The governance segment of ESG encompasses corporate board and management structures, as well as company policies, standards, information disclosures, privacy, auditing and compliance issues. Typical questions are: is the leadership group diverse, accountable, and fairly compensated? Does the company encourage shareholder engagement? Are accounting practices accurate and transparent? Stakeholders want to know that people throughout the company conduct business ethically and responsibly.

In the past year we’ve seen some cases of complete lack of accountability of facts reported by companies’ management teams to their boards. This has raised a serious concern regarding transparency of the company’s business to its board and other stakeholders, and should be addressed accordingly.

Corporate Governance
• Board diversity • Executive pay • Ownership and control • Accounting

Adhering to laws and regulations

Corporate Structure • Business ethics • Anti-competitive practices • Tax transparency • Corruption and instability • Financial system instability

Climate-change related risks and opportunities for the company

https://www.youtube.com/watch?v=cr3HHZgWDG4

Source: Charles Stanley

Tips For Achieving Positive Governance

Just by taking a look at a lot of the recent high-profile governance failures, we can see where businesses can improve regarding this essential component of ESG compliance. A few tips and pitfalls to look out for include:

• Makeup of the board of directors: You want as many different perspectives in the boardroom as possible for good governance posturing. The more people you have, the more informed your decisions are and the better you can respond to the needs of customers, investors, employees, and the community around you. As your board grows, try to diversify by including industry experts who are not your investors and may reflect better stakeholders’ needs.
• If possible, build an Advisory Board comprised of domain experts that will be able to guide you through challenges and in implementing your ongoing business and access to your market. It is advised to recruit people with high market standing that will be committed to your company’s success while protecting their own integrity in the market. This is where you can be as diverse as possible.
• Legal compliance: Governance directly addresses how a business adheres to government regulations. A positive approach to governance requires that the company discloses its operations transparently and allows for auditing to keep itself accountable. Poor compliance in general can lead to financial losses due to fines and penalties, as well as hits to public reputation once the news gets out.
• Approach to corporate policy: Is your company acting ethically in the initiatives it pursues and the policies it creates? Make sure, for instance, that your revenue targets don’t intrude upon your social and environmental responsibilities.
• Make sure you have a periodic report on any adverse events related to employee behavior (such as harassment or unethical behavior) and if there is any such event, make sure you handle it in the most professional and transparent way. Always report such events to your board. We recommend that growth-stage companies establish an anonymous whistleblower mechanism for employees to use.
• Executive compensation: Most people are suspicious of businesses where upper management is paid exceptionally more than the rest of the company, especially if the quality of the governance is known to be poor.
• Lead by example - if you want your employees and management team to behave in an ethical way - make sure you do so yourself.