Written by Joseph F.X. Zahra, 6 January 2014
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When it comes to corporate governance, we need to go beyond the written down rules and regulations. This was my knee-jerk reaction to an unexpected question aimed at me during a MISCO Directors’ Network networking event recently. Essentially what I did say is that what matters is what is right or wrong and not what is articulated in the regulations. This does sound provocative and controversial especially during a period when Regulators are busy writing stricter rules to regulate business behaviour. However I believe that there are three underlying principles that guide business decision making and consequently its activity. These are soft principles that are starkly in contrast to the rigidity of written regulations.
The first principle is that of Frankness… sincere motivation on the part of board directors to decide in the company’s interest with clear understanding of the business’ mission and respectful to the company’s stakeholders. This might sound naïve and superficial, but it is far from being so. It reflects on the choice of the directors and their values and it is a result of their maturity and experience. It hinges on self- responsibility rather than “imposed responsibility” as defined by Regulators.
The second principle is that of Courage. Being brave to take decisions even if these are difficult ones. Decisions are taken after giving ample time for study, preparation and reflection – a combination of reason and empathy, but always considering the long term consequences. There is no place for short-termism in bravery. Being brave means considering all the risks but finally plunging by taking the decision and being accountable for such decisions.
Transparency is the third principle. The board of directors needs to be communicative – a good listener as well as a good speaker. Secrecy breeds suspicion; suspicion breeds mistrust. Mistrust disrupts business. An effective communication policy and strategy by the board establishes the right atmosphere for dialogue and understanding especially between the board and the top executives of the enterprise. However continuous communication is also necessary with the shareholders, the owners of the business. Understanding their motivation and aspirations is a prerequisite for better business.
The key issue here lies in the selection of directors (including non- executive directors) who are endowed not only with sharp-end experience and professionalism, but who have the right values that helps them judge complex situations and take the right decisions. The search, therefore, is for the policy makers, decision-makers and risk-takers who have grown in an ethical culture that values sustainable creation of wealth.