We live in an era of hyper-transparency, a key feature of a time in which “there is no way to escape, no place you can hide,” as stated by Andrea Bonime-Blanc, founder of the company GEC Risk Advisory. Organizations must accept that they cannot hide or remain silent, and especially not be passive objects of conversation.
Control of Power
A company’s corporate governance encompasses the following areas:
- The decision-making process related to the company’s general strategic direction and corporate policies, including investments, mergers & acquisitions, executive appointments and succession planning.
- The mechanisms that guarantee executive management’s proper performance and approved strategic plan’s implementation.
- The establishment of appropriate policies and procedures to ensure the company and its managers, as well as its employees and involved third parties, comply with the relevant regulatory framework.
- The communication channels between the company’s main governing bodies, as well as the execution of their rights and duties, including the management board, board of directors and shareholders.
From financial to integrated report
One of the keys to good corporate governance is keeping stakeholders informed of all events that may impact the operation and, above all, the progression of the results. This obligation to be transparent is mentioned in general terms in communication policies, frequently appearing in regular reports and, specifically, road shows.
The International Integrated Reporting Council (IIRC) is a global coalition of the regulators, investors, businesses, standard makers, accountants and NGOs who promotes an evolution in corporate reports based on a new way of communicating.
From reporting to dialogue
The governance of an organization requires constant communications in many, if not all, of its areas. In some cases, it is a matter of reporting both financial and nonfinancial results. In addition to reporting, communication is essential to keeping decision-making bodies connected with stakeholders.
Information technologies have been making these conversations increasingly personal and individual, so the concept of a “stakeholder” has become obsolete due to its inaccuracy. Thinking and acting as if all customers want to have the same type of relationship with the brand is as well. Today’s communication tends are more individual than collective, though collective communication still influences conversations—particularly through social media, where it can still affect individuals.
Either comply or explain
The main tenet of the Spanish National Securities Market Commission’s (CNMV’s) Code of Good Governance, which is based on reference documents in the field of corporate governance, is that a company must “either comply or explain.” Compliance must not only be to regulations, but also to the rules dictating good practices, which the regulatory agency understands must be incorporated into companies.
“Explanation” focuses on noncompliance with these good practices, such as failing to report or break down remuneration to the members of the management board and executive team. Another recent example of “explanation” is in gender equality policies, referring to the percentage of women in the workforce and, above all, in the management and administrative bodies.
G20/OECD six principles for corporate governance
- Effective corporate governance framework
- The rights and equitable treatment
- Institutional investors, stock markets and other intermediaries
- The stakeholders’ role in corporate governance
- Data disclosure and transparency
- Management board responsibilities