The Evolution of Governance: Sustainability's Role in 2023

Importance of Sustainability and Governance Status Assessments

Introduction: Board Governance

Board governance broadly refers to the framework that gives structure to a board and how it operates. Board governance defines the roles and responsibilities of board members and executives.

Governance encompasses the system by which an organisation is controlled and operates, and the mechanisms by which it, and its people, are held to account.

Ethics, risk management, compliance and administration are all elements of governance, which in turn forms part of the overall sustainability of an organisation.

The Importance of Proper Governance

A practical corporate governance framework is essential to the successful running of a company. It is the system of rules, practices, and processes by which a company is run. Corporate governance exemplifies the principles of ethics, responsibility, accountability, fairness, and transparency.

We currently experience a world-wide trend for regulators to be more pro-active in the sustainability and corporate governance auditing of regulated entities. Fines are also issued on a regular basis against entities who fail to comply with certain governance requirements, which result inter alia in conduct and reputational risk for the organisation.

Proper board governance ensures sustainability of the organisation, which results in sustainable long-term growth, with appropriate stakeholder-, and shareholder relationship management.

Against what to measure the Board’s Governance Status?

It is important to have a view of the company’s regulatory universe. This will guide the board on the areas to be assessed. In general, the applicable companies legislation will provide statutory requirements that should be met. The company should also apply the applicable corporate governance code, such as King IV™, or the required jurisdictional governance code.

Regulated entities should further consider any governance guidelines issued by their regulatory authorities. For too many traditional companies, brutal bottom-line profit motives warp the answers to these sustainability considerations. Truly sustainability-minded businesses are grounded in their purpose - who they aspire to sustainably become shapes every decision.

When to assess the Board's Governance Status

This is an ongoing process, aligned with a proper focus. In general, a detailed status assessment could be done on a biennial basis, to allow for a proper closure of gaps that may have been identified.

Governance status assessment should not be confused with annual board and related evaluations. These processes compliment each other and ensure an end-to-end sustainable governance process, aligned with the board’s governance calendar.

Getting Started

The first stage in establishing the regulatory and governance universe for your assessment is to set out a process to facilitate the task. This can generally be executed in two ways.

1. The board to delegate to an individual (generally the audit committee chairperson) or to a small group the task of defining the scope of the review and assessment.

2. The involvement of senior management in the process itself, is of utmost importance to ensure a companywide focus.

Establish / Review Regulatory and Governance Universe

Conclusion

Since there is no one formula that suits every organisation - setting objectives for a governance and sustainability status assessment is a pragmatic process. It is an important part of your governance universe and to ensure a green status.

The full picture – Environment, Social and Governance – include as part of your sustainability and governance status assessment. Sustainability, with the inclusion of ESG, is here to stay – do not be left behind.

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