As part of Last Word Media’s Campaign for Better Governance, ESG Clarity sat down with Chartered Institute for Securities & Investment (CISI) board director and trustee Petros Florides to talk about good governance in the investment industry.
How has the approach to governance changed since you started working in the industry?
Since the early 1990s, when the first UK governance report was issued by Sir Adrian Cadbury, governance has evolved into a more holistic discipline that considers wider stakeholders (also codified in UK law courtesy of S.172 of the UK Companies Act requiring due regard for a company’s wider relationships); to date, this has been taken to its apogee with the ‘stakeholder inclusive’ model introduced by The King Code in South Africa. Governance has also become more focused on purpose over process and is recognising the human element inherent to good governance much more.
Where is the investment industry still getting governance wrong?
Governance is not yet fully understood as a discipline that should be applied enterprise-wide, with its fundamental principles applied, as appropriate, across the whole organisation; and, with the board of directors exemplifying standards and expectations. It would be best to consider governance an operational risk (given its relationship with, inter alia: people, systems, processes, and external events) to be managed, and reported, more intentionally. A good example of the universality of the fundamental principles of governance can be seen with the EU’s product governance rules.
How can you identify good governance at a portfolio company or within your own organisation?
Good governance can best be identified when the culture of an organisation is one of embracing its fundamental principles as a means to achieving the company’s desired outcomes. Adopting an “apply and explain” approach to these principles best serves to nurture such a culture – that should be evident in the way systems, processes and communications (both internal and external) of the organisation are designed and implemented. Critical to achieving such a culture is a mentality of continuous improvement through the review of results and should incorporate quality engagement with wider stakeholders. A minimalist approach to governance (considerations of proportionality notwithstanding) – or an attitude that considers governance a bureaucratic burden – should be viewed with suspicion.
Why is an understanding of human behaviour important to learning good governance?
Human behaviour is the underlying dynamic that determines the performance of a board of directors – or any other context that involves human interaction for analysis, review, discussion and decision making. The more intense that human interaction (such as in the case of a board of directors), the more important an understanding of human behaviour becomes.
See also: – Podcast: What does good governance look like?
Although rules, policies, systems and processes are critical to provide the necessary governance structure, these factors alone cannot ensure good governance if the people involved are not engaging appropriately through their design, implementation and utilisation – including an awareness of their own cognitive biases while doing so.
Moreover, diversity and inclusion requires an appreciation of the range of personality types that can consider the same issue from a variety of perspectives, with each being properly utilised for fuller deliberation and decision making – including with regards to how to best apply the fundamental principles of good governance throughout the organisation.
What is the CISI’s approach to governance?
The CISI is a champion of life-long-learning that is the essential ingredient to achieving good governance. This is evidenced by the recent 360-degree evaluation of its board of trustees, and the establishment of an ad hoc committee chaired by the vice-chair of the board to review the results and make recommendations based on the feedback provided. In addition to meeting the legal requirements pertaining to charities, a further review of standards and performance against to the Charity Governance Code was subsequently undertaken with action initiated to further enhance application of the Code’s principles.