4 Corporate Governance Mistakes Putting Your Organization at Risk

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Thursday, June 24, 2021

Sometimes, small mistakes can make a huge difference to how your organization runs. These 4 corporate governance issues are common ways companies can run into trouble.

Article 4 Minutes
4 Corporate Governance Mistakes Putting Your Organization at Risk

Large corporate governance mistakes are easy to spot. They tend to come before a scandal, or even the complete collapse of a firm. However, the most common - and more insidious - errors are the smaller ones that can creep up on your organization and sabotage it over time. Without spotting and dealing with these, your company could be at risk.

Luckily, this is becoming rarer as corporate governance is gradually improving. But mistakes are still common, and governance issues can easily snowball to affect the entire company from the top down. Here are 4 of the most common and most dangerous mistakes that could be affecting your business.

Poor communication

If a company’s communication is poor, it leads to confusion, a lack of trust and difficulty collaborating. This is especially true when it comes to the board of directors. Around 75% of employees think effective communication is the most important leadership attribute, but only a third believe their leaders actually communicate effectively.

This is a major problem. The lost productivity due to miscommunication can cost larger companies millions of dollars every year. There needs to be a clear chain of communication from the board of directors downwards, with policies determining how key messages are to be delivered so employees can stay in the loop and understand the directions to take.

Communication should be baked into your corporate governance policies. Regular updates will keep staff in the loop and help them perform better. In fact, leadership communication is one of the main factors contributing to employee engagement, showing just how crucial it is not to neglect this.

Inefficient meetings

Board meetings are a major part of corporate governance, but are these always the best use of time? It’s estimated that around 50% of upper management’s time is spent in meetings, but only half of this time is effective, well-used and engaging. If meetings aren’t being utilized properly, it can hamper an organization’s ability to react quickly to events, innovate or grow.

One easy way to make your meetings more efficient is to make them shorter. Research has found that 15-minute and 30-minute meetings were more effective than hour-long meetings, even though the latter is often considered the norm. By cutting down on this time, it forces participants to be focused and tackle the issues at hand, making things more effective.

Beyond that, always make sure your meetings have a clear agenda that addresses why the meeting is being held, what you hope to get out of it and what its structure will be. Try to stick to this as much as possible to keep everything running smoothly and ensure you don’t waste unnecessary time in meetings getting everyone on the same page.

Lack of responsibility for company culture

What’s your company’s culture like? Given that this is a major factor in recruiting and retaining staff, this is an important question, especially considering how expensive staff turnover can be. While it’s not the only way, one of the most effective methods of shaping a company culture is from the top down, making this a corporate governance problem.

Unfortunately, there’s a disconnect between this area of governance and leadership. Less than half of businesses can explain how their company culture is evaluated, with only 3% using three or more metrics to measure this. Directors need to take steps to understand the state of their culture in order to make positive changes.

Once you understand what your company culture looks like, you can take concrete steps to make it more positive. For example, make sure there are clear guidelines around discrimination and bullying, and procedures set out for reporting this. Ensure you’re also providing a positive example for your company to emulate.

Echo chambers

A lack of diversity can hamstring a company, especially in the boardroom where a lack of different perspectives can so easily lead to echo chambers. Diverse directors are more creative and better at managing change, as well as being more likely to represent the makeup of the company’s workforce and therefore more understanding of its needs.

However, despite 84% of directors believing companies should do more to promote racial and gender diversity, only 34% think this should apply to the board. This isn’t a recipe for corporate governance success, and could be preventing organizations from reaching their potential.

There’s no way around it; to avoid echo chambers, you have to hire and promote more diverse people. The good news is this is almost always a benefit to companies, with increased diversity being responsible for a 30% increase in team performance, so it should be a priority for your organization anyway.

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