Published: 18 August 2021
Years before COVID-19 changed the world as we once knew it, trust in traditional institutions had been slowly eroding. In March 2020, after the pandemic became truly global, the Edelman Trust Barometer 2021 was released, confirming what they called a ‘Crisis of Leadership’.
Although the overall outlook was bleak, within the report there was a positive indicator for business leaders willing to rise to the challenge. The study found that “business is not only the most trusted institution among the four studied [business, government, NGOs and media] but it is also the only trusted institution with a 61% trust level globally, and the only institution seen as both ethical and competent.”
I wasn’t surprised by this result, but its significance only came clearly into focus for me while analysing the data for the State of the Market 2021 report produced by the Global Research Council.
The report found that business leaders were actively seeking out new ways to strengthen their governance foundations to support critical thinking and quality decision making. Since 2019, there has been a 52% increase in Advisory Boards worldwide.
As more individuals are looking to businesses to build trust, business leaders are stepping up to create trustworthy organisations supported by robust, modern governance.
What Does Good Governance Look Like?
The global decline in institutional trust has been fuelled in part by governance failures. Whether it is political leaders being driven by polls and partisan rhetoric or directors found to be asleep at the wheel, each new headline has chipped away at the foundations.
For those professionals motivated to add value and impact while serving organisations at a board level, there is a strong commitment to rebuild trust by strengthening the foundations of governance while also redesigning the construction methods.
The rapid adoption of Advisory Boards to create more robust and fit-for-purpose governance for corporates is being matched by the rise of Advisory Boards as a scalable governance structure for the business sector.
The increase in Advisory Boards has also been supported by the professional advisory community working collaboratively to co-design a self-regulation framework that is grounded in best practice and ethical engagement.
The international Best Practice and Ethics Advisory Board has recently endorsed the release of a series of resources for professional Advisors to build upon our existing framework for good governance. This series includes an updated Code of Ethics, as well as a new resource on Best Practice Guidelines for Good Governance of Advisory Boards, an Advocacy Statement to the Insurance industry and an Assurance Statement for Professional Indemnity Insurance.
By taking a proactive approach to self-regulation, certification and professional development, the Advisory Board Centre is supporting all stakeholders from government, directors, business leaders and industry to have a clear benchmark of what good looks like.
This is where the ambitions and aspirations of business owners to build quality organisations are being matched by the motivations of advisory professionals to deliver value and impact.
Good Governance as a Growth Driver
As Government stimulus programs around the world come to an end, economic growth will be largely driven by three key factors – business confidence, consumer confidence and investor confidence.
Business confidence is not just created by a positive economic environment. Our research has shown that business leaders are most likely to engage an Advisory Board during periods of growth and change. And when the impact of their Advisory structure was assessed, 90% of businesses reported a positive impact and a 30% increase in business confidence.
Looking back at the Edelman Trust Barometer, individuals reported communications from their employer to be the most believable. It’s not too far of a stretch to say that confident and trusted businesses will fuel confident employees and consumers creating a positive environment for economic growth.
Michael Drew, Managing Partner of MGD Private, Professor of Finance, Griffith University and Trustee Direct of QSuper Group, describes the importance of good governance to support investor confidence.
One of the challenges facing large asset owners when investing in private markets is the issue of transparency. Those in investment governance roles are constantly seeking assurance that the investment process gets the right information to the right people at the right time. Advisory Boards can be accretive to the investment process, and its transparency, by providing timely advice and insight when most needed.
Where to From Here?
To rebuild trust and instil confidence, our institutional leaders must commit to thinking bigger and better. Stakeholder activism is a growing trend and those organisations that continue to be driven by insular thinking and short-termism may struggle to remain relevant and viable options in the future.
Sonya Beyers, Certified Chair™ and experienced Board Director, expressed this sentiment clearly when speaking of her recent appointment to the Australian Institute of Superannuation Trustees Board.
The law has always told us that there’s no such thing as a passive director, but I think what we’re seeing now is an expectation that directors need to be really proactive to understand their industry and recognise insights and influences. I often say to my clients ‘Think about what you’re going to be held accountable for in 20 years’ time because that’s what we need to be making decisions about now.’
The COVID pandemic exposed new risks and existing weaknesses within organisations, specifically around supply chain, cybersecurity, workforce management and the ability to rapidly respond to changes in regulation.
Gaps in knowledge, skills, or currency of information are a key area that increases both complexity and risk for boards.
Advisory Boards will continue to build as a bona fide business practice to enhance good governance through ethical and independent input, safeguard corporate executive teams, and protect the social integrity of business, brands and people.
Organisations may in time reduce the size of their Governance Boards and create specialised Advisory Boards as an eco-system of Advisors within one organisation. Government committees may adopt best practice from formalised Advisory Boards to drive stronger results and behaviour from committee members.
With the increased utilisation of Advisory Boards in a governance framework, adopting best practice will assist in providing transparency of purpose and role clarity internally and to the market.
To continue to earn and maintain trust, business leaders will benefit from investing in good governance frameworks that increase their capability to access expert support to improve decision making speed and confidence.
While the global operating environment remains volatile and uncertain in the long shadow of the pandemic, I remain optimistic for the future. The research data collected by the Global Research Council and the deep engagement we see within the advisory community demonstrates that my optimism is warranted. The road ahead may not be easy, but the journey will be worth it.