As employees and consumers speak out, how can corporations meet expectations?

Balancing external and internal governance priorities has become a central challenge to corporations, writes Alison Tarditi
External review, however crude, can improve the status quo. And today, it is no longer the sole remit of a handful of for-profit, activist investors. Free data and mobilised informal networks have enabled previously fragmented voices to amplify. Armed with a social media account and an opinion, the reach of any one person is limited only by their conviction, stamina, and, ideally, the quality of their insights.

Individuals can now be at least as important an influence as centralised hierarchies. This makes shifts in consumer utility, and the network effects that power them, a potentially brutal natural selection process for firms. One that pits external against internal governance as a central challenge to corporations everywhere. We are all activists now.

More than at any other time in history, corporate management teams will self-select as author or cast, and attract the kind of shareholders, employees and customers they deserve.

“Governance” is a term at risk of over-exploitation. Yet its fundamental value remains under-appreciated. In a quintessentially 21st century triumph of marketing over content, it is frequently confused with its less able, but faster-propagating cousin, “compliance”. At its essence, “governance” is about ensuring that the right people are empowered to take the right decisions, at the right time and thereby deliver to organisational purpose and promise. Tensions in time horizon, or an inability to resist the temptations of the short-term, are symptoms of a failure to meet this foundational challenge.

The single most important opportunity for all organisations today is in recognising how the pre-requisites for such success are changing. As Jack Welch said, “If the world outside is changing faster than the world inside your organisation, then you have a problem.” Internal corporate governance has to evolve with two fundamental shifts in the world outside that have transformational implications for how external governance will be metered.

The first is a broad sociological shift towards connectivity, co-operation and equitable distribution of the growth dividend. This recognises the value in higher quality, rather than simply lowest-cost routes to economic growth. The second is a shift in our ability to imagine the future. We are all having to adjust from decision-making with probable certainty, to decision-making with much less certainty.

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