Corporate Governance: The Personal Dimension

A robust code of conduct forms an important component of governance practices. If it is applied appropriately, it may reduce the risk of behaviour which, if unchecked, could ultimately cause significant damage – both financially and in terms of reputation.
 
The sudden departure of Mark McInnes, chief executive of upscale Australian retailer David Jones, after inappropriate behaviour towards a 25-year-old woman employee illuminates the need for companies to have good corporate governance to set the checks and balances and boundaries of organisational behaviour.
 
Promotion of ethical and responsible decision-making and conduct will not only assist in the development of  practices which take into account a company's legal obligations, but also maintain confidence in the company's integrity. Reputations can take years to build but be lost overnight, with a loss of customers, the collapse of deals and a plunge in share price all possible consequences, not to mention a decline in staff morale and the number of people who want to work for the company.
 
A best-practice code of conduct will articulate a company's expectations, procedures and responsibilities towards the individual. It must be more than a statement of aspirational intent. It is important that such a code of conduct operates under well defined core values to which the board and senior executives are committed.
 
Many companies recognise that their employees are as much an asset as they are a business risk. In my view, the very fact that a company has bothered to develop an employee code of conduct shows that the company recognises employees as a primary driver of business success. Where a company couples this code with processes that enable staff to obtain appropriate guidance and counselling, as well as mechanisms for the reporting of concerns, then the business is well on the path to minimising its risk and, more importantly, realising its full potential.
 
Companies and their shareholders cannot be protected with absolute certainty from the vagaries of human behaviour, of course. Companies exist within and are part of society, and as such, reflect its ethics and social mores. But companies do touch the lives of their employees and those who deal with the company, presenting an opportunity to both reflect and promote appropriate conduct.
 
The role of boards is critical, because the ultimate responsibility for an organisation’s activities resides with them. Issues of corporate governance, for example in the assessment of risk, executive remuneration and corporate culture are common, but issues such as the one with which the board of David Jones is dealing are less so, hence the media interest, especially when it involves one of the country's largest retailers.
 
How well these personal behaviour issues are handled may depend on how well directors understand their roles. Regulators have a role, but it is incumbent on a board to impose a culture of risk assessment, compliance and ethical behaviour in an organisation. Having a whistleblower protection policy in place to protect employees' rights if they report suspected wrongdoing sends a strong message of support and encouragement.
 
But it is impossible to regulate for ethics or common sense. They come about through implementing proper processes and instilling a culture of compliance. Governance and ethics are key components of an accounting education, not least because the accounting profession has a code of conduct that has transparency, ethics, accountability and reporting rigour at its heart.
 

In its simplest form, an effective corporate governance strategy involves two broad steps. The first is the `out-of-company experience'. Put yourself in the position of different stakeholders and ask yourself `what do I want to know about this company? What would make me trust the information I receive?'
 
The second is the `inner voice.' What will happen if we don't meet these needs? What are the costs to the business, and corporate reputation? And ultimately can we afford not to meet these needs?
 
By bringing the outcomes of these two questions together, you will get a picture of the corporate accountability and reporting challenges facing the business. The resulting corporate governance policy, practices and reporting should reflect these concerns.
 
Corporate governance sets the tone, the policy and practices for companies in their efforts to balance business and stakeholder needs. But we must not forget how important it is that we take individual responsibility for doing the right thing - both in the sense of the individual organisation and on the personal level as individuals. If only Mark McInnes remembered that.
 
About the Author
Alex Malley is chief executive of CPA Australia.
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