Why you should care about corporate governance

Last Friday, I was reading with interest a quite surprizing Financial Times article about John Stumpf, Wells Fargo CEO, hearings by the US senate banking committee. Wells Fargo (https://www.wellsfargo.com) is a US bank that built its recent reputation on a consumer friendly, no nonsense strategy of nationwide presence in every corner of the United States. “Main street” vs “Wall street”. They’re just doing normal retail banking. Nevertheless, they were caught in a scandal a few weeks ago. Their branch officers, under huge pressure of their Chief Operating Officer, did anything to reach their daily sales quotas and get their regular sales bonuses.

Selling, selling, selling ! So much pressure that they started opening millions of fake accounts for clients who were not even aware of it because they were not even informed. Crooks ! Conservative bankers became crooks ! Terrible ! Again ! More than that, the CEO, now under scrutiny, doesn’t even think of resigning. And he’s not ready to give up is personal bonus !

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This reminded me how important corporate governance is in our world. Corporate governance: a much discussed concept. Now a little forgotten. But so important. If you don’t remember, corporate governance is a system made of internal or external regulations or commonly agreed practices aimed at guaranteeing companies and institutions to be managed in a normal way. Normal means in a coherent and honest way, avoiding excessive power of top managers as well as incoherent decisions. The system also aims at protecting minority interests to be spoiled in any way.

Corporate governance is insisting on the role of the Board of Directors (BoD) as governing body. The BoD should not be confused with the Board of Management. Directors’ roles are to decide on the strategy, choose members of top management, give them a clear responsibility and control the execution. They are stimulators, decision makers and watchdogs. The BoD is elected by the shareholders assembly and typically regroups representatives of majority shareholders, minority shareholders and so called “independent directors” (means they are independent of shareholders and management). BoD work is now a professional work, at least in big corporations. I was personally involved in corporate governance thinking as an active founder of the Foundation of Board Directors some years ago.

I will write some other posts about corporate governance in the next future, especially in the case of entrepreneurial companies, but I’d like to draw your attention on the influence of a governance system on your own future. In the case of above mentioned Wells Fargo where management was not controlled adequately, the final victims were middle managers who were fired on ground of mismanagement and mishonesty. Top management was not ! It’s almost always the same. Guys at the top always go at worst with golden parachutes and enough money to pay for good lawyers. Middle managers are collateral victims.

It’s time for you to check the governance system of your company. It’s about strategy and execution. It’s about integrity and values. After all, common sense should guide us in management practice but the fact is that, most people care for their own interest, money and power. Don’t be the victim of some crooks who could be leading tour corporation !

Be inspired !

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