“We have all the legislation we need, but it is not being applied,” and “You can’t regulate ethics” are the most common expressions in relation to many issues.
The truth is that “we all know better.” The new global benchmark of governance expects that organisations will do much more than merely comply with the law. Consider the three outcomes of good corporate, or more generally, organisational governance as indicated in the TT Bureau of Standards' ISO37000:2021: effective performance, responsible stewardship, and ethical behaviour.
People form organisations to achieve a purpose and that means, in essence, that they want organisations to perform, to achieve certain kind of outcomes or impacts. Company acts do not specify what the purpose of companies is nor that they must perform to a certain level.
Legislation that establishes statutory bodies does often specify the general objects of the organisation and it does also, like companies acts, establish the governing body, some of its core functions and processes – but only at the broadest, most general level. Even if the legislation were to be applied, it does not provide guidance to the governing body for what good performance means or how to achieve it.
Many people still act as though organisations are private domains and as long as they are acting within the law (company or statutory, labour, environment, capital markets, health and safety, etc) and they are "giving something back to the community" in the name of corporate responsibility, then they are behaving responsibly.
However, the law only specified minimal levels for some of the areas that concern people who affect, are affected by, or perceive themselves to be affected by a decision or activity of the organisation. The legislation is almost silent about what needs to be reported publicly and most governing bodies are only at the very beginning of thinking about these topics.
To be responsible, organisations must go much further: who are the relevant stakeholders? What are their material concerns? Are the positive and negative effects on capitals employed effectively balanced (eg is the changing balance between natural, financial, manufactured, intellectual, human, social and relationships justified)? What is our evidence that our activities today ensure that future generations are able to meet their needs as well?
Suppose the board of a company, or the commissioners of a public authority, want to really ensure the organisation is a responsible steward – where should they turn to for guidance? Legislation and regulation do not hold the answer.
Here too, good governance goes far beyond compliance with the law. What matters are the perceptions of stakeholders in particular situations: do they believe the organisation as a whole and individuals within it act in accordance with local and internationally accepted principles of right and wrong? Does the organisation demonstrate integrity and transparency in fulfilling its obligations and commitments? Are decisions made competently and with due care based on reasonable information? Do the stakeholders of the organisation have the information to judge the performance, the stewardship of resources, and ethical behaviour of the organisation?
Guidance – not more regulation
There is no doubt that there will be huge revisions in legislation and a lot more regulation in the future because the world and our understanding of it and our role in it are rapidly transforming.
But neither legislation nor regulation alone will enable governing bodies to govern well. Good governance depends on governing bodies articulating the purpose of the organisation and devising an integrated governance framework that empowers all governing groups and organisation actors to fulfil their parts.
TT has been instrumental in contributing to and being part of the international leadership team that developed the first international benchmark on good governance: ISO 37000:2021. The standard complements legislation, regulation, industry and organisation-specific guidance. The ISO standard on organisational governance brings four unique advantages: it is enabling, it allows comparison, it complements, and it is inclusive (see Table / text box)
Unique advantages of an ISO guidance standard on governance
ISO 37000 does not introduce additional regulation. Instead it:
• Introduces enabling guidance for countries, sectors and organisational types where none is currently available.
• Enables the application of existing sector- or jurisdiction-specific regulations.
Comparative: ISO 37000 is the international consensus benchmark that makes comparison across all organizational types, sectors, and countries possible
Complementary: Users of the existing 23,000+ ISO standards have guidance on the work of the governing body and others involved in governance
Inclusive: ISO37000 has been developed using the most advanced global consensus-building process which allows broad multi-stakeholder participation and benefits from a network of 168 national standard organisations. This means that users can be assured that the guidance represents the benchmark for organisational governance
Dr Axel Kravatzky is managing partner of Syntegra-ESG LLC, vice-chair of ISO/TC309 Governance of organizations, and the co-convenor and editor of ISO 37000 Governance of organizations – Guidance.
The views presented are those of the author and do not necessarily represent those of any of the organisations he is associated with.
Comments and feedback that further the regional dialogue are welcome at email@example.com