In recent years, corporate governance has become a hot topic following scandals like Steinhoff, Tongaat Hulett and many others. Despite increased attention, significant and material progress in improving governance practices across organisations remains alarmingly scarce.
Governance frameworks in most organisations continue to be outdated, underdeveloped, and often untested. As a result, this leads to recurrent corporate failures and directors being increasingly exposed to personal liability. Furthermore, the lack of scrutiny and digitised tools to assess governance maturity and performance means there is no real accountability until it is too late. Therefore, governance failures are likely to persist.
The stagnation of corporate governance in organisations
Despite the undeniable importance of governance in ensuring an organisation’s long-term sustainability, governance frameworks within many organisations remain static and reactive. Organisations may have a governance policy or model on paper. However, few have embedded systems that continuously monitor and evaluate the effectiveness of these paper-based instruments.
The governance systems used to direct and control an organisation are also, in most cases, designed for compliance. They are not intended for continuous improvement or proactive risk and performance management.
In the past, organisations could get by with an outdated governance framework as long as they stayed within the regulatory guidelines. But the modern business environment demands a shift towards dynamic governance. This new approach allows for constant evaluation, responsiveness to emerging risks, and real-time adjustments.
The truth is that many organisations have not moved beyond the basic principles outlined in governance codes such as King IV™. These codes primarily focus on compliance and ethical behaviour. While these principles are essential, they fail to acknowledge the transformational change required to meet the complexities of modern governance.
Governance frameworks not being put to the test
One of the critical flaws in current manual governance models is the lack of systematic measurement and testing. For governance to be truly effective, it must be tangible and it must be challenged. It should not just be evaluated once in a while. Instead, it must be consistently tested through internal and external audits, stress tests, and real-time monitoring.
Without testing, organisations have no way of knowing if their governance frameworks are truly robust and capable of addressing emerging threats or strategic misalignments.
The Steinhoff and Tongaat Hulett scandals, like so many others before them, are classic examples of how poor measurement and testing lead to ineffective governance systems and catastrophic results. In these situations, even the obvious warning signs, which include highly pressured management cultures, aggressive financial practices, inconsistent reporting and weak internal controls – are at best not timeously identified. At worst, they are simply covered up.
The simple adage “what is not measured is not managed” remains true. Governance frameworks should be used to establish the accepted standards of behaviour across critical areas of the business. At the same time, these standards must be continuously reviewed to ensure they are aligned to evolving industry and regulatory requirements.
Conformance to these predetermined benchmarks must also be regularly tested. This allows proactive action to be taken to drive improved performance.
The digitised corporate governance gap
In today’s fast-paced and interconnected world, manual governance systems (often solely represented by paper reports, static spreadsheets and basic compliance checklists) are simply inadequate. These manual systems are reactive, slow and prone to untold error.
The digitised governance framework revolution is therefore not a luxury; it’s a necessity. Digital platforms allow for continuous monitoring and data-driven decision-making. They provide the board and their executive with real-time insights into the organisation’s governance performance and risk exposures.
Through technologies like Artificial Intelligence (AI), Machine Learning (ML), predictive analytics and automated reporting, organisations can regularly assess their governance maturity. They can also identify vulnerabilities before these escalate into full-blown crises.
In a digitised governance framework environment, directors can be alerted when key governance performance indicators (KPIs) are not in line with expectations. They can also use audit trails to monitor improvement activities. By using governance data to guide decision-making, governance becomes a living process. It is no longer something that’s checked once a year and then forgotten.
The quiet and looming threat of governance failure
While the Steinhoff scandal and similar high-profile governance failures shocked the business world, the threat of another governance crisis remains very real.
The lack of modernised, digitised governance framework systems, which allow for real-time oversight and proactive risk management, continues to leave organisations vulnerable. These vulnerabilities are the same types of blind spots that led to previous corporate collapses.
Without these systems, organisations – including state organisations such as SAA, Transnet, Denel, SABC, PRASA and others – are ‘flying blind.’ While it may sound dramatic to say that another governance failure is “imminent”, the reality is that without meaningful change, it’s only a matter of time.
We will eventually read about another corporate governance scandal, or worse, a complete organisational collapse that could have been avoided had better governance practices been implemented.
A dynamic and interactive governance framework will help organisations move beyond cosmetic compliance.
The urgency for digital governance in the context of King V™
The draft King V™ Code for Corporate Governance has recently been published for comment. While this code reinforces the importance of transparency, accountability and sustainability, it falls short. It does not require the transformation of governance frameworks into real-time information systems which can drive timely and informed decision-making. Simply focusing on checklists and templates is not enough.
Changes required to break the poor governance cycle:
-
Embrace digitised governance frameworks
This will allow the organisation’s leadership and its executive to see the organisation’s real-time governance maturity. This includes coverage across a range of strategic and operational areas, with performance measurement indicators and meaningful reporting.
-
Test your governance systems
Governance in the organisation must not be static. It’s an ongoing process which can be managed by automating the assessment and reporting of the organisation’s governance framework. The robustness of the organisation’s governance framework in anticipating changes in governance risk should be actively tested. This includes regular evaluations through simulations and audits.
-
Move from compliance to proactive governance
Compliance is important, but it’s just the beginning. Predictive tools can help organisations to stay ahead and avoid governance failures. Organisations should be urged to move beyond a mere ‘compliance’ mindset. They should integrate digital tools that enable real-time, data-driven governance. This means not only focusing on rules and guidelines, but also on how technology can improve the oversight process, increase transparency, and reduce unwanted risk.
We face a corporate governance reckoning
The stagnation in corporate governance is a critical issue. If left unaddressed, it will contribute to further corporate governance failures. These failures will result in a loss of stakeholder trust, diminished shareholder value, and weakened organisational accountability.
This not only undermines the integrity of individual organisations. It also destabilises broader economic systems by fostering inefficiency, corruption, and unsustainable business practices. Ultimately, this erosion undermines societal confidence in the corporate sector and hinders long-term economic growth and development.
The transparency and accountability strengthened through the introduction of digitised governance frameworks often fuels reluctance. This reluctance stems from the fear of exposure, which leads to poor governance.
Instead of allowing the fear of exposure to perpetuate poor governance, boards and executives should embrace the valuable insights gained by having timely access to governance information. By combining the strengths of governance codes with advanced digital solutions, organisations can better prepare for the challenges ahead.
Terrance Booysen | Chief Executive Officer | CGF Research Institute | mail me |
