Corporate Governance – what is it and do I need it?

Thoughts and ideas about governance are in constant fluctuation, therefore making it difficult to

describe what governance is and how it should look. Corporate governance primarily refers to organisations with commercial and business operations, in particular limited companies. I am using the term in its widest sense, applying it to all types of private and public sector organisations.

Promote-Ed has been created from a desire to make a difference to the education sector through promotion, the sharing of issues and campaigning for a positive change. Many of our articles are focused on the independent training provider market, with this in-mind I am NOT going to spend time talking about Ofsted and Ofsted’s view on ‘governance’, this article is focused on what you need to do to ensure a successful business, following on from last weeks article “Operational Improvements – Kaizen and Continuous Improvement”. 

We mustn’t forget that there is a huge provider market out there and with this there is a huge market that does not rely on government funding, but still must have a corporate governance model, as an example look at The Knowledge Academy, which boasts to be The world’s largest global training provider. 

There is no ‘one size fits all’ governance model, as being a member of the Chartered Institute of Internal Auditors (IIA) I am going to reference their definition, the IIA definition of corporate governance, included within the International Standards is:

‘Governance is the combination of processes and structures implemented by the board in order to inform, direct, manage and monitor the activities of the organisation toward the achievement of its objectives.’

The first version of the UK Corporate Governance Code was produced in 1992 by the Cadbury Committee. Paragraph 2.5 is still a timeless definition:

‘Corporate governance is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place.

 The responsibilities of the board include setting the company’s strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship. The board’s actions are subject to laws, regulations and the shareholders in general meeting.’

There are many codes of governance models that have been developed, including some in the educational landscape, I am suggesting that the independent provider market in the UK adopts the one code that is really fit for purpose, The UK Corporate Governance Code by the FRC (The Financial Reporting Council), but in its wider sense of corporate governance. (There will be niche codes for organisations such as Charitable Status and also AELP’s Code of Good Governance for Independent Training Providers). 

To me, the purpose of corporate governance is to facilitate effective, entrepreneurial, and pragmatic management that can deliver the long-term success and growth. Ensuring growth is key to survival, therefore it is also important for the corporate governance structure to assess and manage the ‘risk appetite’ of the organisation or individuals within the organisation. According to ISO 31000, a risk appetite definition is “the amount and type of risk that an organization is prepared to pursue, retain or take.” To me well governed companies perform better in commercial terms, and can therefore grow and develop by ensuring trust and success in the governance of the organisation as a whole, as its about improving transparency and accountability within existing systems which can lead to high performance, quality and growth. 

The principles of the UK Corporate Governance Code 2018 are:

1. A successful company is led by an effective and entrepreneurial board, whose role is to promote the long-term sustainable success of the company, generating value for shareholders and contributing to wider society.
2. The board should establish the company’s purpose, values and strategy, and satisfy itself that these and its culture are aligned. All directors must act with integrity, lead by example and promote the desired culture.
3. The board should ensure that the necessary resources are in place for the company to meet its objectives and measure performance against them. The board should also establish a framework of prudent and effective controls, which enable risk to be assessed and managed.
4. In order for the company to meet its responsibilities to shareholders and stakeholders, the board should ensure effective engagement with, and encourage participation from, these parties.
5. The board should ensure that workforce policies and practices are consistent with the company’s values and support its long-term sustainable success. The workforce should be able to raise any matters of concern.

With this in-mind, I believe that the provider market (organisations) should focus on:

• Having their boards having the right to manage the company for the long term, 
• Ensuring boards install mechanisms to ensure the best people in the boardroom,
• Creating a culture of openness that focuses on talent management and growth through servant leadership,
• Creating an ethical culture in the organisation, 
• Establishing an organisational corporate culture that is aligned with the purpose of the organisation and strategy,
• Promoting integrity and values diversity
• Not ‘shackling’ the Board or the organisation, especially if the provider is within a Group scenario,
• The understanding and development of the Standards in Public Life if utilising Public Funding. 

Governance structures and practices should be individually tailored to the organisation, and to ensure the board flows through the organisation with its governance approach to maximise penetration for the success for all. There have been far too many corporate governance disasters caused by failing to recognise the importance of organisational culture, people management and the lack of focus of where the organisation is going in the long term. I have mentioned before short-term thinking and the lack of future proofing your organisation, through such approaches as ‘horizon scanning’, VCA (Value Chain Analysis), Ethical Relationships and the creation of a rich risk appetite. 

Good corporate governance is about effectively overseeing, facilitating the management of an organisation to ensure integrity, compliance (legal, ESFA, OfS, Ofsted etc), achieve more (growth) as well as people achievement & growth, creating a rich positive organisational culture, promoting ethical relationships with all stakeholders and to ensure effective (positive) leadership & management. 

If you would like to know more or have an audit of your governance arrangements, then please get in contact. The definition of internal auditing and International Standards identifies that internal audit has a role to play in evaluating and helping to improve governance processes.

Next weeks Friday thought article will be focused around psychological safety (allowing people to speak honestly and openly without fear of retribution).

Patrick Tucker, Promote-Ed