupy approximately 50% of the board members in an organisation which is significantly higher compared to the rest of the world.
A finance and accounts professor at Shanghai Campus, Oliver Rui argued that fraud has become a crucial issue in organisations not only in the US but also worldwide. Before China resorted to gender diversity in organisations, on average they lost about 5% of their revenue through fraud annually.
In the United States, the percentage of women serving on the boards is low. Hersh states that the health-related industries have a significant number of women on the board compared to the biotech companies. According to the Fortune 500 healthcare companies, the women account for 21% of the board members despite them making up half of the workforce in the industry. The majority of the companies claim to appoint board directors based on qualifications priority regardless of their gender. However, reviewing the information from Fortune 500, the recruitment process does not fully consider diversity. An organisation that embraces diversity in governance does not only gain positive financial returns but also exploits a great potential of talents and better represents the views of customers and the workforce.
Corporate governance has also been identified as an essential technique in turning around failing companies.
The benefits of diversity – going beyond gender diversity
According to Arguden (2012), the majority of organisations focus on developing an exquisite corporate culture by appointing directors from different age groups, educational backgrounds, and functional expertise. However, they underestimate the value of embracing gender diversity into the corporate culture. The advantages of gender diversity cannot be ignored. The Italian Government recently enacted a law requiring all the state-owned and listed companies to ensure their board members comprise of one-third women. In 2012, the number of women on the board were insignificant, Italy had 6%, 14% in the European Union and 16% in the United States.
Hersh evaluates reports by Fortune 500 companies on the benefits of gender diversity in governance. The 2009 statistics ranking companies based on the number of women directors indicated that the organisations achieved 42% higher returns on sales and 53% more on the return on equity compared to the companies that did not have women.
Arguden (2012), emphasises that the opinion of the women directors is key because the females drive 70% of the purchasing decision.
The CEO as the gamechanger – building a strong management team
As organisations focus on building their corporate culture, they should invest in attracting, retaining and developing a diverse workforce. The CEO is key to leading change and setting the tone from the tone. The CEO and their team influence the corporate culture through rewarding ethical behaviour and good governance. Strategic corporate governance is key in determining the level of excellence. Organisations have the responsibility of adopting strategies that offer a combination of leadership and culture skills, and corporate governance which will serve as essentials for success.
The management and leadership personnel should be well equipped with knowledge that will enhance their governance skills thus leading the organisation towards sustainable growth and excellence. Organisations can invest in having strategic governance training sessions for the directors and their executive team. The success of a company is influenced by the leadership, corporate culture, and how effective the organisation has implemented the governance framework.
Research on diversity and how it reduces fraud
The Catalyst researched expanding the opportunities of women. The findings revealed that there is a strong connection between the presence of women on the board and building the corporate reputations. Women on boards serve as essential role models in building corporate culture, thus, they are influential in improving performance and boosting the company’s image. According to Arguden (2012), rating agencies and investment funds have adopted the gender diversity criteria.
The entry of women in the workforce faces a lot of barriers which reflects a discriminative culture in many organisations. Women advocate for measured expansion rate strategies that offer protection to shareholders’ investments (Tatlow 2014). Some of the issues affecting corporate governance and corporate culture are closely linked. For example, the issue of fraud damages the two dimensions in explicit ways. Fraud, bribery and unethical practices in an organisation could emerge as a component of culture through misrepresentation or poor governance that damages reputation, consider Wells Fargo, Toshiba, Siemens and Rolls Royce.
Embracing a diversified board is a critical aspect of developing sustainable performance.
The presence of women can be used as a tool to improve corporate governance and create a culture that addresses risk issues effectively.
Organisations that fail to embrace diversity are at the risk of not hearing potential ideas that could be used to improve the performance of the company and they might fail to critically examine the downside of ideas.
Hersh provides various studies that support women directors as elements of making more effective decisions in managing risks and establishing long-term priorities for the business.
Leading the way to success – the role of the board and CEO to build good governance through diversity
The success of organisations is vested in their ability to maximise benefits acquired from embracing good governance and developing a corporate diversified culture for their organisation.
Many organisations publicly advocate the appoint of directors and senior executives based on their age, educational background, and expertise. Regardless, most studies have revealed that most of the companies discriminate against women when appointing board directors, CEOs and senior executives. They fail to recognise the value of diversity in developing robust corporate governance and good corporate culture.
Diversity is an effective technique in solving most of the challenges encountered in organisations by focusing on ensuring employees, stakeholders, and management make decisions based on ethics and the short, medium and long-term business objectives.
Training, workshop, and education can add value to organisations to enable them to build knowledge, capacity and overall employee engagement.
References: https://sinosphere.blogs.nytimes.com/2014/04/04/more-women-on-company-boards-reduces-fraud-study-finds/ https://hbr.org/2012/06/why-boards-need-more-women https://www.hsph.harvard.edu/ecpe/why-diversity-matters-women-on-boards-of-directors/ www.governance-gurus.ae https://www.governance-gurus.ae/corporate-governance-and-leadership-blogs/
About the author
Robert L. Ford is the Executive Director of Strategy and Governance at Governance Gurus – the corporate governance training and consulting experts. He has extensive international experience through living and working in several counties. Over the last 11 years, Robert has been based in and has worked across the region advising clients and training company leaders from around the globe. More recently he has increasing worked in Malaysia on projects and corporate training masterclasses.
In 2009, Robert was headhunted to transform a corporate services division within an international law firm with its main regional office in Dubai. This was a challenging project as it required a full root – branch review of the division, the employees and the services, systems and fee structures. The project was successful and resulted in higher employee engagement, increased profits and customer satisfaction.
Robert was also part of the transformational leadership team of a Big 4 firm and advised on governance-related matters, culture and lead a major project to create a regional shared services office to look after the needs of 13 countries. The shared service centre was successfully created and has grown from strength to strength since its inception. This was due to building a diverse workforce, the recruitment of highly skilled employees and through the implementation of good governance and a culture of business excellence.
Governance Gurus is based in the United Arab Emirates and is a corporate training and governance consulting company which provides internationally accredited continuing professional development (CPD) for directors, senior executives and company secretaries. The company designs and facilitates interactive and engaging masterclasses for senior leaders and managers through in-house corporate training or public workshops and courses. Governance Gurus is a regional tuition partner for The Chartered Governance Institute for ICSA. Governance Gurus provides governance, risk management and change management consulting services to clients internationally.