The importance of good organizational governance
A business doesn’t just run itself; it takes a whole host of players looking after various processes and protecting sensitive data to ensure operations are smooth. And the reason those operational players know what to do, when and why? That’s the result of good organizational governance.
Good organizational governance has become increasingly important as regulators around the world start to turn up the pressure. There’s a growing demand for more transparency in business, and without good organizational governance to support that transparency, entities are in danger of becoming noncompliant.
What Is Organizational Governance?
Following the adoption of its review of the principles of corporate governance, the OECD said: “Good corporate governance plays a vital role in underpinning the integrity and efficiency of financial markets. Poor corporate governance weakens a company’s potential and at worst can pave the way for financial difficulties and even fraud. If companies are well governed, they will usually outperform other companies and will be able to attract investors whose support can help to finance further growth.”
Corporate governance, then, is the cornerstone of any good business, enabling it to continue running and growing. Organizational governance incorporates the processes, practices and policies relied on to manage the company and to make formal decisions. It impacts everyone in the business, from the Board of Directors down to those on the frontline, though each level of hierarchy takes on differing levels of responsibility for organizational governance.
At the Board level, organizational governance is what guides strategic decisions and behaviors. It is how data insights are developed to help drive the business forward and how the individual board members are liable for the results of any decisions they make.
As you move down the levels of management, organizational governance guides the way managers build teams, the way legal operations professionals handle their work and how customers are served. Organizational governance even dictates the corporate culture – and, as we saw recently with the Banking Royal Commission in Australia, poor organizational governance and oversight can directly cause a toxic environment for workers.
Why Is Organizational Governance Important?
The benefits of good organizational governance include:
- More efficiency, given that tasks are consistent and repeatable.
- Enhanced visibility of errors, with that consistency quickly highlighting nonconformities.
- Smoother-running operations, with a limit to reactive governance and firefighting.
- Financial sustainability, given that the risk of safety, legal, performance and warranty concerns are mitigated.
- Reduced costs, given that all of the above adds to stronger organizational governance.
That said, good organizational governance can bring additional wider benefits to a business or group structure:
- It can create a corporate culture of excellence, embedding compliance and reputation at the heart of the organization.
- Speaking of reputation, good organizational governance bolsters both business and regulatory performance, ensuring the company’s reputation doesn’t get dragged over the coals in the media.
- It brings clarity across the organization, ensuring that all actors understand their personal role in operations, and what is expected of them at what time and why.
- More growth opportunities become clear, as good organizational governance ensures all entity information is up-to-date and accurate, allowing the Board of Directors to make clear and accurate strategic decisions based on robust data insights.
What Can Happen Without Good Organizational Governance?
Any chink in the armor, though, can bring with it a range of issues for the business. Even a small crack in organizational governance can lead to catastrophic consequences, so it’s important for legal operations and the wider governance team to keep an eye on the following risks, ensuring there’s a risk mitigation plan in place and full knowledge of responsibilities.
Data Leaks
One reason for good organizational governance is to combat the threat of data leaks. Organizational governance includes the processes and systems used to share and to host important corporate information – in fact, it protects the whole corporate record – but each share and each new person in the chain introduces a potential for leakage.
Cybersecurity Threats
Likewise, with corporate information increasingly stored online in cloud storage systems, it becomes exposed to the threat of hacking, or of malware being introduced to corporate systems.
Regulatory Noncompliance
The big reason for good organizational governance is to ensure that the business can continue to operate in each jurisdiction where it is present. Organizational governance processes include the internal roles and responsibilities for competing filings required by regulation, and knowledge and understanding of any personal liability taken on by staff members and directors.
Sanctions and Fines
A failure in any of these compliance processes can lead to sanctions and fines for the business. These monetary penalties can be large or small depending on the transgression and the jurisdiction, but they can still have an impact on the bottom line.
Reputational Damage
Compliance failures or data leaks can also cause the company’s reputation to take a hit. Whether confidential corporate information is reported in the press or a simple compliance issue leads to a large fine – such as those leveled on Google in February 2019 for GDPR failures – the company’s reputation is at risk in cases of poor organizational governance.
The Personal Impact on the Board of Directors
Some of the penalties handed down by jurisdictions can include personal liabilities for individual members of the Board of Directors – and not just monetary penalties, but potential jail sentences, too. Good organizational governance doesn’t just protect the business, but it protects the people running the entity, too.
How Technology Can Bolster the Governance Process
With organizational governance proving so pivotal for how the modern company is built, behaves and makes decisions, the need for entity data integrity becomes clear. Good organizational governance is not just about policies and processes, it’s about the data that drives the business, too.
That is why more and more companies are turning to entity management software to help bolster their organizational governance. Entity management and board management portals can help to streamline and even automate some organizational governance processes, leaving governance professionals and directors to focus on making those all-important strategic decisions.
Diligent’s entity management portal is part of an end-to-end suite of governance tools designed to enable good organizational governance. The Governance Cloud enables organizations to achieve best-in-class modern governance through an ecosystem of software tools that digitize the various activities and tasks of the board, including a cloud-based board portal for document storage and board processes, and an entity management platform to provide a single source of truth for all entity-related information. Built-in processes and workflows are based on the principles of good organizational governance, helping to review and measure the compliance of entity data and facilitating filing and reporting.
With the importance of good organizational governance becoming increasingly important due to regulatory pressures, it’s time to carefully document internal organizational governance and consider how to ensure those processes are delivering the right information to the right people at the right time. Get in touch and schedule a demo to see how Diligent’s Governance Cloud can ensure good organizational governance.
