April 14, 2016 Your ethics, your brand
What is corporate governance? According to Wikipedia, governance ‘broadly refers to the mechanisms, processes and relations by which corporations are controlled and directed.’ The business directory goes one stage further defining corporate governance as ‘the framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in a company’s relationship with all its stakeholders.’
Whatever definition you choose to use; it is hard to get away from the fact that corporate governance isn’t simply an internal process, it also has ramifications for external stakeholders including customers and investors, suppliers and the wider public. And in fact, the twelve key principles of corporate governance laid down by the Quoted Companies Alliance (QCA) make this external responsibility very clear.
So when we talk about corporate governance we are not simply referring to process control or risk management, to adherence to accounting standards or board diversity. If we are to create strong governance then we also have to take account of areas such as stakeholder and social responsibilities.
These areas are in fact covered within the QCA code but they are also areas which are increasing in importance as social media allied to public responses to corporate actions comes increasingly into play. It’s no longer enough to act on the belief that what happens within business stays within business. The way in which a business interacts with its suppliers, treats its employees, gives due consideration for environmental issues or indeed pays its taxes are all issues which have moved into the public domain in recent times.
As a result, business and brand reputation are now increasingly intertwined with ethics, with doing the right thing, acting in the right way in order to benefit the wider stakeholder constituency. Directors can no longer think simply along the lines of will this generate profit, they also have to consider how their decisions will affect employees, customers, the environment and even the stability of the country in which they are operating.
In fact, if directors don’t consider the effects of their decisions on the wider constituency, if the actions and behaviours which they impose on their organisation are less than ethical, then those actions and those decisions will soon be picked up and reported widely not only in the press but also across social media platforms. In the process this will negatively affect reputation and have a knock-on effect on the customer base, leading to declining sales and profitability.
That’s why strong governance is ethical governance, and why strong brands are increasingly seen as those which operate with social responsibility in mind. As Warren Buffett said “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”