Corporate Governance

Diversity in the Boardroom

Sara Barclay Corporate Governance , , , ,

Lloyds Banking Group have committed to diversifying its business dynamics by pledging to make 40% of its senior executives women by 2020.  This good news story has though, been followed up by the news the Women attendees at Davos have slightly decreased, in essence still showing that the female proportion of the world population remains largely undervalued, unrecognised and potentially discriminated against.  Why is it that this amazing untapped natural resource remains under used and underappreciated?

It is well-known that to have a successful business you need to have an entrepreneurial Board that considers the risks faced and applies their collective experience to the issues while individually challenging ideas and mitigating risk.  Diversity in the Boardroom allows a safeguard against reckless behaviour or the undertaking of risk for self-interest allowing entrepreneurial spirit to flourish.  Diversity brings different skills, knowledge and backgrounds allowing the Board to collectively become stronger allowing greater stewardship of a Business whilst decisions and business opportunities can be openly challenged and investigated. With this in mind why is it that there is still a gender gap? Why is the Boardroom still the domain of the male executives in general? Should we go further than gender itself in order to continue to ensure that our financial industry remains at the forefront of the international finance sector and global financial community?

I believe that the reason that the Boardroom remains a bastion of the Male senior executive is down to education, opportunity and succession planning. Without education or equal opportunities the calibre and number of candidates to undertake these roles is significantly reduced. Whilst without the long-term succession planning of a business, education and career advancement opportunities for employees cannot be identified or put in place, this worryingly may lead to potential candidates becoming disillusioned.

Throughout my various roles I have had the opportunity to work with people of all genders and I truly believe that this has allowed me to develop personally for the better and has advanced me in my role as a compliance specialist.  I have always fitted a person to role in respect of knowledge and experience they possess rather than preconceived ideas of gender. I now find myself in a position where some of these people have succeeded in obtaining their goals, some have even surpassed me and this gives me the hunger to continue to challenge myself and achieve. I can’t help but smile at their achievements.

I have been lucky enough to be invited into the Boardroom to deliver my reports and provide advice.  Where the Board has been diversified by gender, I found that they were more confident, open to challenge and discussion. These Boards reviewed in-depth my reports and advice and sought through their individual integrity to collectively come to a decision that benefited the company from a holistic approach of regulation, best practice and the business of the company.

It is unfortunate to say that I have also delivered my reports and advice to Boards that have been male orientated and at times had a stagnant corporate governance culture.  In some of these cases my reports and advice were treated more as hindrance to the business and not considered in-depth due to a lack of challenge by the other Board members.  This has led to regulatory consequences that could have been avoided with the regulator pointing to a failure in corporate governance.  I can’t help but feel sadden by the cost in remedial action and reputation and the personal cost this has caused, due to a lack of diversification.

Though I believe in diversification I am against positive discrimination, as this can unintentionally lead to the achievements of people being discounted and discredited, this serves no purpose but to demoralise the person or a workforce and at worst create distrust and aggression through bullying.  By businesses taking the Lloyds example, over a period of time they can establish suitable practices for education and opportunity for all persons and allowing for successful succession planning to be put in place.  Allowing for people of any gender to be enthused to obtain education and seek challenging opportunities, this can only lead to a better and stronger corporate governance culture.

While the negative connotations surrounding gender must be challenged and put to the annals of history, I believe that the attributes of a person must be considered above gender.  It is often too easy to follow a fashion and rather than enhancing the Board or the Company, you increase the likelihood of a weak or defunct corporate governance system with a greater potential for reduced productivity or business capability, reputational damage and regulatory sanction. It also does not assist in the challenging of gender inequality.

The Board need the best people for the job at hand regardless of gender and we are in times where decisions made by Boards are being challenged by various stakeholders.  There are high-profile cases where failure of a business was down to self-interest, and unacceptable risk taking due to a failed corporate governance framework that could have been avoided by diversification of the Board by suitable qualified and knowledgeable persons, allowing for the challenge of business practices and decisions.

The need for effective reporting at Board level

Sara Barclay Compliance Monitoring, Corporate Governance , , ,

The current financial crisis has brought many failings to the forefront, none more so than the failings of the Corporate Governance framework in businesses. The Corporate Governance framework allows for both business objectives and ethical drivers to be incorporated into a business whilst seeking to protect both the Business, its stakeholders and investors or customers. Are failings in Corporate Governance solely as documented in the newspapers and media reports down to the Board’s greed and disregard for its stakeholders, or was the compliance framework in these businesses defunct by opaque reporting by key functions?

We have been lucky in Guernsey to have been insulated from the crisis at large, but I know from experience and we all know from the Commissions industry presentations that Corporate Governance is a key regulatory theme that will be assessed on their regulatory visits to licensees, to assess the risk and reward culture of a business and assist in mitigating these risks successfully. While it has been acknowledged by the Commission that they believe that this is a healthy area, could there be licensees that have put together a good document but the statements made by them do not resemble their Business or their Business’s current prudential business plan or their current regulatory compliance status?

What must be remembered is that any Corporate Governance assessment undertaken by the regulator on a licensee will look at a multitude of documents and reports that make up the core of any Board meeting, such as compliance reports, risk mitigation, internal audit as well as the business plan. These reports must be factual, clear and concise and encompass the whole status of the business in order that the directors can evidence their oversight and rationale for their understanding of the business. Theses documents and reports must all fall into the Corporate Governance assessment by the Board of the Business.

Has the Board questioned the effectiveness of its compliance framework, from the Compliance monitoring programme to the actual board reports it receives? Has the Board allowed the compliance function and other key functions to provide an independent review or are these key functions in fear of upsetting the Board and reporting only what they deem the Board should know or focus on? The importance of independent, full and factual reporting by these key functions is of the up most importance. It is vitally important that those of us who undertake these key roles provide effective reporting on all areas of the Business so that the Board can discharge their obligations successfully. We must not be in fear of providing reports that show areas that require action or gaps as by doing so we only assist the Board in becoming ineffective.

I have been privileged to have worked for and with Boards who have proactively sought to allow their key functions to independently report to them allowing the Board to successfully document and encompass their key functions in to their Corporate Governance framework. This has assisted the Business in the formulation of strategy, goals and effective work practices. For those licensees who I have assisted in remedial work in this area, though it has been hard to start off with the end result has been commented on by these Boards as being beneficial to their Business, optimising understanding and discussion on current and future business opportunities, obligations and assisting in evidencing of why certain opportunities were not followed up.

In my experience the failings in a Business’s Corporate Governance framework are down to opaque and ineffective reporting by the Business’s key functions leading to the blind following the blind. Where ineffective compliance reporting or monitoring has been identified during a regulatory visit the Board are often criticised and this is generally reported by the Commission as a failure in Corporate Governance. While the business of the Business is vital the understanding of the Board as to its current regulatory compliance is as important and cannot be underestimated. If the Board are aware of issues that require to be enhanced or remediated it can deal with them, most of the time hand in hand with fulfilling its business objectives, but to be effective the Board must have the oversight by effective reporting.

The culture of Corporate Governance must not be seen as a tick box exercise or as a regulatory obligation that serves no practical use to a business. I would advocate that a good culture need not be expensive in time or cost but rather a tool to optimise the Business for all stakeholders. As stakeholders move from being passive the need to document and show your culture of Corporate Governance becomes more of a focal point in the overall success of your Business and its cost effectiveness, and in the next few blogs I will go more in to detail on this. An effective Corporate Governance framework adds to safeguarding a business by requiring effective reporting from the key functions allowing for the dynamism and entrepreneurial spirit that has become part of our industry to be exercised by the Board in the continual development of its products and services.