Changing behaviours is key to governance

I have been practicing as a company secretary since the early 1980s. I was originally a chartered secretary working in finance as the person responsible for complying with company law and regulations. This changed, with the publication of the Cadbury Code in the early 1990s, to a chartered secretary working in the legal department to ensure that good governance practices were adopted. During the past eight years I have worked with company secretaries from Turkey, Indonesia, Vietnam, Bhutan, Mongolia and other countries throughout Africa and the Middle East. The common issue was being unable to explain what I did to the world at large.

I waited, therefore, with great anticipation for the publication of the Henley Business School report ‘The Company Secretary – Building trust through governance’. I also attended Professor Andrew Kakabadse’s session at last year’s CGIUKI Company Secretaries Conference on the outcome of the research. As I listened to the presentation, a question arose in my mind. If chartered secretaries are governance professionals, what distinguishes them from others, such as lawyers and accountants, who are described as compliance professionals? This prompted me to pose this question at my next corporate governance workshop in Uganda: What is the difference between governance and compliance?

Those present at the workshop, many of them lawyers, started with the Cadbury definition of corporate governance: ‘The system by which companies are directed and controlled.’ They defined a system using the online definition: ‘A set of principles or procedures according to which something is done; an organised scheme or method; a modus operandi.’ Participants then compared this definition with that of compliance: ‘The action or fact of complying with a wish or command.’

The workshop debate concluded that organisations should put in place structures, policies and procedures that comply with good corporate governance practices (see Figure 1, showing the outcome of the discussion). These can only be effective if the people who work within the organisation buy into them which usually requires behavioural change and the creation of a new culture. New culture through changing behaviours of the people involved with the organisation is, I would say, true governance. For example, compliance puts in place a code of ethics and governance creates an ethical culture.

Governance, rather than compliance, is also the focus of the FRC’s latest risk guidance – it is centred upon the creation of risk cultures, rather than just the introduction of structures, policies and procedures traditionally seen as best practice.

Management of people

The role of the company secretary therefore involves, in addition to a compliance function, the management of people to create the appropriate cultures which enable the corporate governance structures, policies and procedures to work effectively. As Professor Kakabadse said, to achieve this the chartered secretary must be have a high intelligence quotient (IQ) and a high emotional intelligence quotient (EQ).

Unfortunately, evidenced by corporate governance scandals across the globe, many carrying out the role of governance professional within organisations do not grasp this. They believe fulfilling compliance requirements with best practices is enough to be operating good governance. In many countries, this is mirrored by boards of directors believing that good governance is all about complying with best practices, appointing lawyers or outsourcing their governance to law firms. In doing so, it can be argued that their organisations fail to reach their true potential.

In their book ‘Emotional Intelligence 2.0’, published in 1999, Travis Bradberry and Jean Greaves claim that 90% of top performers score highly in EQ, and that it is twice as important as IQ in getting to where you want to be. They suggest that EQ is the foundation for many critical skills, including decision making, change tolerance, communication, anger management, stress tolerance, presentation skills, trust, assertiveness and empathy.

A change in ‘mindset’ is therefore required. In some of the associated territories we are explaining to chartered secretaries that they cannot be good governance professionals unless they develop a different attitude to governance. We have seen experienced individuals from other professions taking the Chartered Secretaries Qualifying Scheme and failing because they have taken a compliance approach to answering the questions. They respond with the ‘what’ best practice and ‘why’ it should be adopted or complied with. They do not go on to explain ‘how’ they would actually implement the best practice and create the appropriate behaviour and culture for it to operate effectively.

To differentiate ourselves from lawyers and other compliance professionals, chartered secretaries need to develop the skills to address the ‘how’. Only by doing this will organisations be successful and sustainable. There is plenty of evidence that where organisations do create good governance cultures they thrive and survive in the long term.

Emotional intelligence

We all have some capacity to understand our own and other people’s emotions and behaviours, as well as self-manage and manage relationships. It is these emotional intelligence (EI) skills that chartered secretaries need to develop. These skills should be used to guide their behaviour and the advice they give to shareholders, boards and management. We need to know what we as individuals, our boards and what our organisations need to be successful.

Individuals have different behavioural preferences. For example, some people like to act after having all of the facts and data, others will act on intuition or gut feeling alone. These differences play out in boardroom, in our own behaviour and our reactions to things that happen. For example, if our preference is for facts and data and we hear a board asking for more information, our response will probably be to provide more facts and data, thus responding to our own preference. This may not be what the board members require if they prefer acting on intuition.

Some board members like time to reflect, others will be happy to take quick decisions and deal with adverse consequences should they occur. This may create tension at the board meeting. It may also affect the make-up of agendas and timings of meetings. Being able to read these dynamics and respond to them makes for better decision making, time management and resource utilisation within an organisation.

Chartered secretaries, therefore, need to recognise the importance and value of EI skills within the culture of their organisation. They need to examine how EI skills influence behaviour and how they can contribute to a culture of collaboration between the board, management and employees. Chartered secretaries should also look at how they can use EI skills to navigate some of the everyday emotionally charged challenges that organisations face. These include mergers or restructuring; leadership transitions; dissenting voices on the board; a downturn in the market; risk appetite and risk avoidance; a dominant chairman; board evaluation.

Effective influencers

At last year’s CGIUKI Company Secretaries Conference speakers said that good company secretaries operate in the ‘shadows’, rarely receiving recognition for the good work they do. Often chartered secretaries are not decision makers but they are decision influencers – through the advice they give to the decision makers, their involvement in agenda development and the interactions they have with the board and management. To be successful influencers it is important for them to utilise all their EI skills. In doing so they can build trust between the board and management, help collaboration between a CEO and the chairman and assist both board and management to make best use of time and resources.

Alison Dillon Kibirige is former Chair of ICSA Uganda - East Africa Region