The Value of Good Governance
Posted on July 16th, 2008 by Julie Garland McLellan »Permalink
I was at a company directors’ conference recently where my colleagues and I began discussing how we anticipate that company directors’ roles will change in the future.
We all agreed that company directors are under increasing pressure to add value to businesses, and that there will be growing scrutiny about their impacts on the bottom line. Some of this discussion is already happening.
So where do board directors really demonstrate their value? My friends are all sure that their ability to develop and institute sound governance policies adds value by reducing risk. McKinsey & Co in their 2005 Global Investor Survey revealed a willingness by investors in Asia to pay up to a 25% premium for companies exhibiting good governance policies. You can bet that in the future, boards will be mindful of this in developing governance processes and procedures that instill confidence in the minds of investors and the public.
It is likely that the biggest value added by good governance practices is the time that is saved through automation and stream-lined processes; this can be put to use in the strategic performance related areas where competitive advantage is created.
Savvy board members will likely work to engage their communities in efforts to gauge how governance is measured – and track the value that the board has added in the process, so that it can be captured and reported to shareholders. This is no small task. In my experience, when boards do a 360 degree performance review they often find that the further from the boardroom, the lower the perceived value added by the board. The best boards are now focusing their performance review on specific activities and SMART metrics that ensure performance is recognized.
As companies begin to focus more closely on just what it is that board members do in their roles, these kind of value-add calculations will be important metrics that will impact the share-price in the same way as production data. Is your board ready that brave new world?
Tags: corporate boards, Controls Intelligence, IT, ROI, shareholder value
Julie Garland McLellan has over 20 years experience in strategic business development in resources, utilities and energy industries. She is currently a corporate governance consultant with Blackrock ITS, a leading Australian IT services and solutions firm. Previously, she served as associate director with McLennan Magasanik Associates, and a board member of the Victorian Minerals and Energy Council, the Victorian Energy Networks Corporation (VENCorp), the Melbourne University Engineering Foundation and City West Water. Julie has an honours degree in civil engineering from City University in London, an MBA from the leading Spanish Business School (Instituto de Empresa in Madrid) and is qualified in finance and corporate governance.