Business Risk Services

Good governance: building a culture of trust and transparency

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Towards a lived governance model

When designing a fit-for-purpose governance model, trust and transparency are the keys to success. Strong governance practices must permeate the culture of the organisation, and employees at all levels should play a role in executing a lived governance model that helps the company thrive.

When leaders approach governance with a “tick-the-box” mindset, practices tend to stay ring-fenced at the top of the company instead of becoming embedded in its culture. These governance models generally result in poorly constructed communication channels where information fails to flow straightforwardly throughout the organisation.

Breakdowns in communication and information flows erode trust and transparency—two essential components for executing risk management frameworks and sustainable business practices.

The role of culture in implementing lived governance

Building trust throughout an organisation is critical for a company’s health and future. Sourcing talent remains a challenge for many businesses today. To succeed, companies must build inclusive, transparent work environments that empower employees to speak up, enable them do their best work and inspire them to become custodians of the business.

Strong corporate governance is the foundation for building a healthy and open work environment. A company’s governance model should reflect its core values. Leaders should approach designing and executing governance models with the same moral compass that they use to design and implement other aspects of their business and sustainability agenda, such as environmental and social initiatives.

Forward-thinking leaders understand that attracting and retaining future generations as both consumers and employees means approaching the key pillars of sustainable business practices with fresh thinking and new perspectives—and that includes governance.

Unfortunately, many leaders continue to view governance as a function that operates top-down, often in a ring fenced and linear structure. As a result, boards and committees often do not have the transparent and panoramic view they need to govern and steer the company effectively.

Without visibility into the many different components of the business, they are often blindsided by events and crises. By walling off different components of the business, a siloed approach to governance destroys transparency, and it can actually enable questionable practices to pervade in certain facets of the business without being caught by the appropriate checks, because touchpoints do not have the required oversight.

Siloed governance practices also prevent employee engagement with governance in a meaningful way, which can harm the company. Often, when employees fail to help their company mitigate a crisis, the lack of trust and transparency in the governance model—as opposed to a lack of employee will or desire—is the reason that critical information didn’t flow to the appropriate stakeholder.

Having an inclusive and open governance culture empowers employees, making them feel like they have an important role to play in the stewardship of the company and providing them with the tools they need to follow best practices.

A bottom-up approach to creating good governance

One of the challenges with creating a lived governance model is that traditionally governance practices have been dictated from the top of an organisation, as opposed to influenced from the bottom. Many companies still rely on these models rather than developing ones reflective of modern workplace culture.

This outdated approach is the reason that many employees do not engage with governance practices in the same way that they engage with the other pillars of ESG. When it comes to environmental and social challenges, employees often feel empowered to create campaigns through which they can drive meaningful change. Bottom-up, organically developed environment and social initiatives are common at many organisations.

When it comes to governance, however, employees do not feel that they have the power to change practices because the structure is conceived at the top of the organisation, and then filtered down through policies and mandates.

Companies should cultivate an approach to governance that encourages employee engagement in its practice on a daily basis. When employees feel as if they do not have a voice in how governance operates, it can erode their confidence and make them less likely to voice concerns or raise awareness of potential risks and red flags. Without a culture of employee engagement, governance models often fail to deliver on their purposes, such as safeguarding the business or improving internal decision-making processes.

A lived governance model empowers employees to take initiative and influence the practice of governance. However, a prerequisite for a lived governance model is building an open workplace environment in which all employees feel they are able to communicate and escalate issues without encountering layers of corporate bureaucracy and red tape. Having a culture that prioritises trust is critical because employees are unlikely to speak up if a sense of fear pervades the work environment.

If people in the building are afraid to speak up, then corporate governance breaks down—regardless of the instructions for employees contained in written policies. Employees need to know that the information and feedback they share with management, senior leadership or the board, will be received as a valuable contribution that can be used to improve the organisation.

Developing this open workplace culture and implementing a successful lived governance model necessitates having a trusting relationship between the board and internal stakeholders at all levels of the organisation. The board must be able engage with employees throughout the organisation to ensure that they can take a read of the entire company, have visibility into all its areas, and address any issues requiring attention in a timely manner.

Once these trusting relationships exist, employees are more likely to raise red flags, report on compliance failures and highlight situations that create governance risks, thereby helping to protect the company, enhance its reputation and guide it towards future success.

How Grant Thornton can help

Our specialist Business Risk Services team have extensive experience in advising boards and senior leadership teams on a wide range of governance matters. If you would like to discuss governance, culture, board effectiveness and/or risk management matters, please contact a member of our team or your usual Grant Thornton contact.