As more companies adopt formal frameworks, we examine who should be involved in governance strategies, the evolving nature of such structures and the main benefits.
Corporate governance frameworks offer to formalize a company’s policies and potentially deliver additional transparency to external investors. But the roadmap to creating an effective set of policies and deciding who should be accountable for them isn’t as clear. Indeed, even after a company has enacted governance policies, constant review and improvements are not only good practice, but critical in a rapidly changing environment.
To find out how the corporate governance landscape is evolving, Toppan Merrill commissioned survey corporate respondents in North American firms for their insights.
In deciding corporate governance policies, companies consider a wide variety of sources and influences. All respondents say they take account of their particular company’s principles and beliefs. However, shareholder proposals, laws and regulations, and recommendations from consultancies all score 80% or higher. The lowest-scoring factor is peer company practices, though over half (64%) chose this among their answers to the question.
When asked to select the single most important factor shaping their policies, respondents saw the company’s own principles and beliefs as the main influence, with 56% of those surveyed choosing this answer. A director of risk management surveyed stated: “As a company, we are expected to grow and deliver to better standards each time. As such, emphasis on the company's principles and beliefs was highly important to the governance framework.” In other words, importing policies from outside the company may not, they felt, be appropriate. This reasoning is particularly understandable when companies have a very particular culture. For example, US-based clothing business Patagonia styles itself as an “activist company” for environmental causes—an unusual principle unique to that specific company.
It is worth noting that 44% of respondents did not consider their own internal principles and beliefs as the most important factor when setting governance policies. Two in ten cite federal and state laws and regulations as the most important factor. This is more likely to be the case more in more heavily regulated sectors. Moreover, 8% apiece regard shareholder proposals, recommendations from consultancies or peer company practices as the single most important factor. This shows that the policies of a sizeable minority of organizations are shaped primarily by outside forces.
When considering their corporate governance policies, all companies surveyed recognized shareholders and employees as stakeholders—and any other result would have been surprising. Additionally, 80% of respondents identify customers as stakeholders. Strikingly, the environment was also seen by a large majority of our respondents as a stakeholder, with 72% choosing this among their answers. Society at large was seen by fewer respondents as a stakeholder, though this was still selected by more than half, at 56%. Lastly, suppliers are seen by a minority of companies surveyed as among their stakeholders (28%).