The corporate world
has been constantly shaken by events of fraud, disaster, corruption, wrong
decisions, out-of-mission strategies, and others. These events put the
governance structure in doubt, because with few exceptions, these companies
that are or have been in the media counted on or rely on robust governance
structures.
Then comes the
question whether the governance structure or principles are outdated and should
be changed as they are no longer effective.
In this article I would
like to demonstrate that the problem is not the structure, but the attitude and
awareness of governance existing in organizations.
We know that
governance is historically a response to agency conflict, and in a simple way
governance is the process by which organizations are managed and monitored in
pursuit of the decision-making balance between shareholder, board and
executive. Its principles are: transparency, fairness, accountability and
corporate or social responsibility.
In order for
governance to exist, it is necessary for the organization to have a robust and
integrated risk management process, which, in its turn, needs to be supported
by an effective system of internal controls, including in this point, the
existence of a proactive audit activity aligned to the business.
A strong integrity
program based on ethical value and principles is imperative for the
composition of the corporate governance structure.
Well, this whole
structure becomes a great fiction if there is no real commitment, attitude and
awareness of governance by the part of the decision makers, especially those
who are in the highest positions of the company structure, like C-level and
Board.
Before to have a
governance structure, there must be the governance attitude and consciousness
in the corporation, because without it the whole governance process loses its
effectiveness. There must be an unrestricted commitment to good management
practices, ethical values and respect for all related parties.
The board should be
active and independent, but it should also encourage and provide a conducive
internal environment for risk awareness to be at all decision-making levels
within the organization.
The Board must
provide support to the second line of defense, which aims to support management
in fulfilling its responsibility to improve the performance of its activity
through the management of risks and internal controls, providing effectiveness
and operational economics; to also support internal auditing, which as a third
line of defense aims to add value to the corporation through the independent
assessment of risk management, control and governance.
In turn, the
leaders, in conjunction with the board, should clearly and transparently define
the company's risk appetite in order that risk responses should be in line with
this. Remembering that risk appetite for legal non-compliance, acts out of
ethical values, and when there is risk of accident that could lead to death,
should be zero.
Different from
structure, governance consciousness must reach all organizational levels and
need to be developed through organizational culture, which means long process with
long maturation, needing to be constantly worked and evaluated.
This process should encourage
and develop the managerial attitude guided by the best practices of risk
management, compliance and internal controls, and in this regard the attitude
of the top management, especially the C-Level is the extreme importance, as it
should be the example of behavior and desired attitude.
Everyone who is part
of an organization, who is governed by corporate governance, must be fully
aware of the importance of their attitudes towards the organization's success
and sustainability, and that they must comply with the legal, ethical and
practice.
Be happy!
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