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Corporate Governance Vs. Sustainable Governance

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Access Pensions, Future Shaping

By ADEYEMI Bisi

WED, 14 SEPTEMBER 2016-Historically, the concept of corporate governance was initially focused on legal issues, compliance, structures, individual competences of executives and non-executives and issues of independence. It then evolved to focus on stakeholder engagement and new models of reporting and accountability. Lately, the focus has shifted to “governance for sustainability or sustainable governance”.  Sustainability is simply an approach to creating value that sustains or enhances the systems and resources upon which that value depends. It is a business approach that seeks to build long-term competitiveness without unduly compromising short term profitability and cash flows. Sustainable Governance is a process that optimizes sustainability principles to influence more impactful governance outcomes. These sustainability principles include – organizational governance, fair practices, impact on the environment and community, labour practices, customers and human rights.

It is important to distinguish between the concepts of “Sustainability” and “Corporate Social Responsibility”(CSR) as the two concepts are sometimes used interchangeably. While Sustainability is a business approach that creates long term shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments (Sustainable Asset–Dow Jones Sustainability Index), Corporate Social Responsibility is the consciousness of an organisation in managing internal and external consequences in ways that impact positively on all stakeholders, at all times – (Emilia Asim – Ita, 2012).

The World Business Council for Sustainable Development defines CSR “as the continuing commitment by businesses to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and the society at large. Sustainability on the other hand is a process of analysis and decision-makingacross every business function, strongly informed by an appreciation of the radical transition presently underway. Sustainability analysts have expressed optimism that this process will catalyse far-reaching change in the way businesses contribute to the society.

To integrate sustainability in the governance process, companies have to develop strategies and management models that create social, environmental and economic value, generating higher levels of profitability in the short and long term. Companies must take into account issues such as ethics; quality of products and services; customer and employee satisfaction; strategic relationships with suppliers; involvement with the community and strategic philanthropy; eco-efficiency and respect for the environment.

From a board perspective, the key elements of a sustainable company are; a detailed strategy, a set of sustainability goals, a multi-dimensional concept of sustainability and stakeholder value; a certifiable (external) reporting system on both financial and non-financial performance which allows for measuring progress on the achievement of sustainability goals; the involvement of stakeholders in the decision making process and an incentive system designed to support sustainability. Boards need to ensure that their companies view sustainability as more than “being good to the community” but rather an integral component of the overall success strategy, by developing corporate governance systems that incorporate a positive response to the company’s social, economic, environmental, risk and opportunities. The alignment of management remuneration with sustainability is also a critical area for Board decision.

Companies can no longer afford to ignore sustainability as a central factor in their long term competiveness. Business sustainability is the new approach to corporate governance and acompany is now considered through the lens of a full value chain. As corporate sustainability issues become more embedded, there is need to revisit the role of corporate governance mechanisms to monitor all aspects of company behavior that affect the society at large starting with the Board setting the tone at the top for strong governance practices.

In 2009, The Prince of Wales convened a high level meeting of investors, standard setters, companies, accounting bodies and UN representatives including The Prince’s Accounting for Sustainability Project, International Federation of Accountants (IFAC), and the Global Reporting Initiative (GRI), to establish the International Integrated Reporting Committee (IIRC), a body to oversee the creation of a globally accepted Integrated Reporting framework. In November 2011, the Committee was renamed the International Integrated Reporting Council.

Integrated Reporting (IR)is now fast catching on. It has been defined as a “process that results in communication, most visibly a periodic “integrated report”, about value creation over time. An integrated report is a concise communication about how an organization’s strategy, governance, performance and prospects lead to the creation of value over the short, medium and long term.” (Integratedreporting.org). It means the integrated representation of a company’s performance in terms of both financial and other value relevant information. Integrated Reporting provides greater context for performance data, clarifies how value relevant information fits into operations or a business, and may help make company decision making more long-term and serves to demonstrate a company’s commitment to sustainable growth.

ADEYEMI, Bisi is the Managing Director DCSL Corporate Services Limited. Email:badeyemi@dcsl.com.ng|www.dcsl.com.ng

 

 

 

Access Pensions, Future Shaping
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