When Governance becomes meaningful
Several studies such as the SDA Bocconi Corporate Governance Lab confirm a change of meaning in the concept of governance. Recent years have seen an acceleration towards a focus on transparency, substance and strategy in the way organisations are governed.
For larger companies (listed companies – editor’s note), regulations on non-financial reporting have been introduced in Italy, which have stimulated companies to communicate in a more structured way on issues of strategic importance.
Unfortunately, there are few listed companies in the Italian economic fabric: most of them are family-owned businesses. In fact, many companies still have a traditional management, often self-referential and closed in on itself.
How to establish good governance rules in Italian companies?
The mechanisms that make governance a success factor are manifold and translate into the ability to attract and motivate the talent needed for growth and innovation.
While there is no doubt that the acronym ESG is the compass that guides the corporate world today, the three letters of the acronym do not have the same prominence in corporate strategies. Almost all of those who invoke these principles focus on environmental impact, some are particularly concerned with social inclusion, and few pay attention to governance.
The two main advantages that meaningful governance can bring are:
- Very inclusive and innovative human capital management
- Systematically seeking stimulation through external expertise and strong managerialisation
Having a good organisational governance can have many other consequences: e.g. the presence of independent directors, diversity policies, remuneration of top management linked to sustainability goals and attention to the working environment.
What, then, is the meaning of governance?
There is no single optimal governance solution for all, but there are some principles that always apply. Companies, in order to apply effective management, must learn to distribute responsibilities concentrated at the top of the hierarchy. To start doing so, they could integrate specific social and environmental competencies in the board of directors.
It is not enough to work on the organisational structure: the organisational strategy has to include components with specific expertise on ESG issues related to the business in which the company operates. Working on a shared purpose with all stakeholders becomes a winning way forward.
The board must become more aware of the impact that good governance of human capital has on the performance and sustainable success of the company. Only in this way can it promote a corporate culture capable of generating fairness and involvement among managers, employees and stakeholders, while respecting the principles of ethics and diversity, inclusion and openness to innovation.
The small steps to achieving sustainable governance
Sustainability has been talked about for years and in different meanings and formulas: sustainable governance, sustainable success, environmental and social sustainability are just some of the many facets of the concept of sustainability. Beyond the profit of the individual company, there is a world and a society in which the company fits and weaves a series of interactions that are essential to its very existence. Adopting a strategy that does not ignore but rather enhances this context is one of the conditions for the economy to continue to function and grow. On 17 December, the European Union’s Legal Affairs Committee approved a motion for a European Parliament resolution tabled by Pascal Durand MEP on sustainability in corporate governance. The report states that the time has come to impose real obligations regarding corporate transparency.
How can sustainability be measured?
Digitising information and decision-making processes can make a decisive contribution to improving a company’s environmental impact by eliminating paper. More generally, the improved management of the CDA, simplified access to information and the possibility of transforming it into real data and generating reports greatly facilitate the much-needed sustainability-oriented planning.
Modern organisational structures are already sustainable
In recent years, we have seen the emergence of a number of modern governance systems that allow us to move beyond the organisational paradigm on which current companies have been based. Approaches such as Sociocracy, Holacracy and Teal have made it possible to remove the hierarchies typical of modern companies and to distribute roles and responsibilities in an effective and sustainable manner.
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