Part 2: Governance
Victoria Hurth is Associate Professor in Marketing & Sustainable Business and Faculty of Business Lead: Student Satisfaction at the University of Plymouth in the United Kingdom.
Editor’s Note: This is the second of a 5-part series on the interconnected linkages between purpose, governance, marketing, a culture of purpose, and leadership as they relate to sustainability and the GRLI’s broader inquiry into global responsibility. Read Part 1, Part 3, Part 4 and Part 5, or access the full series.
When we talk about organisational purpose, the next topic that should ideally come into the conversation is governance. This is because the governing body should articulate the purpose, steer the organisation to delivering it and be accountable to all stakeholders for the organisation’s sustainable achievement of its purpose. BS13500 is one of the only standards (as opposed to codes) on governance that currently exists in the world. It defines organisational governance as a “system by which the organization is directed, controlled and held accountable to achieve its core purpose over the long term”.
Despite this centrality of governance to setting and achieving an organisation’s purpose, in reality purpose is still generally talked about in managerial terms. Naturally, implementing purpose is in large part a managerial process, but the whole system is directed and held in check by the governing body. In this context,it really matters if the desire and energy to become purpose driven is, or is seen to be, something that is driven mainly by the CEO. If so then the core question is how sustainable is this? Of course, a charismatic CEO that can lead the organisation inspirationally and practically towards being purpose-driven is critical.
However, if that CEO leaves, then what momentum is left behind and what is to stop the organisation tipping back to being driven primarily to produce maximum money for a few, not maximum wellbeing for the service groups and stakeholders? If the governing body (not just one member, but the body as a whole) are driving the shift, then you have something that can really be embedded and sustained. It is for this reason that the significance of Larry Fink’s letter to CEOs on purpose and governance gave me real hope the world may be starting to get this — although I heard on the grapevine that many CEO’s didn’t have a clue what he was talking about.
Starting from the basics
From here we can isolate a core problem to delivering purpose and sustainability. Governing bodies are often not demonstrating basic effective governance to begin with, even in delivering a money-maximising agenda, let alone being in a position to take on something as big as a shift of core direction to purpose. The huge number of financial scandals, reports of systematic bullying, fear and corruption, cataclysmic loss of trust in business, as well as unsustainable and exploitative supply chains indicate a big governance problem. And all of that before we talk about the underexploited opportunity for governance to really drive organisational success.
Blurred lines between the duties of management and that of governance is one of the key flaws dogging many organisations. For example, the reports of Paul Polman, CEO of Unilever, stating he will stop quarterly reporting or only seek purpose-driven investors, makes for inspirational headlines, but these are governing body decisions (of which, according to some countries approach, as the CEO, he is naturally a member). Other issues include a pervading view that the governing body is there to serve shareholders. Despite some legal precedents in some countries, experts like John Kay have pointed out that the law does not say that the fiduciary duty of a board is to its shareholders — it is normally to the long-term health of the company and includes a much broader range of stakeholders. The recent IPPR report on how to rebuild Britain, for example, underlines the need to move from an outdated shareholder capitalism and proposes “wide-ranging reforms to corporate governance to create more purposeful companies focused on long-term success”. The new UK corporate governance code takes another step towards addressing the short-term monetary focus of companies. Another issue is that some don’t even think governance is something that is relevant to their organisation because of their size or sector. Many still see governance in the way it was originally and unhelpfully conceived — as a way to stop management pilfering the value through their assumed self-serving bias rather than a way to unleash human desire to serve others in order to deliver long-term wellbeing via sustained company performance. We need to move beyond conformance to performance when we think about governance.
Implementing good governance
As flaws and limitations of governance at national levels are revealed, the government is increasingly looking to organisational governance to step up and start steering companies in a way that serves rather than exploits society. Government needs a trusted partner.
Companies are realising that without effective governance, the weakened license to operate will hamper its ability to operate. The layers of bureaucracy that will need to be created to wrestle with their inappropriate behaviour will be a killer for innovation and effectiveness.
Society is perhaps just starting to realise that governance (not public relations) is absolutely central to restoring a trusting relationship between the public and the ‘organisation’. We need the right kind of organisations to responsibly transform resources into real value for society that can be sustained over the longer-term — and for that you need great governance.
Although there are a wide range of governance codes across sectors and countries (see the ecgi.org for a vast majority), these are layered across a myriad of legislative environments and this landscape can hamper, rather than facilitate, good governance. This is especially true in an age where companies can easily operate across borders and are increasingly ‘hybrid’ in their constitutional set ups (e.g. part charity, part limited company). Although as a side note, ultimately we starting to recognise that what unites all constitutional forms is much greater than what divides them — resources go in, transformation takes place, transformed resources and value comes out. All companies should be doing this in the service of long-term wellbeing. The only thing that changes is the types of resource/transformation/value.
The central role of governance in delivering long-term success of humanity is the reason I became involved as the project manager and convenor (along with the wonderful governance ace Axel Kravatzky) of the world’s first truly global governance standard, which started being developed back in 2016. ISO37000, now a year out of three in development, will create guidance reflecting what the world thinks good governance is about and what it takes to deliver it. The aim is to shift the global practice on governance so it is fit for purpose. The standard will be as applicable in Brussels as in Brunei and for a small cooperative as for a multinational organisation — all countries, all types of organisation. Once finished, this is likely to lead to more focused standards, for example perhaps delving into reporting — helping consolidate indicators for sustainability reporting and SDGs.
I am also starting research into governance in the context of purpose- driven organisation — what do we know that can help those governing bodies setting out on the journey? What needs to change and how? If anyone is a governing body member and could either do with this support or would like contribute to the research — please get in touch.
Victoria Hurth is Associate Professor in Marketing & Sustainable Business and Faculty of Business Lead: Student Satisfaction at the University of Plymouth in the United Kingdom.
Reach Victoria at victoria.hurth@plymouth.ac.uk and follow her on Twitter at @VictoriaHurth.
