Governance is the system that manages and controls the company and has to establish the rights and responsibilities between the different stakeholders and decision-making procedures and rules. Organizations have different reasons to improve their management and control system, that is, their governance: to protect the interests of the different stakeholders, to guarantee the sustainability of the company or to manage possible risks, among other issues.
What is governance?
It is the system of rules, protocols and procedures for the behaviour and operational control of an organization. It establishes the rules by which the decision-making process is governed to generate value. Moreover, it establishes a preventive system and a way to solve problems for the durability of the organization and its reputation.
The board for governance should include potential environmental and social impact and is connected to different actors such as consumers, customers, suppliers, employees and owners, among others.
Governance is a key tool for the sustainability, and thus also the implementation of circular economy practices, of an organization and its products.
Why is governance in an organization important?
Good corporate governance is a fundamental pillar of an organization, and it leads an organization to make sustainable business decisions to control risk management and contribute to the success of the organization in the long term.
A good design of governance helps to create the internal practices that determine how the organization operates and how it reflects the interest of its stakeholders through their collaboration, anticipating the consequences of the proposals and addressing potential conflicts of interest.
Good governance contributes to reducing financial costs and sustainability risks because organizations that have implemented a good corporate governance system, lead to manage the economic, social and environmental impacts. Moreover, good corporate governance contributes to preventing bankruptcy and, consequently, these organizations are good options for investors.
Moreover, governance is a tool to spread sustainability all along the life cycle of a product or service including the organization and its members.
What are the principles of well-designed governance?
- Transparency: disclosure of financial and non-financial information.
- Responsibility: ensuring the organization fulfils its proper role in society.
- Fairness: equitable treatment of investors.
- Accountability: ensuring that management is effectively overseen.
- Legitimacy: acceptation and compliance with the law and norms.
- Consistency: alignment between facts and policies (saying).
- Integrity: to behave ethically and following the common and accepted moral norms.
Examples of best governance practices
- Data driven, it means that everything that an organization does and decides is based on data.
- Information and training for employees: through transparency and responsibility, participation in governance by well-informed employees can be increased.
- Example of the use of governance to push sustainable and circular practices in a company: establish policies and allocate staff and budget to reduce waste and to extend the useful life of products
- Employees / Departments for sustainability are included in the company’s governance structure; ideally, they directly report to the upper management and are positioned in a way that demonstrated the importance of the topic within the company
Examples of bad governance practices
- Arbitrary environmental policy, the governance should guarantee the best environmental policy possible based on data for a company’s stakeholders.
- Lack of transparency, it conducts to a wrong decision making.
- Misleading statements in the performance of the internal or external auditing.
- Bribes and favourable treatment with customers and suppliers.
- No clearly defined roles and positions for sustainability within a company.
What is change management?
Change management is the method in which an organization implements changes in its internal processes and external relations to move from the situation ‘A’ (old) to situation ‘B’ (new) ensuring successful change. This includes preparing employees, establishing the steps for change and guide the necessary actions to achieve the expected outcomes and controlling pre- and post-change activities.
What are the different steps in a change management process?
- Define and select the change.
- Develop plan for changes.
- Preparing the organization for change.
- Implementation.
- Check and feedback.
What are the success factors for implementing a successful change process in a company?
- A true commitment of the highest-level positions to the change toward sustainability and circular economy
- Allocate the necessary resources to the change
- Select the change management human team
- Organizational culture
- Communication plan
- Leadership
The organization shall set mechanisms to guarantee sustainability management in the inter-organizational relationships throughout the supply chain. (For more information, see the following Report).
Cadbury, A. 1992. Report of the Committee on the Financial Aspects of Corporate Governance (the UK Cadbury Code), London.
Fernández, M.A.; Muñoz, M.J.; Rivero, J.M.; Ferrero, I. 2008. “El gobierno corporativo como motor de la responsabilidad social corporativa”. Colección economía y gestión num. 8, Universitat Jaume I. Muñoz-Torres, M. J., Fernandez-Izquierdo, M. A., Rivera-Lirio, J. M., Ferrero-Ferrero, I., Escrig-Olmedo, E., Gisbert-Navarro, J.V. (2017). D5.2 List of best practices and KPIs of the textile products life cycle. Public Report, SMART H2020 Project. Available at: https://ec.europa.eu/research/participants/documents/downloadPublic?documentIds=080166e5bd4e507d&appId=PPGMS