What are the most common corporate governance mistakes and how can you avoid them?

Based on my observations, the composition of a board significantly impacts its effectiveness. A lack of diversity among board members can detrimentally affect the overall success of a company. Hence, it is imperative to establish a board that is diverse and inclusive, comprising members with varied skill sets, perspectives, and experiences. This ensures a well-rounded and robust decision-making process, contributing to the organisation's overall prosperity.

People with diverse backgrounds bring various experiences to the table. These help look at the situation from a different angle and arrive at a comprehensive solution. At the same time, we need to ensure that the members have the relevant experience and expertise for the business. Diversity should not be the sole criterion for the selection of board members.

This is a very interesting point. To have different ideas and results, you should summon different people. Homogenous backgrounds, age group and roles can lead to a sort of auto imposed blindness. Contrary, opening the boards to the relevant people and directors can bring alas a new perspective of troubleshooting and approach of situations

Diversity in the boardroom is not just about meeting quotas; it's a strategic imperative. A diverse board reflects the diverse world we operate in, fostering innovation and resilience. As a firm believer in the power of diversity, I would emphasize the need for an inclusive approach in the selection process. It's not just about ticking boxes; it's about recognizing the unique value each individual brings to the table. Beyond external appearances, a diverse board should encourage a diversity of thought and foster an environment where every voice is heard, ensuring well-rounded decision-making and sustainable corporate success.

In my opinion diverse corporate governance should also encompass socio-economic backgrounds, educational disciplines, and geographical representation. Cognitive diversity, reflecting varied thinking styles, and considering perspectives on environmental sustainability enhance decision-making. Cultural diversity is also pivotal. Integrating these facets ensures a comprehensive and inclusive board, equipped to navigate the complexities of a global business landscape. This approach not only mitigates blind spots but also fosters innovation. However navigating a balance between diversity and irrelevance can be a very tricky equation.

The Board of governance intend to have very high-level discussion, which's very good in shaping the company strategy, main actions, KPIs. However, if the board don't faciliate an approriate detail discussion meeting with smaller number of participants, they will face with the problem with execution.

Without clear and concise communication that touches on who, what, and why, it is tough for employees to understand what is needed from them. Remember that we are humans, not machines, driven by emotions. Sincerity, authenticity, and a sense of belonging help employees understand their place in the value they bring. Without communication clarity, there is a higher risk of misalignment that drives confusion, which may result in the cost of doing the wrong thing, redoing work, or losing good employees due to frustration and dissatisfaction. Companies that focus on educating and promoting good communication skills see higher % in productivity, less attrition, and thus lower cost of production that further improves ROI.

In my experience as a finance manager, I encountered a situation where addressing poor communication was pivotal for effective corporate governance. In meetings, a lack of clear communication channels was hindering decision-making and transparency. Taking a proactive approach, I implemented a structured communication protocol, ensuring regular updates and an environment that encouraged open dialogue. This not only improved the flow of information between the management and stakeholders but also contributed to a more cohesive and informed decision-making process. The lesson learned was the significance of transparent communication in enhancing overall corporate governance and fostering a culture of collaboration within the organization.

A retail giant faced a product recall. Transparent communication from the board, detailing the issue, actions taken, and future steps, helped regain customer trust. This incident underscored the importance of timely and honest communication during crises.

In today's tech-driven world, companies must leverage digital platforms for efficient and widespread communication. Embracing social media, webinars, and interactive forums fosters real-time engagement, ensuring stakeholders are well-informed. It's not just about what you communicate but also how. Utilizing multimedia formats and interactive content enhances understanding and connection. Digital channels also facilitate swift responses to emerging issues. Emphasizing a digital-first approach in corporate communication ensures adaptability and resonance in an increasingly online-centric landscape, strengthening the relationship between the company and its stakeholders.

A highly qualified person with many commitments may not have adequate time to consider the matters relevant to the company. Thus, the availability of the personnel is also an important practical criterion.

As an advocate for robust corporate governance, I believe a proactive and vigilant board is the backbone of a well-functioning organization. Beyond having the right mix of directors, it's imperative that the board actively exercises its oversight role. This involves not just having the authority but also the courage to question, challenge, and ensure alignment with ethical standards. Encouraging a culture of transparency and accountability within the board is pivotal. It's not merely about avoiding risks; it's about creating a culture that promotes long-term sustainability, ethical conduct, and trust among stakeholders. A board should be a driving force, steering the company towards success through diligent oversight and strategic guidance.

Weak oversight is also caused by a board that is not fit for purpose. A board may have highly qualified individuals serving on it but the qualifications are not directly relevant to assist the company in what it is trying to achieve during the relevant board term. The board is not meant to police the executive, but to provide support; It can only do so if their collective experience/expertise are relevant to the task at hand.

Conflict of interest in the boardroom can have far-reaching consequences, erode trust among shareholders, damage the company's reputation and even lead to legal ramifications. It is paramount for board members to ensure that they disclose any personal financial interest they may have in any transaction involving the company.

Conflict of interest is big! And I will give you small tips to avoid falling into that trap from a personal experience. You have to completely know Your Organization's Policy; be aware of your organization policies regarding conflicts of interest. Many organizations have specific rules and guidelines about what is considered a conflict and how it should be handled. Moreover; If you think you might have a conflict of interest, disclose it to the relevant parties, typically your employer or a supervisor. Transparency is key in handling potential conflicts. Lastly and most importantly; to maintain professional boundaries, that means to keep a clear separation between your work and personal life.

The dynamic nature of risk registers requires regular updates, often overlooked. Collaborative risk management involving all stakeholders is vital, as risks are not isolated. Regardless of complete ownership, forming partnerships and committees for joint mitigation is crucial. This approach ensures policy adherence and effectiveness. Securing buy-in from both senior management is most crucial.

Board members need to demonstrate agility and a willingness to adapt to evolving circumstances. The COVID-19 pandemic served as a valuable lesson for numerous boards. Those that embraced the concept of the 'new normal' and adeptly adjusted to the transformed business environment were better positioned for survival.

Resistance to change can actually hinder an organization's ability to adapt to evolving market conditions, new technologies, and emerging trends. Organizations with established processes and structures can create a comfort zone, making it difficult for stakeholders to embrace change.?? Rigidity in processes can lead to stagnation, preventing a company from evolving and staying competitive in a dynamic business environment.?? In a VUCA world companies need to be agile and nimble, with robust change management strategies.??

Most people think this mistake will only occur at large corporate with long history of development and complex strucutre, however, with my own experience start-up that have large scale (Unicorns perhaps) can also experience this situation. With "large investing money" those start-up intend to hire experience human resources from other corporate to strenghten it's competive business advantages, however those experienced staffs might be the one who have tendency to apply what they've known to the company, which might not suitable but they will think that it will work because it worked at their previous successful companies.

One thing I've found helpful is to have in the agenda (as a constant for board meetings and management meetings) a discussion point about the ultra-long term. This helps shift mindsets from day to day tasks to strategic thinking. The board and management know to expect this discussion every meeting, and know they'll be asked what we're doing to adjust. That means they are more alert and attentive to changes in their respective environment that might be relevant to the organisation and they are encouraged to bring this up and seek solutions. This simple agenda item gives agency to future needs and therefore puts change and flexibility as a priority.

Overlooking employee involvement is in an ever evolving and changing market is also a critical aspect. Employees often possess valuable insights and firsthand experience of operational challenges. Ignoring their perspectives can hinder effective adaptation to change. Encouraging a bottom-up approach where employees actively contribute to the change process fosters a more inclusive and innovative culture. Additionally, establishing channels for anonymous feedback ensures honest input, addressing concerns that might not surface otherwise. By incorporating the insights of frontline staff, companies can tap into a valuable resource for navigating change, fostering a collaborative environment that values every stakeholder's contribution.

Lack of Transparency is another common corporate governance mistake. To avoid this mistake, boards should ensure that they do the following: - Implement transparent communication channels. - Provide clear and timely information to stakeholders, including shareholders, employees, and customers. - Regularly update financial reports and disclose relevant information.

One of the prevalent corporate governance mistakes is the lack of diversity on boards, leading to various issues. A non-diverse board may face challenges such as reduced innovation and creativity due to a narrower range of perspectives. This can result in the board focusing on the interests of specific stakeholders, potentially neglecting the broader interests of the company. Additionally, a less diverse board may exhibit weaker oversight, making it less likely to hold management accountable. Studies, such as one by the McKinsey Global Institute, indicate that companies with more diverse boards tend to outperform peers in financial metrics like return on equity and revenue growth.

It all starts with the BoD constitution. A question that might be act as an indicative sign of the quality of the board is the following “what’s the aim of this BoD?” If the initial motivation was to create a BoD that will help the company through effective monitoring etc and so the Directors choices follow the same logic, then, the governance of this board will mainly be good. Instead, if a BoD is created on a notion of making CEO’s or President’s life easy then the chances that the governance will be good are reduced.

The skill set and expertise of members are sometimes, not adequate for the role of the Board. It is important that Board members come with relevant skill-set, that will put them in good stead to discharge their oversight functions creditably.