CORPORATE GOVERNANCE

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Issue

 

We all know that the failures of the past, especially the global financial crisis of 2007-08, exposed all organisations to a new concern for corporate governance. A greater demand for accountability of organisations to their owners and business partners was required as part of these changing times. This implies that an organisation is part of a wider societal network and has responsibilities to all of that network rather than just to the owners of the organisation. In respect of an organisation’s commercial confidentiality and its strategic competitive advantage this may create a number of difficult issues for many organisations. How should you approach it?

 

Solution

 

Given that accountability is about an organisation being aware that its actions have an impact on the whole of the external environment surrounding it, it needs to acknowledge that it must accept responsibility for the effect of its actions. This is not something that may be dismissed lightly for it is now clear that an organisation’s external stakeholders have the power to affect the way in which those actions are taken. Not only that, they also play a major role in determining the justification of those actions, which inevitably has a financial impact on the organisation.

 

Before considering how to approach this issue let’s be clear about one thing – accountability doesn’t mean that your organisation has to reveal information that belongs to and is owned only by your organisation. Likewise, any kind of privileged information, or that which would breach legal, commercial, security or personal privacy obligations should not be considered as requiring to be transparent. Accountability, in the context of corporate governance, generally only means that an organisation’s reporting structures must be clear. Why is that such an important aspect of corporate governance?

 

Let’s start by trying to understand more about accountability. Generally, an organisation is now required to be accountable both for the consequences of its activities and also for not repeating any negative activity. The principle of transparency requires such information to be revealed and accountability is the means to revealing it. In essence, being accountable means providing proof on what you are responsible for. Unfortunately, there has not been a consensus generally about how to deal with this necessity.

 

It is inevitable, therefore, that there is a need for some sort of mediation of the different interests to reach a broad consensus on what is in the best interests of all stakeholders and how this can be achieved. Is it acceptable to simply rely on an organisation’s self-declaration? Or, as with the audit of financial statements, should there be a third party who scrutinises on behalf of all stakeholders?

 

Irrespective of which view on this you hold, the key to successful accountability is for your organisation to keep track of the implementation of all significant decisions to ensure these decisions are followed in a socially responsible way and for the results of those implementations to be declared, either positive or negative, in a timely and responsible way. There really is no uniform method of presenting an organisation’s accountability to its stakeholders. No doubt ever increasing disclosure requirements, especially in the commercial sphere, may be considered an attempt to enhance transparency and accountability yet it is patently obvious that one size does not fit all. Whatever practice you adopt for satisfying the accountability principle of corporate governance it must satisfy the needs of the stakeholder community and, most of all, make economic sense.

 

At Park Advisory we understand this may be a complex task and would be more than happy to assist you in developing an appropriate accountability reporting structure. Please do email us at info@parkadvisory.uk for a free, no obligation initial consultation.