September 17

Guidance that goes beyond law and regulation

Axel Kravatzky

This week ISO announced the publication of the first global benchmark of good governance, International Standard, ISO 37000:2021, Governance of organizations – Guidance. Here we outline how  ISO37000:2021 extends governance beyond the law.

“We have all the legislation we need, but it is not being applied,”  and “You can’t regulate ethics” are  the most common expressions in relation to many issues. The truth is that “we all know better.” The new global benchmark of governance expects that organizations will do much more than merely comply with the law. Consider the three outcomes of good corporate, or more generally, organizational governance as indicated in ISO37000:2021: effective performance, responsible stewardship, and ethical behaviour.

Effective performance

People form organizations to achieve a purpose and that means, in essence, that they want organizations to perform, to achieve certain kind of outcomes or impacts. Company acts do not specify what the purpose of companies is nor that they must perform to a certain level.

Legislation that establishes statutory bodies does often specify the general objects of the organization and it does also, like companies’ acts, establish the governing body, some of its core functions and processes – but only at the broadest, most general level. Even if the legislation were to be applied – the legislation does not provide guidance to the governing body for what good performance means or how to achieve it.

Responsible stewardship

Many people still act as though organizations are private domains and as long as they are acting within the law (company or statutory, labour, environment, capital markets, health and safety, etc.) and they are ‘giving something back to the community’ in the name of corporate responsibility then they are behaving responsibly.

However, the law only specified minimal levels for some of the areas that concern people who affect, are affected by, or perceive themselves to be affected by a decision or activity of the organization. The legislation is almost silent about what needs to be reported publicly and most governing bodies are only at the very beginning of thinking about these topics.

To be responsible, organizations must go much further: who are the relevant stakeholders? What are their material concerns? Are the positive and negative effects on capitals employed effectively balanced (e.g. is the changing balance between natural, financial, manufactured, intellectual, human, social and relationships justified)? What is our evidence that our activities today ensure that future generations are able to meet their needs as well?

Suppose the board of a company, or the commissioners of a public authority, want to really ensure the organization is a responsible steward – where should they turn to for guidance? Legislation and regulation do not hold the answer.

Ethical behaviour

Here too, good governance goes far beyond compliance with the law. What matters are the perceptions of stakeholders in particular situations: do they believe the organization as a whole and individuals within it act in accordance with local and internationally accepted principles of right and wrong? Does the organization demonstrate integrity and transparency in fulfilling its obligations and commitments? Are decisions made competently and with due care based on reasonable information? Do the stakeholders of the organization have the information to judge the performance, the stewardship of resources, and ethical behaviour of the organization?

Guidance – not more regulation

There is no doubt that there will be huge revisions in legislation and a lot more regulation in the future because the world and our understanding of it and our role in it are rapidly transforming. But neither legislation nor regulation alone will enable governing bodies to govern well. Good governance depends on governing bodies articulating the purpose of the organization and devising an integrated governance framework that empowers all governing groups and organization actors to fulfil their parts.

Trinidad & Tobago has been instrumental in contributing to and being part of the international leadership team that developed the first international benchmark on good governance: ISO 37000:2021. The standard complements legislation, regulation, industry and organization specific guidance. The ISO standard on organizational governance brings four unique advantages: it is enabling, it allows comparison, it complements, and it is inclusive.

This article is part of the "Purpose with Profit" Column and an earlier version was published in the business section of the Newsday (Trinidad & Tobago) in September 2021.

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