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Corporate Governance Unlocked: An introduction for the curious mind

27 Feb 2018 | David Williams, Governance Web Editor, Advance HE A newly published guide on corporate governance raises issues of interest to those in higher education. The publication highlights that too often corporate governance is misunderstood and confused with compliance, and that there is an argument for replacing ‘comply or explain’, with ‘apply or explain’ in codes of governance.

Higher education governance does not exist in a vacuum. The expected norms of higher education governance are influenced by a range of factors, including how corporate governance is being developed and applied to other types of organisations and sectors of the economy.

The Institute of Charter Secretaries (ICSA) – the Governance Institute – has published Corporate Governance Unlocked: An Introduction for the curious mind. The publication looks at the development of corporate governance and raises issues of relevance to the work of Governors and governing bodies in higher education.

The new publication makes the point that corporate governance is often misunderstood and confused with compliance. It notes that ‘many companies (as evidenced by the 2008 global financial crisis) still sees governance as a mere box-ticking exercise against laws, regulations, standards and codes.’ Interestingly, similar concerns are known to been identified by the Office of Students (OfS) from its assessment of the evidence submitted by providers when seeking to become registered with OfS.

The ICSA publication examines the three corporate governance regimes it considers to form the basis of corporate governance best practice: (1) the UK Corporate Governance framework; (2) the G20/OECD Corporate Governance Principles; and (3) the King Reports from South Africa. Although each of the approaches are different, it is suggested that there is a global process of convergence bringing the approaches closer together.

While many government codes are based on the principle of ‘comply or explain’, the King IV Principles developed in South Africa use ‘apply or explain’. It is suggested that this may be more appropriate as ‘it is often not the case of whether to comply or not, but rather to consider how the principles and recommendations can be applied’.

An organisation’s governance framework comprises internal and external components. The internal component is determined by the organisation’s constitutional instruments and internal policies, while the external component reflects legislation, regulations and other requirements with which the organisation is required to apply.

The evolution of corporate governance across the globe has largely been piecemeal, with changes being a reaction to corporate scandals. In a number of countries, the failure of self-regulation has led to a principles-based and voluntary approach to corporate governance, being replaced by a rules-based approach.

The evolution of corporate governance has witnessed the movement from an initial focus on large private sector corporates to public and non-profit entities. This reflects a recognition that governance is relevant to all types of organisations and not just corporates. Some countries have responded by developing ‘umbrella’ codes or principles, while in others there has been the creation of different codes for different types of organisations and sectors; for example, UK Charity Governance Code, 2017 and Higher Education Codes (CUC, 2018 and Scottish, 2017).

It is acknowledged that while governance frameworks ‘appear to reduce the incidence of bad behaviour by those who run organisations’, they cannot entirely prevent such behaviour. This highlights the role of the human factor and culture. To reinforce the point as the Walker report (2009) notes, ‘both the character and culture of board members [are] important for an effective board’.

Organisations are not ‘islands’ and need to earn a licence to operate in the communities in which they function. A general trend in terms of corporate governance is the need to identify and engage with key stakeholders. Equally, governance cannot be divorced from changes in societal values. For example, it is suggested that the ‘millennial’ generation’s greater concern with climate change is influencing the wider context, and this will increasingly impact governance. This, in turn, brings into play integrated thinking and reporting, an approach currently being tested and piloted by higher education providers in the UK.

On executive pay, it is noted that increased disclosure for private sector corporates may have had the opposed effect to the one intended in many countries. The ability to compare and contrast pay between companies appears to have pushed pay up. This is at variance with the recent evidence published by the OfS, which suggested increased transparency in higher education has not had the same effect in terms of the pay of senior post-holders.

The ICSA publication reminds the reader that higher education governance does not exist in isolation and is impacted by wider developments in society and thinking about governance more generally. It is for this reason that many Governance Development Programme (GDP) events include contributors from outside higher education, allowing participants to view issues from a different organisational or sector perspective, and thereby helping them to reflect on their current practice.

Corporate Governance Unlocked: An introduction for the curious mind can be purchased either as a hard copy or as a pdf directly from the ICSA.

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