Corporate governance

Five principles of good governance – leadership

Claire Fargeot Claire Fargeot

Our new Art of Governance series explores the five principles of the UK Corporate Governance Code: leadership, effectiveness, accountability, remuneration and shareholder relations.

The art of good governance

Good corporate governance is not about dotting every ‘i’ and crossing every ‘t’. Far too many people place emphasis on compliance and ignore the beneficial role that governance plays in supporting the execution of strategy.

The art of good governance is about ‘working smarter, not harder’ by taking a principles-based approach to achieving your strategic objectives and aligning the business model to the interests of all stakeholders in the organisation. A one-size-fits-all approach, while compliant, is likely to be counterproductive to value enhancement. 

From there, it’s about ensuring systems and processes are in place to prevent mismanagement and fraud, while encouraging consistency in behaviours, effective transparency, growth and innovation. 

Ultimately, governance can protect and support value enhancement through, for example: improved access to resources; collaboration by breaking down siloed structures and thinking; empowering people to make more efficient and effective decisions; and driving sustainable performance through broader measurement and reward of behaviours.

The real art of governance involves designing an approach that provides enough checks and balances for accountability but without diminishing either the ability of the board to guide strategic objectives, or of management to take the actions needed to deliver.

Our series starts with the interplay between leadership and governance.

Leadership and governance – what to consider

The principle of leadership relates to the ability of the organisation to set the tone from the top by clearly communicating the company strategy, culture, values and behaviours, and by demonstrating how these are embedded throughout the organisation.

In this fast-paced, technologically enabled world, strategies are being flexed at pace. As such, effective leadership and clarity around an organisation's purpose to align decision-making to strategy is critical to agility, reputation and effective use of limited resource.

Leadership qualities and best practice reporting suggestions to consider:

  • Is there clarity around vision and approach from the start?
  • Is the operating model based on a thorough understanding of the entire value change of business and aligned to strategic objectives?
  • Is there an effective board, leadership team or executive committee heading the company? Does the company reporting demonstrate the board's ability to steer the company to meet its business purpose in both the short and long term? 
  • Is there a clear tone from the top, providing direction both to management and employees to guide their decisions? Are the features of governance discussed in the chairman's annual report statement?
  • Are values embedded in company culture, guiding employee behaviours, and are they linked to strategic objectives and reward? Are cultural values and behaviours discussed in the chairman's report as well as more widely?
  • Is strategy owned and directed by leadership, while being open to challenge by independent-thinking or external stakeholders?  Does the reporting demonstrate that the company has regularly met investors to discuss strategic developments?
  • How is the company’s public profile (press articles, website or annual report) demonstrating the company has strong, effective leadership?

In our next post we will be exploring the role of effectiveness.

More information

For further information on our corporate governance research, visit Governance Matters. To learn more about the work we do contact Claire Fargeot, Consultant.