The need for effective corporate governance is becoming increasingly important. All stakeholders expect organisations that directly affect their lives to be well governed, beyond mere financial indicators. The governing body is responsible for establishing and maintaining the governance framework of the organisation to achieve effective performance, responsible management, ethical behaviour.
Conditions, principles and aspects of corporate governance
The first international standard, ISO 37000, was published in 2021 and provides the conditions, principles and key practical aspects in the area of corporate governance. The standard is aimed at governing bodies and groups to help them better understand and fulfil their responsibilities so that the organisations they lead are fit for purpose. The standard is also aimed at stakeholders who are involved in the governance of the organisation (e.g. owners, founders, etc.) or are affected by the organisation and its governance (customers, minority shareholders, employees, communities, etc.).
Governance of organisations: human-based system by which an organisation is directed, overseen and held accountable for achieving its defined purpose.
Organisational governance framework: strategies, governance policies, decision-making structures and accountabilities through which the organisation’s governance arrangements operate.
Governing body: person or group of people who have ultimate accountability for the whole organisation.
Note: A governing body can be explicitly established in a number of formats including, but not limited to, a board of directors, supervisory board, sole director, joint and several directors, or trustees.Governing group: person or group of people who govern an organisation.
Duties of the governing body
The governing body has ultimate responsibility for the whole organisation. This implies a number of responsibilities. In the context of this article, we are interested in those duties that relate to assessing how the conditions, principles and relevant aspects of governance practice are being met in the organisation.
In this context, the governing and administrative body should assess its own competencies, structures and processes. The governing body should also report honestly and transparently on the assessment of governance performance, including data on the organisation’s governance maturity. Both of these obligations can be met using the model for determining the level of maturity of the current state (see chapter on the level of governance of the organisation).
Benefits of good corporate governance
- Improved long-term value creation for stakeholders
- Efficient management of resources
- Improved organisational resilience and performance
- Improved effectiveness of decision making
- Improved staff mix and retention
- Improved investor and lender confidence
- Increased value of the organisation’s intangible assets
Level of governance of the organisation
Previously, there was no internationally agreed approach against which to measure the level of governance of an organisation. And without such a template, it was difficult to identify areas for improvement, as well as to assess the maturity of an organisation’s governance and make informed comparisons with other organisations.
The forthcoming international standard ISO 37004 will provide a globally applicable means of measuring the governance maturity of organisations of all types and sizes. It will enable governing bodies and boards, as well as groups and relevant stakeholders, to measure and evaluate the level of governance maturity of an organisation and then make informed decisions on actions for improvement and to achieve the desired state.
Assessment of the level of maturity of the organisation’s governance
The purpose of the governance maturity assessment is to determine the degree of confidence that stakeholders (owners, founders, supervisory and regulatory authorities, clients, employees, unions, etc.) have in the ability of the governing body to lead the organisation.
Measuring governance maturity
Governance maturity measurement is used to assess the maturity with which the governance conditions and principles defined in ISO 37000 are applied, taking into account key aspects of practice. This assessment focuses on the behaviour of the governing body (qualitative aspect) and governance practices and their effectiveness and efficiency (quantitative aspects).
The framework for measuring an organisation’s governance maturity is defined by measurement principles, measurement activities, measurement rating scales, and aggregation of measurement results. Aggregation provides a consolidated view of the measurement results, for example allowing:
- understand the overall maturity of governance behaviours, effectiveness or efficiency across all governance principles,
- understand the overall level of maturity in the application of a particular governance principle,
- compare the overall level of governance maturity of one organisation with another.
Improving the governance of the organisation
You can’t simply strive for the highest level of organisational governance maturity. An organisation should strive for the level of governance maturity that is most appropriate for it. This is a key consideration. If not applied, it can lead to inappropriate use of resources or a reduction in the organisation’s capacity to act.
Activities to increase the governance maturity of the organisation should be prioritised and well planned.