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PKF Australia

Accountants and Business Advisers

Corporate Governance

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Ken Weldin

Partner

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Corporate Governance

Governance is elementary … or is it?

Alongside ‘entrepreneurship’ and ‘innovation’, I wonder if you agree with me that ‘governance’ is one of today’s most frequently used phrases yet at the same time, one of the most misunderstood.

If you search for the term in Google, you will get nearly 61 million hits to choose from.

So, what exactly is corporate governance?

I started to set out what corporate governance means to me and in doing so the previously unknown scientific part of my brain kicked in, allowing me to plot these ideas into my own version of the periodic table of elements: the periodic table of corporate governance.

Definition

The non-negotiables. Key aspects of probity, accountability and transparency remain fundamental. Ask yourself whether you or those around you would actively strive to avoid these aspects. If the answer is yes, time to reconsider!

I also like the concept of stewardship which references the desire that hopefully at some point in the future the various parties involved will hand the enterprise over to new faces; for the time being they therefore act as stewards supporting views of sustainability in its literal sense.

Recent months in Australia and elsewhere have highlighted the critical role of culture in setting the expectations and standards for conduct and behaviour.

What are you willing to walk past and by default, tacitly endorse as acceptable?

Character

If your mind turns to Boards when you think of governance, then what does it mean to be a director? What is the character of an effective director?

Independence is one of the more obvious expectations while at the same time very personal. Leadership, gravitas, questioning and the ability to be a good listener are also often quoted as character requirements.

When I talk to new directors, I particularly like exploring the concept of ‘intelligent naivety’ as well as a new phrase that I like: ‘courageous authenticity.’

Do you display these characteristics when making your decisions?

Context

Context sets the environment in which your organisation operates. The Corporations Act therefore features strongly alongside the various regulators such as the Australian Securities and Investments Commission (ASIC), Australian Prudential Regulation Authority (APRA), Australian Taxation Office (ATO), Australian Charities and Not-For-Profits Centre (ACNC), Australian Stock Exchange (ASX), the various Local Government Acts and industry codes.

Do you fully understand how your entity sits within this context and how it influences your fiduciary responsibilities?

Relationships

Key relationships in governance include those around the boardroom table, the role of the Board Chair, and then through the CEO into the management team.

Governance relationships always flag one of the golden rules: conflicts of interest.

Do you know what they are, where they could arise and how to manage them?

Levers

Levers of corporate governance relate to the various tools, forums and processes at a Board’s disposal.

Are you familiar with these as set out in the table? Do you actively use them?

Activities

Governance actions include endorsing strategy, overseeing effective compliance and risk management processes followed by a rigorous board performance evaluation and a targeted education programme.

When is the last time you did any of these?

Engagement

Shareholders, members, investors and analysts. How an entity pulls its governance levers and manages its activities to make decisions is typically then followed with communication of the results of all the above.

From that, returning to transparency, the ‘continuous disclosure’ rules and mindsets apply to all sectors not just those on the ASX.

How do you communicate?

Mechanics

Time allocation and ensuring appropriate time is spent on the things that matter sounds obvious. Investors - public and private - expect Boards spend as long as is necessary on Board business and not skip things just because the meeting is due to finish in 30 minutes time.

Where do you spend your time?

Structure

Much discussion on governance structures in recent years has focused on Board composition, skills matrices, Board size relative to workloads elsewhere and diversity.

Is 2018 the right time for you to consider how your decision-making bodies are structured?

Attributes and Mindset

Attributes and mindset often focus on avoiding groupthink, avoiding complacency and acting on the ‘red flags’ which are inevitably found in the wake of a governance failure.

Do you look at others around you and ask: ‘Tell me we don’t do that, do we?’

‘Don’t tell me, show me’ is a phrase heard a lot more around Boardrooms today.

This would be supported by a focus not just on ‘what can go wrong’ but also ‘what must go right.’

Do you ever pause to ask, ‘yes we can do this, but should we?’

In conclusion, at the heart of all this is, element 107: Decisions.

Governance is about how you make decisions - good ones, bad ones and indifferent ones.

I hope this table helps you consider how you make decisions in your organisation. 

I would love to know what you think.

 

To download a copy of the Periodic Table of Corporate Governance please click here.

 

PKF advises organisations on their corporate governance structures and frameworks. To explore this article further and assess how you make your decisions, please contact Ken Weldin on 03 9769 2310 or your local Partner.


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