Director’s diary: Never assume large organisations have good governance

Director’s diary: top governance insights designed to get you thinking as part of your governance training – brought to you by CGI’s co-founder David Duffy.

Over the last six months or so, we have seen major governance issues in large, well-financed organisations. Given their scale and the complexity of their operations, we would think they would ensure good governance was a first priority. 

Oh, how wrong we might be. 

Here are three that I’ve been keeping an eye on:

• The Post Office Scandal in the UK
• The Boeing scandal in the US
• The governance scandal at RTE, Ireland’s state broadcaster

The British Government’s inquiry into the UK Post Office is ongoing at the moment. 

What we know so far is that there seems to have been a disconnect between the Executive and the Board in that the executive did not fully disclose to the board critical (even life-threatening) information about the dysfunctional Horizon IT system.  

Indeed, the chair was briefed by the EY Audit partner on his concerns about the system as part of her induction, but she did not follow through on this. The crux of it is that there appeared to be no one on the board who had the capacity to ask penetrating questions about the Horizon IT system. These questions are everything for directors – especially directors of big organisations. Fail to ask them, and you’re in trouble.

For Boeing, it is worth mentioning that they only appointed their first Independent chair in March 2014.  Up to that point, the CEO had also been the chair (or president as the position is known in the USA).  

It took a catastrophic loss of life when two 737 MAX 8s crashed in Indonesia and Ethiopia in October 2018 and March 2019, for safety to become a priority for the organisation.  

In September 2019, a board-level safety committee led by a retired Navy admiral was established to “reaffirm” the company’s commitment to safety. Most organisations that engage in such a high-risk business would have safety as the number one item on the Board agenda, so you would expect that a “reaffirming” like this should never have been necessary. Not with Boeing.

Finally, in relation to RTE—a payments scandal at the state broadcaster that snowballed into revelations of terrible governance practices—multiple failures over a long period of time appear to have led to the recent crisis. Given that it’s a European state broadcaster fed by “compulsory” licence fees, angry nay-payers have now dried up the organisation’s funding and threatened its existence.

There were numerous issues – chief among them a lack of clarity on whether the CEO was directly accountable to the Board. It was also unclear on what decisions the Board could take vs the Executive. Other failures included not having a qualified accountant on the audit and risk committee, badly prepared board papers, lack of clarity on the board agendas and a governance handbook.

• From the UK Post Office scandal: ensure you have a risk management system, and if a crucial piece of company infrastructure is causing issues, ensure the board is informed about them. Boards may claim they “were never told” about faulty equipment if problems arise. Usually, though, It’s not enough; they will just be quizzed over why they never asked the right questions. 
• From Boeing: Having an independent chair would have meant a greater focus on safety, and speaks volumes to the power of such independent leadership. Indeed, the idea that previous CEOs of Boeing were also chairs means the access routes of key information to the board was strictly controlled. That’s not a good sign. 
• From RTE: No matter how successful you are as a chair, if you don’t have a proper appreciation for the specifics and protocols of corporate governance, your inaction on key issues will eventually show. 

So make sure you do your due diligence.  You cannot assume that, just because you’re on the board of a large, well-known business, it has good corporate governance.