[et_pb_column type=”4_4″][et_pb_text admin_label=”Text”]Governance. A word which doesn’t always conjure up positive connotations. A word often associated with state Governments; notions of control or lack of control. Where governance goes wrong, it can literally rot the core of a governing body or organisation.
Perhaps for some of us, ‘governance’ suggests opportunity. Opportunity for improvement, enlightened by examples of ‘good governance’ surrounding us.
And this is where the last – but certainly not least – component of the ESG framework can – and must – take centre stage. The ‘G’ in ESG is third in the acronym, but it in fact determines the extent to which positive climate action (‘environmental’) and social impact (‘social’) can be made.
People professionals can speak up as activists for good governance.
What does good governance look like?
Good governance, specifically within the system of an organisation, is about considering transparency, accountability, span of control, democratic decision-making, and compliance with rules and regulations – all of which are enacted with integrity by leaders.
As a system, an organisation can be sustainable and even regenerative if good governance considers all stakeholders, not just shareholders; which speaks to the Better Business Act . This petition and inherent declaration seeks to amend section 172 of the Companies Act in the UK.
A governance structure that considers all stakeholders is not just good business practice, but is increasingly being considered a metric for ESG investors.
Planet-focused, people-centric and ‘prosperity’ over pure financial profit is the mantra of purpose-led organisations. This is where the role of HR in governance can have exponential impact.
The role of purpose in good governance
Purpose is the core of an organisation and is key to retention, engagement and overall people performance, whilst of course being intrinsically linked to financial return. Purpose comes to life when it is almost tangible in organisational culture.
People are striving to work for purpose-led organisations, with the Deloitte Gen Z and Millenials survey for 2023 finding that 44% of Gen Z and 39% of millennials “have already changed or plan to change job or industry due to climate concerns”.
HR can elevate purpose through the employee value proposition and, importantly, by ensuring leaders have defined the organisational purpose as is felt by those at all levels of the business.
A recent McKinsey article states that “only 7 percent of Fortune 500 CEOs believe their companies should “mainly focus on making profits and not be distracted by social goals.” It is assuring to see and read more frequently that the C-suite considers all components of ESG in the boardroom.
HR professionals – as closest to the people – can call for better accountability with bettered integrity at all levels.
HR as activists for good governance
But what happens when these purpose-led leaders resign – does the sustainability agenda remain, or does it dissipate?
This is where people professionals can speak up as activists for good governance; giving the organisational culture purpose-led longevity.
Where HR is not in the C-suite, we must rally with leaders across functions to be heard on matters being spoken by our colleagues. And where HR is in the C-suite – with the absence of a sustainability lead at the table – we should consider taking ownership of creating a separate Sustainability Board. This will help ensure ESG is not subsumed by other topics at every board meeting, and to make it clear that this salient matter, matters.
Sustainability can live on beyond the tenure of a well intentioned and purpose-led leader. Which we have seen at Unilever following Paul Polman’s exemplary leadership, until very recently where the incumbent CEO declared they would not “force fit” purpose to their brands.
Only time will tell if the high staff engagement and record 300% shareholder return seen during Polman’s tenure will be overturned.
Build the board – if needed!
Governance is different depending on the size of organisation and so it has to be recognised that the degree of influence HR can have in this area will vary. For example, a smaller enterprise may not have a Board of Directors Yet let’s use our voice and propose that a board is assembled!
We can propose this change to ensure we have more checks and balances for leadership, and beyond that a strategic guide on issues of justice, equity, diversity and inclusion, and even ESG itself. HR professionals – as closest to the people – can call for better accountability with bettered integrity at all levels.
Governance certainly cannot be seen as the ‘last’ component within ESG.
To elevate further how we keep not only leaders, but all of our colleagues, accountable for meeting sustainability mandates and commitments, we could weave in ESG metrics to our individual and collective performance.
It’s assuring to see this happening. For example, in certified B Corporations, these organisations are “four times more likely to tie executive compensation to social and environmental performance”.
Factoring in climate action, social impact and financial performance is a new way of thinking about bottom line growth for some leaders still.
Yet the words of John Elkington in 1994 still serve as inspiration, which is now backed up by the data – people, planet and profit defines a more complete bottom line. In fact more profitable (read: prosperous) solutions can be found from putting people and planet at the centre of purpose.
What does good governance at the strategic level look like?
To move on from the influence HR can have on the C-suite to more strategic level governance considerations, we must not bypass how we can shape good governance within our teams.
We should consider how we make decisions and how accountable we are to our peers; co-creating a team-level social contract (or team charter) is a foundation of changing existing practice.
By starting small, these peer-powered changes start a domino effect on other teams.
Good governance isn’t always a top-down process. Principled leadership is only as permanent as the culture surrounding it.
The starter question to ask when striving for good governance
As people professionals aspiring to improve governance, ask yourself this question: “how would you describe the impact your organisation makes, and can make?”
Then, connect this to purpose. Build this into the E, S and G, for a purpose-led, regenerative organisational culture. Beyond purpose, use your influence as best as possible within the system you are in, and role-model at a team-level.
Governance certainly cannot be seen as the ‘last’ component within ESG, as it is the component that affects the extent to which positive impact can be made!
With the purpose of combating the climate crisis as clear as the most untouched waters in our oceans, we can all hope that the leaders representing our Governments act with integrity and accountability at COP28.
Interested in this topic? Read Why leadership development must prioritise ESG[/et_pb_text][/et_pb_column]