Workplace Doctor: Abu Dhabi firm failing to maintain corporate governance principles

Volkswagen learnt the hard way: ignore corporate governance at your peril.

Alvaro Sanmarti / The National

My company is failing to maintain its laid out corporate governance principles, and I am concerned as a senior manager that this will ultimately affect our employees. How can the resulting conflicts of interest, lack of board diversity and lack of procedural follow-through hamper productivity and staff morale? What can we do to mitigate any fallout? W H, Abu Dhabi

Corporate governance is the system of rules, practices and internal controls and processes by which a company is directed and controlled. It is the way a corporation polices itself by installing its own customs, policies and laws applicable to all. The idea is to create collective responsibility and accountability that guides management and employee behaviour to protect the financial and reputational interests of all stakeholders. Ultimately, however, corporate governance is only as strong as the board’s desire to enforce it.

A good corporate governance structure should have channels whereby employees and managers can air concerns. Strong institutions welcome feedback from stakeholders – positive and negative – so that they may address problems before they harm the organisation. If employees fear retaliation then problems will fester unaddressed and risks to the organisation will grow.

Business writers have often directly linked company disasters to poor corporate governance. Although every case is different, there can be serious implications when internal audits are not in order, or audit recommendations are ignored. A recent example of this is Volkswagen, where management for years allowed the use of a so-called “defeat device” software to enable its diesel cars to pass strict emission tests. The result was a disaster that hit the company’s brand, financial performance and share price significantly.

__________

Governance in focus

■ Women: Having more women in UAE company board seats to take time

■ Teamwork: The board is a team, and that's how it must work

■ Management: Know your requirements before you set up a board

■ AGMs: When annual meetings become forums for confrontation

■ Virtual AGMs: When the AGM is everything but personal

■ Editor's letter: An issue important to our well-being

■ History: Be good, because investors are watching more closely

■ Poll: Corporate governance in the UAE - have your say

■ Analysis: A good board brings right mix of knowledge and culture

■ Gender equality: 30% Club GCC chapter to boost women numbers on company boards

__________

At your firm, however, in your position as a senior manager, you will only be able to respond to this context rather than change it completely. Certain corporate governance factors can only be achieved at a board level, such as clarifying their role in the organisation’s strategy, making sure there are diverse skills and perspectives on the board and holding themselves accountable for their own performance.

What is in your control and the control of other leaders in the organisation is the culture you shape through behaviour. Many organisations, including yours, may reward drive, risk and results irrespective of how they were achieved. Good corporate governance can still operate in this results-driven environment but it really requires humility, caution and care, with people working together rather than seeking to win at all costs. You are in charge of managing morale within your own area of responsibility. Doing this well can help influence a culture nudging the organisation in the direction of better governance.

Another thing you can do personally, alongside other senior managers, is to personify the principles of good corporate governance at a managerial level. You can make sure you follow an ethical approach, balance the objectives of your team in line with the corporate strategy and provide real role clarity for your people. Involve them in the decision-making process and give a voice to different stakeholder groups. Also, manage projects and teams where accountability and transparency are part of the fabric of their existence.

Finally, one way to address bad behaviour and to empower your people is to allow them to speak their mind when they feel something unethical or unjust is taking place. If they have the support of senior managers like you, they will know when to act on their values despite pressure from those around them.

Doctor’s Prescription

Managers and leaders like you can be the community that shapes the cultural waves of change simply through enacting these characteristics yourself and with your people.

Alex Davda is business psychologist and client director at Ashridge Executive Education, Hult International Business School, and is based in the Middle East. Email him at [e-mail] for advice on any work issues.

Follow The National's Business section on Twitter