Professional Postgraduate Diploma in GRC – Masterclass Evaluation template for Executive Summary
Masterclass 8
Preamble
Corporate governance is referred to as a set of rules, policies, relationships, and systems that governs a company and holds its management to account. A significant body of work has emerged in the area of corporate governance within the frameworks of the following theories: agency, transaction costs economics, stakeholder, stewardship, class hegemony, managerial hegemony, path dependence, political, institutional, and network governance among others (Okoye 2015). The interactions of these disparate theories have produced a complex system, which helps to balance the interests of different actors such as management, shareholders, a country’s government, and community to “achieve good governance outcomes and meet reasonable expectations of most investors in most situations” (ASX 2014, p. 3).
The development of corporate governance requirements has been driven by the global financial crisis of 2007-2009 and numerous instances of corporate misconduct (Deloitte 2015). Organizations such as the World Bank, Global Corporate Governance Forum (GCGF), and the Organization for Economic Cooperation and Development (OECD) have promoted the adoption of corporate governance codes. Just like any other financial services organization, an insurance company, Generali Group, needs a system of corporate governance codes that will satisfy stakeholders’ desire for transparency and accountability. The implementation of principles of good governance can be used for Generali Group’s benefit if the company takes a holistic, innovative, and authentic approach to it.
The relevance of this topic to me is underscored by the fact that to make sure that Generali Group preserves its competitive edge, it has to ensure that its corporate governance rules, policies, and procedures are consistent with effective risk management and promote safe insurance undertakings at all levels. This reflective journal entry aims to explore how a system of corporate governance requirements can be used by the company’s benefit.
Key principles and issues raised within the Masterclass
Change
The first key learning point is that corporate governance requirements can be used by governance, risk, and control (GRC) practitioners to drive change within their organizations. To engender support for GRC activities, it is necessary to make sure that they reduce costs and add value to a company (ICT 2016). It cannot be achieved without changing the behavior of individuals working at all levels of a firm. The change can be brought about by leaders espousing principles of authentic governance. Authentic corporate governance refers to “a systematic process of continuous gradual, and routine personal improvement, steering, and learning that lead to sustainable high personal performance and ethical personal excellence” (Rampersad & Hussain 2014, p. 5).
The main objective of authentic governance, which radically differs from traditional corporate governance concepts, is to achieve high corporate performance through personal change. Such change can help GRC leaders not only to meet compliance mandate but also to achieve sustainable development of their organizations. The following two models can be used to create a paradigm of a shift in a company, which will deliver a perpetual transformational process: ‘Be, Know, Do’ and ‘Pinpoint, Record and Reward.’
‘Be, Know, Do’ is a leadership model that can cultivate ethical behavior in a sustainable way (ICT 2016). The ‘Be’ principle of the model helps compliance specialists to determine which personal character attributes are associated with an effective GRC culture. The ‘Know’ principle is necessary for the identification of key GRC knowledge. The ‘Do’ principle emphasizes the action component of a compliance culture (ICT 2016).
Pinpoint, Record, and Reward is a model that is congruent with the principles of authentic governance. ‘Pinpoint’ is the first component of the model, which presupposes the identification of desired corporate behaviors. The second component is the monitoring of these behaviors. ‘Reward’ is the third component of the model which is based on the reinforcement of desired behaviors through meaningful incentives (ICT 2016).
Maturity
The second learning point is that effective GRC practitioners can benefit their companies by focusing on the maturity features of their companies and aligning them with GRC requirements. It is important to understand that the value creation process goes beyond compliance; therefore, a proactive approach is needed to ensure that an organization conforms with the letter of existing and future regulations and their spirit. The Maturity framework can be utilized for developing “a coherent enterprise-wide management program that is holistic in its ambitions and goals” (ICT 2016, p. 8). The framework has been developed by the Maturity Institute and helps compliance specialists to maximize the value of their organizations and mitigate wide range risks.
The Maturity framework is based on ten principles/pillars, which rest on the notion of human capital management. The first principle is that organizations have to focus on societal value instead of profits. The second pillar of the framework is the emphasis on the importance of human value in the employment relationship (Kearns 2013). The third pillar is the holistic approach to corporate governance. The fourth principle is knowledge management as a core organizational value. The principle requires GRC practitioners to “show their organizations how to learn to make an honest profit in the face of any pressures to do otherwise” (Kearns 2014, para. 5).
The fifth principle is that in addition to material risk management, mature companies should engage in human capital risk management, which involves an analysis of employees’ risk factors. The sixth principle is the integration of human resources (HR) strategy into a broader business strategy (Maturity Institute n.d.). A philosophy of perpetual improvement is the seventh principle of the framework. The eighth principle is trust, engagement, and cooperation. Performance culture, which is essential for the long-time survival of every organization is the ninth principle. The final pillar of the framework is open and transparent communication (Maturity Institute n.d.).
The leadership of a Compliance Function
The third learning point from the Masterclass is that by effectively leading a compliance function of a company, GRC leaders can realign shareholders’ interests with those of stakeholders, thereby increasing the long-term value of an organization. Under stakeholder theory, it is clear that a company would be better off if its leadership is focused on maximizing stakeholder value (Mallin 2013).
There are several sets of stakeholders: employees, interest groups, communities, customers, creditors, suppliers, and government among others. The involvement of shareholders and stakeholders into the governance of a company hinges upon national laws and a company’s codes and principles (Mallin 2013). It is a GRC leader’s role to make sure that a governance system of their organization is propitious for the creation of a productive dialogue between these two groups of people.
An overriding criterion of GRC activities in the company has to be value creation for both shareholders and stakeholders. To effectively manage the shareholder-stakeholder divide, GRC leaders have to take control of a compliance function by creating a vision for compliance. To be effective, a compliance function has to be governed according to ‘the top from the top’ principle (ICT 2016). It means that a GRC leader has to become a driver of compliance who always keeps the best possible outcomes for both shareholders and stakeholders of their company in mind.
Utilization and recommendations
To utilize the learning points in Generali Group, the company’s GRC practitioners have to become agents of change who “steer the organization towards ethical corporate excellence” (Rampersad & Hussain 2014, p. 14). To this end, the Plan-Deploy-Act-Cultivate cycle can be used. The framework helps to develop an actionable code of corporate governance following four steps. It will help the company to make sure that in an attempt to create the short-term value for its shareholders it does not compromise the long-term value for its stakeholders.
It is imperative to utilize the Maturity framework, which will help to avoid disjointed HR strategies and maximize the efficiency of resource and information utilization. GRC practitioners of Generali Group can start by rating their company along with key indices of organizational maturity rating (OMR) under the guidance of Omindex experts (OM Services n.d.). The rating will help to assess Generali Group’s value potential from two perspectives: operational risk and total stakeholders value. After having a better understanding of the company’s maturity, GRC specialists will be able to reassess motivations that “underlie the values expressed by the firm and the value placed on human capital” (ICT 2016, p. 8).
To lead a compliance function of the company, it is necessary to develop an internal communication plan, which through internal communication channels of the company will help to engender support and trust for both GRC leadership and overarching GRC goals (Tricker 2015). Furthermore, GRC practitioners can use reinforcement of desired behaviors through financial incentives for those teams and individuals who help to strengthen the compliance culture of the company.
Conclusion
The paper has shown that corporate governance requirements can be used by GRC practitioners to introduce meaningful changes to their organizations. It has been argued that by understanding a unique interplay between stakeholders and shareholders, it is possible to integrate and harmonize two groups of interests, thereby maximizing the long-term business value.
Reference List
ASX 2014, Corporate governance principles and recommendations. Web.
Deloitte 2015, The changing role of compliance.
ICT 2016, ICA professional postgraduate diploma in governance, risk and compliance: course manual – module 8, International Compliance Training Ltd, Birmingham. Web.
Kearns, P 2013, The 2ndpillar—human capital—sending signals that you really value your people. Web.
Kearns, P 2014, The 4thpillar—mature organizations are learning organizations. Web.
Mallin, C 2013, Corporate governance, 4thedn, Oxford University Press, Oxford. Web.
Maturity Institute n.d., The 10 pillars. Web.
Okoye, N 2015, Behavioural risks in corporate governance: regulatory intervention as a risk management mechanism, Routledge, New York, NY. Web.
OM Services n.d., Omindex explained.
Rampersad, H & Hussain, S 2014, Authentic governance: aligning personal governance with corporate governance, Springer, New York, NY. Web.
Tricker, B 2015, Corporate governance: principles, policies and practices, 3rdedn, Oxford University Press, Oxford. Web.