TOWARDS DYNAMIC GOVERNANCE 2014
European Corporate Governance Report INTRODUCTION
Over the last decade corporate governance – how companies are directed and controlled – has entered the mainstream.
After the ethical scandals from Enron to Worldcom at the start of the new century, greater attention than ever before has been paid to corporate governance both inside and outside corporations. A host of regulations, standards, initiatives, programmes, and much more have emerged; from Sarbanes Oxley to the OECD’s updated Principles of Corporate Governance.
Some of this activity was undoubtedly necessary and useful. But some sought to transform corporate governance into an administrative exercise, a succession of boxes to be ticked. The focus of boards worldwide has increasingly shifted to compliance rather than excellence.1
“It is important to pay attention to corporate governance but it must not be allowed to dominate the agenda to the detriment of the board not spending enough time on the business,” noted one interviewee in our research. “The burden of compliance and reporting is becoming too time-consuming,” lamented another.2
But, corporate governance can never stand still. Our expectations of boards change constantly – especially in our hypercompetitive and turbulent times. What was acceptable behaviour a decade ago is often now viewed very diff erently. Companies worldwide increasingly appreciate that eff ective boards need to move beyond mere compliance to create fl exible and dynamic governance.
The demand for dynamic governance is based on two main realisations:
First, leadership starts at board level. How, and to what end, leadership is exercised by the board of directors of a company sets the standard for any organisation.
Second, governance is a means of enabling and driving business performance. All things being equal, well governed companies excel.
This new breed of dynamic governance responds quickly and adaptively to the changing circumstances of business. It is agile and resilient, constantly evolving. It is governance on the front-foot, rather than governance characterised by defensiveness and bureaucracy. It is built on the appreciation that the most eff ective companies are those who anticipate what’s happening and what’s going to happen in the business world. The best companies do not wait to be governed. Instead, they shape the debate and set best practice.
As one of our interviewees put it: “In an economically unstable environment, agility and resilience are more than ever key company assets. In this context, the eff ectiveness of the dynamic between governance actors acquires more importance than the classical architecture approach.”
1 While we refer to boards generally it is worth noting that there are a number of systems relating to board structures across Europe (e.g. unitary or two-tier systems). Germany is a strong case in point, where the board system and the inclusion of worker representation has an impact on our benchmark data. Where this was felt to have a potential impact, a footnote is provided at the bottom of each table clarifying the data measurement. 2 All quotations and statistics are drawn from our research unless otherwise stated.
Another observed: “It is important that corporate governance does not become a one size fi ts all compliance exercise. It is about how the company is run at the top – principles and people (and their judgement) will always be most important.”
2 Towards Dynamic Governance 2014 – European Corporate Governance Report
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