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Governance for the now

Since the start of the new millennium, software companies have driven business’ digital transformation with cutting-edge technology.

type
Article
author
By Brian Stafford, CEO Diligent
date
28 Jun 2021
read time
4 min to read
profile photo of Brian Stafford

Governance technology that provides insight into ESG strategies and outcomes is essential to boards that want to manage the risks and opportunities changing regulator and societal expectations.

Since the start of the new millennium, software companies have driven business’ digital transformation with cutting-edge technology.

SAP and Oracle transformed the back office with Enterprise Resource Planning (ERP) platforms. Salesforce unlocked a new way for companies to engage customers and drive growth with customer relationship management (CRM) and marketing platforms.

Fast forward to today and we are at another inflection point where an integrated governance, risk and compliance (GRC) platform is needed, connecting boards and leadership teams to the people, data and insights that maintain the integrity of day- to-day operations.

Business leaders are also now being challenged to deliver sustainability and societal outcomes relating to environmental, social, and corporate governance (ESG) goals. Today’s most visionary leaders know their companies must transform in significant ways to keep pace with the rising tide of ESG.

Business and government agencies in New Zealand are leveraging tools and technology to meet, address and prioritise diversity, environment, and sustainability issues, especially on the road to recovery from the COVID-19 health crisis.

Prioritise governance

While there are several companies addressing the risk and compliance space, often “the G” (governance) factor in GRC is ignored, which is a distinct practice that needs a targeted technology solution.

And while many companies are concerned about governance, risk, and compliance, these are managed separately as siloed business functions, amplifying that chance of “missing something”.

Modern technology is critical to enable a holistic view of GRC alongside regulation.

No purpose-driven organisation can afford to simply wonder if every vendor in the supply chain is complying with local environmental or child labour laws. They must know this information.

The good news is that information to avoid these business pitfalls is usually readily available to organisations. The bad news is that legacy practices and technology often leave critical information obscured from the view of the C-suite leaders and board members.

While environmental and social outcomes are incredibly important, the governance aspect needs just as much effort and attention. The power of modern governance already exists in organisational data. But legacy practices rely far too heavily on the manual collection of information from people through traditional forms and workflows.

Integrate E, S and G

Australian Ethical investments recently released a survey that showed that ESG investment, as far as retail investors are concerned, is primarily about the “E” (environmental) factor.

What this comes down to is aversion to people trying to position themselves as ethical investments without authenticity, otherwise known as “greenwashing”, and just ticking a box. This, too, can be solved by local regulators and government stamping out loose standards.

According to the Sustainable Business Council, short-term projects currently in place in New Zealand will have a meaningful impact on emissions. Across a 10-year implementation timeframe, these projects alone will deliver a 5.5% reduction in emissions with a total capital spend over this timeframe of $7.23b.

To achieve this, New Zealand businesses must put long-term and short-term plans in place to mobilise capital, enable the government to act now and have a lasting effect.

Even with these short- and long-term business plans, ESG concerns continue to be investor-led. According to the same Australian Ethical survey, “an estimated 55% of new inflows allocated by financial advisers to ESG-aligned investments in the last 12 months were driven by investors”.

So, the question then becomes how do we create a comprehensive process that integrates, tracks and reports on ESG metrics to ensure investors, boards and executives are all aligned? Especially given ESG will continue to underpin most, if not all, debates about the future of investing, one holistic view is needed to make decisions regarding ESG.

Modern boards and leadership

We have entered a new era in business where hitting financial metrics simply is not enough for an organisation to be successful. There is a need to manage the impact on broader stakeholders.

In fact, the US Business Roundtable, a leading association of chief executive officers representing 200 of the world’s most prominent organisations, acknowledges the importance of all stakeholders. The difference between a leader and a visionary leader is a nuanced, but important distinction, and can be seen in how they guide their organisation on a clear path following the “North Star” of the business efficiently, effectively and safely.

A multinational corporation that is entering a significant overseas deal must conduct due diligence to assess whether growth is legitimate or if there may be sophisticated bribes or kickbacks in play. A data breach that dumps private data from millions of customers onto the dark web cannot go unreported to senior leaders, government cyber and privacy enforcement, or undisclosed to customers. Suspicious transaction patterns flowing through a major financial institution must be unearthed and exposed to regulators.

Modern boards and executives understand that, to thrive in this new ESG chapter, leaders must reimagine the relationship they have with their company. They must deepen the connective tissue across all layers of the organisation, from the board to leadership to front-line employees.

Create an ESG action plan

Corporations cannot be better and do better if they have blind spots that disappoint stakeholders or erupt into scandal — especially as risks multiply, and guidelines and regulations evolve.

Only once companies have bridged the gap between their leadership and employees, creating transparency across the entire organisation, will they be strong and resilient enough to make progress on the greatest business objective of all: positive change.

I believe organisations that invest in their stakeholders and their communities and take an overall long-term view will see great success.

As we venture further, and C-suite executives and board members look for ever-expanding ways to drive positive impact for stakeholders, a modern GRC platform will be an indispensable tool to help companies deliver on ESG commitments. While there is still more work to do, we are on the right path.

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