The opening quote is from Mervyn King, the “brains” and driver behind “King III”  (and I and II), the South African Corporate Governance Code – probably one of the best in the world.  King states

“Good corproate governance is about ‘intellectual honesty’ and not just sticking to the rules and regulations”

This view is mirrored in the UK style of Corporate Governance, that of Comply or Explain within a princpled based system.  This compares to a more US oriented approach of tick boxes with “huge gaps” inbetween which become “unaccountable”.

The Executive summary is an interesting read for all public sector and NFP sector governing body members.  Even though these are framed specifically for the NHS, our experience in the private sector indicates that the issues are not all totally unique to the NHS. 

Therefore the Executive summary of findings, recommendations and conclusions are a worthwhile read for every director – Pages 4 to 6

Steve Bristow who is a Board of Examiners member at the IoD and is involved in the public and NFP sectors give his view:-

He also stated that what gives him value is “.. the process of change and developing. It’s about finding where you are and trying to get better.” He is also an advocate for challenge, debate and diversity within the boardroom.

A chairman is a lonely role, one for which there is little experience gained on the way there. One of the key roles of the Chairman is the protection of the “reputation” of the organisation. In times of crisis it is less likely to be the CEO walking the plank, these days it is the Chairman out there as the voice of the organisation in the public eye and handling the new media trends.

The Chairman is a key custodian of the organisation reputation and requires the Board to be a team that meshes well together in every board meeting and is poised to act constructively in times of crisis to protect its reputation which the media and world at large would relish seeing damaged (even if only to “sell the story”).

Rolls Royce had its difficulties and the fact that it did not cause as much damage as it could have done is down to their handling of the press. Leading by Reputation gives more information on the annual awards by the Reputation Institute where Rolls Royce were awarded top position overall.

Reputation is an asset you need to build up for a rainy day and the Board need to have a strategy for handling crisis that is in line with current public expectations.

 Our first reaction would instinctively be – YES.

But then – why do we become so focused on the numbers and the short term returns?

The FRC in the UK Corporate Governance Code has included the need for the Board to look to the sustainable businesses and the focus on the longer term as the objective.

Some “balance sheet investors” look only to the numbers which has its risks and creates a short term focus within the company.

The attached article covers the key components of a valuable management team :-

• Vison
• Results
• People orientation
• Confidence

All the above are values a Board should have as the unit that leads an organisation.  Investors should consider these qualities and look to see aspects being present within a Board which will support its strive for continuous improvement.  

A strong cohesive Board that can drive forward and handle crises will add value for investors.

The key messages are:-

1.   You are at risk if you are in business

2.   You are at a higher risk if you trade internationally

3.   There are four new criminal offences and the penalties are onerous on both directors and the organisation

4.   Training is required of staff and associated persons as all steps in the chain are at risk

5.   Act provides for defence – only where “adequate procedures”  can be demonstrated

There are  a number of training courses, online and classroom available. 

What is missing is how to implement this within your business at a level that is more than a policy document that is at risk of not being read, not internalised, forgotten or not remembered.  The value is in setting up the correct procedures and ensuring that the steps and actions are appropriate for the different business activities and business development teams in local areas / national regions / international countries.

This requires the development of a framework, implementing the steps into the day job of the individuals such the it can be evidenced the processes that were followed.

This ensures that you have proof that the correct procedures were followed and evidenced every time.  This will provide defence when a problem arises.

This is where Genius Methods can help.  Contact Sharon Constancon on sconstancon@geniusmethods.com to discuss your needs and therefore possible solutions.

Links to interesting articles and publications

Shoosmith – 25 August 2011 : Bribery Act: Compliance for developers.  This is an excellent article on the bribery risks faced by businesses.

The Bribery Act 2010 – Guidance  (relating to Section 9)

The Bribery Act 2010

Pinsent Masons - host exclusive interview with the SFO on Bribery Act Guidance

Wragge & Co - a number of videos on the Bribery Act

Article in the Informed Executive September 2011 Edition – Link will be provided shortly

Solicitors are used to a life of black and white, where there is a clear rule that can be followed. 

The FSA for example provides guidelines to the financial services sector that is not prescriptive but allows the organisations to adapt them in a way that is fit for purpose.

The FRC which is the issuer of the UK Corporate Governance Code is on the basis of “comply or explain” which also allows for organisations to work out what is best for their organisation within the guidelines provided.  When they do not comply, they have the space to explain.

The difficulty of these style regulations and guidelines for those that are not familiar with them, is that seem to vague, how to re-invent the wheel in each firm become a complication and a potential cost. 

The positive side of this style of regulation is that they are more likely to create the right “style” of conformance.  They encourage a way of life that is naturally compliant.  The alternative style, adopted in the US is that of a check-box system, if you conform or comply to a given list then you do anything else you like.  This does not breed a conforming culture, but one that looks for the gaps to behave in an alternative  manner.

As defined by the SRA

“Outcomes-focused regulation focuses on the high-level principles and outcomes that should drive the provision of legal services for consumers…, risk-based approach concentrating on the standards of service to consumers. There will be greater flexibility for firms in how they achieve outcomes (standards of service) for clients”

Genius Methods with partner firms have developed various compliance and risk management solutions to support legal firms.  We understand your current position and maturity in this area and help support you work out what is required in the different practice areas ranging from actions like compliance reviews or file reviews right through to practice wide objective risk assessments.  We have the solution once we understand your needs.

For further information contact sconstancon@geniusmethods.com

Excellence in Governance is the Code that drives good corporate governance for Housing Trusts.

Achieving that Board role is not likely to have been easy, more often than not, highly competitive which when achieved needs to be discarded in favour of that of a team player – totally opposite to what was needed to reach the position.

Boards are a team of strangers, put together infrequency to handle the most important decisions for the Trust, often with limited industry or operational knowledge.  It is typical for Executive members to withold information from non-executives / Board as a whole, wanting to retain the decision making at management level.

The dynamics created by this situation often leads to an unconstructive challenge risk and non co-operative team dynamics and a dysfunctional Board.

Yet the success of this team behaving as a unit is crucial to the success of the organisation.  A Board Evaluation is one very effective way or reviewing the Trust’s current “status” – it is like holding up the mirror or reality.  This reality check is valuable to objectively determine the current position versus the desired status. 

Once this is known, progress can be made to work forward, define recommendations and layout actions to reach the desired Board behaviour and team.

A very good article was published by Just Housing in July 2011 on the subject of human dynamics and the value of the Board Evaluation in the Housing Sector – click here for a copy of the publication.

Governance issues at Board level have had an impact on investor perceptions, they managed to get a number of actions wrong and managed to compound them thereafter.  See the numerous links further down in the article.

Even an organisation this big can be impacted by bad governance attitude and behaviour.  See article that indicates the EIB has frozen lending due to governance concerns. 

Our experience shows that there is not often enough emphasis placed on communication with stakeholders, particularly at a time of crisis.  This was evidenced by a number of high profile media and social media debacles in 2010.  Glencore has understood the importance of Investor Relations and has appointed someone familiar with the investing public, Paul Smith as IR Manager

What is interesting in this case is the size of the business and the nature of corporate governance issues that has plagued the company pre and post the flotation and the direct impact that has had on shareholder value.

SQW, a leading provider of research, analysis and advice on sustainable economic and social development for public, private and not-for-profit organisations has issued an excellent paper on “The Big Society, Public Sector Spending cuts and Community Empowerment“.

There are many places to start reviewing costs, responsibility, risk management and ownership of process.  One of those places is right at the top – at Board level.  This applies whether a Housing Trust, a Foundation Trust, a Charity or a Local Authority. 

At Board level the ethos needs to change from expectation of funds to “how do we manage within a given, restricted budget”.

The attached article addresses the Board Evaluation process that the Public Sector need to adopt, as is being done in the Private Sector, the evaluation of leadership culture and, with the support of behavioural and governance specialists, support the change in focus.  This mind shift will filter through the organisation into every nook and cranny – miraculously savings will be the outcome, without it being a direct initiative.

The EU has issued a new Green Paper on Corporate Governance that covers a number of corporate governance issues that will directly impact the way European Boards are run and reviewed – some of these changes we have already experienced and some may still arrive on our shores.

For your copy of the Green Paper – The EU corporate governance framework

To understand the FRC’s response and likely changes in the future,  join us for an evening of champagne, networking and listening to the FRC’s very own Chris Hodge discussing the implications on your Board Room being caused by Europe.

View a copy of our invitation to our cocktail party

at the prestigious Royal Air Force Club on Piccadilly in London on 18 May 2011  

Please contact ljames@geniusmethods,com if you would like to attend.

There could be many reasons for this.

We attach an article by the CEO of Genius Methods, Sharon Constancon, where she addresses many of the reasons for the concerns and simultaneously addresses why the concerns are unfounded.

An outside view

This article appears in the April 2011 edition of the Chartered Secretary magazine.

www.charteredsecretary.net