Business might appear to have no rule other than making profits at any cost, but there’s a method to its madness. While making money is the overriding mandate of any for-profit enterprise, each individual organization is governed by its own set of standards and practices.
Those standards and practices are called corporate governance, and they are going to influence your project. While managing a project it is easy to become myopic and focus solely on success as measured by the project. But, of course, there are other factors at play even at the project level, from stakeholders to end-users to the choice of project management software.
All these factors are counted and calculated into corporate governance. It looks abstract when working on the practicalities of a project, but it’s a real force that must be reckoned with. Therefore, if you don’t know about corporate governance, you better learn what it is and what it can do to your project management.
What Is Corporate Governance?
Corporate governance is a system of rules, practices and processes that are used by a corporation to direct and control its actions. It’s a way to offer a balance between the varying corporate entities, such as stakeholders, management, customers, suppliers, financiers, government and the community.
Look at corporate governance as the framework by which an organization achieves its goals and objectives. Since that’s the larger picture, you can see how corporate governance is not merely a top-tier concern, but something that touches every part of an organization. That includes action plans, internal controls, OKRs, performance measurements and corporate disclosures.
Roles in Corporate Governance
If corporate governance is a set of rules, controls, policies and resolutions to dictate corporate behavior, shareholders are going to have a great influence on those decisions. But governance is more than that. The main arbiters are the board of directors of any organization.
The board of directors is elected by shareholders, or they’re appointed by other board members to represent the shareholders. Some of their responsibilities are to make important decisions, such as appointing corporate officers and deciding on executive compensation and dividend policy. However, their tasks go beyond the financial when they’re needed to address social or environmental concerns.
Insiders and independent members make up the board of directors, insiders being major shareholders, founders and executives. The independents are not wedded to the company by the same ties, but have experience managing or directing other large companies and can help offer a broader context to decision-making.
The board of directors considers decisions that will impact employees, customers, suppliers, communities and shareholders. The board of directors are not managers and are not directly involved in the day-to-day operations of an organization. They are, however, responsible for oversight and planning, two pillars of corporate governance.
Related: What is Stakeholder Theory?
That said, the board of directors can delegate some duties to board committees, which have the time and resources to dive deeply into issues that call for expertise. These committees then will report back to the board of directors regularly on their findings.
The Good & Bad of Corporate Governance
Corporate governance can have a positive or negative effect on an organization. If the corporate governance is casting doubt on the reliability, integrity or obligations of the organization to its shareholders, then that’s a problem that will likely have financial repercussions.
For example, if a blind eye is turned toward acts that are illegal, then there will result in scandals that have plagued many companies in the past. This will tarnish a brand at best and put the organization out of business at worst.
If corporations don’t take auditing seriously or choose to have themselves audited by a less than scrutable auditor, the resulting financial reporting can be inaccurate or non-compliant. Then, there are badly put together executive compensation packages that fail to create incentives or create backlash for other executives and employees in the corporation. A poorly structured board of directors will make change difficult if things are moving in the wrong direction.
However corporate governance creates a rule by which to measure a corporation against a transparent metric, so shareholders, directors and officers are clear on direction and are incentivized to act in accordance with the rules. Most companies desire a high level of corporate governance, even more than mere profitability, as environmental and ethical behavior is more and more a part of good business.
How Does Corporate Governance Impact a Project’s Definition of Success?
Corporate governance is more than merely a device to control a corporation; it is helpful on the project level too, as it presents oversight on compliance, mitigating risk and offers guidance and direction for project managers. Offering an ethical standard or moral choice, it can offer context to the larger picture when deciding—as opposed to getting lost in the project weeds.
There are issues, of course, especially when working within an agile environment where being able to move quickly and pivot is essential. Corporate governance is a slow process that must clear many hurdles before decisions are made, and rightly so. These decisions can influence not merely a single project, but the corporation writ larger. Therefore, project managers might find themselves frustrated by red tape if they’re used to moving on decisions swiftly.
The same issues can arise if there is a need for further funding or a change in schedule. Money can be a difficult valve to open when controlled by a board of directors. While the capital might not be in the hands of the board of directors, the decisions on how that money will be spent are, and therefore, trying to secure more funding if needed can be hard.
Good corporate governance can help drive a complex project, depending on the degree of organizational impact and the number of stakeholders. Without strong corporate governance, projects can suffer from an inability to secure committed allocation of resources, get issues, actions and risks addressed, have delays in decision-making, lack of buy-in from stakeholders and insufficient visibility of the importance of the project on the executive level.
That said, more often than not corporate governance is a template that has been erected for the greater good, and your project will have to find a comfortable spot to live and thrive in that space. It was made to create opportunity within the corporation, so the best thing any project manager can do is become intimate with it and know their way around it.
Corporate governance is one more set of constraints that every project must understand and manage. The complexity of these many factors can frustrate project managers unless they have the right tools to help them plan, execute, track and report on their progress. ProjectManager is a cloud-based project management software that gives you a real-time dashboard and online Gantt charts. It fosters collaboration and automates the busywork to keep you focused on what matters. See how it can help you comply with corporate governance today by taking this free 30-day trial.