Chapter 5 – Governance

Corporate governance has long been a focal point for large corporations, listed companies and regulated entities, with numerous studies connecting good corporate governance with higher profitability[1]. In fact, over the years, it has become apparent that good governance is the foundation for a company’s health.

As a result, stakeholders are increasingly interested in issues such as organizational structure, policies, and processes that fall into the broad category of “Governance.” Governance covers topics such as the implementation of decision-making, the make-up of the board of directors, and procedures throughout the organization related to ESG. It also covers the distribution of rights and responsibilities in corporations from the board and managers to shareholders and stakeholders.  It even extends to the types of organizations that a company belongs to and their advocacy efforts.

Governance includes transparency and documentation of information: reporting, establishing formal policies, and making policies and reports publicly available.

Governance and Reporting

Since transparency in reporting the details of a company’s governance has been found to drive better results, the number and types of questions around an organization’s governance continues to increase.

ReMA has chosen to rely on GRI for the disclosure topics of reporting on ESG broadly, and Governance in particular. Governance topics fall into four basic categories:

• Corporate decision-making
• Leadership accountability & oversight
• Stakeholder involvement
• Strategy development & implementation

Further, as part of global reporting expectations, companies are asked to provide information – publicly – on some of these basic topics:

• Company Activities, such as what your company actually does: What do you make, and where? What do you buy and sell, and from whom? Where do you operate, and where are your customers and suppliers located?
• Financial Information: Publicly held companies are expected to provide their financial information as reported annually in the comprehensive financial report (10-K Report) required by the U.S. Security and Exchange Commission (SEC), and any external assurances.  (Note: Privately held companies rarely do this.)
• Structure and employees. How many employees does your company have? And at what level?  What is the Board and leadership structure? How is leadership evaluated?  What human resources policies do you have in place and are they public? What is the demographic make-up of your workforce, including in leadership roles?
• Sustainability Strategy: What is your sustainability strategy, if any? How do you measure and report on your progress towards your sustainability goals? Who has oversight and responsibility within your company for your sustainability strategy?
• Stakeholder Engagement. What industry associations are you a part of?  Any other significant associations?  How do you use them? Are the advocacy activities of these organizations in alignment with your other ESG-related public commitments and goals?
• Compliance: Are you in compliance with laws and regulations?  Have you been cited or had any violations?

The information disclosed in a company’s sustainability or annual report provides information about the organization’s governance structure, composition, knowledge, roles, and remuneration.

This information is important for understanding how the management of the organization’s impacts on the economy, environment, and people, including impacts on their human rights, is integrated into the organization’s strategy and operations. It addresses how the governance bodies are set up and how well equipped they are to oversee the management of the organization’s impacts. It also facilitates an understanding of the role and the responsibilities of governance bodies with respect to these impacts.

If the organization intends to publish a standalone sustainability report, it does not need to repeat information that it has already reported publicly elsewhere, such as on web pages or in its annual report. In such a case, the organization can report a required disclosure by providing a reference in the GRI content index as to where this information can be found (e.g., by providing a link to the web page or citing the page in the annual report where the information has been published).

Our GRI-based spreadsheets (Environmental, Social, Governance) outline topics to be disclosed under GRI. The GRI standards themselves provide additional guidance.

Policy Transparency

A key part of governance is formalizing and enforcing policies that uphold strong business practices. Some common policies include in governance disclosures are:

• Business Code of Conduct or Ethics (Example: Radius Recycling’s Code of Conduct)
• Supplier Code of Conduct or Responsible Sourcing Policy (Examples: WM’s Supplier Code of Conduct, CMC’s Supplier Code of Conduct)
• Health and Safety Policy (Example: Casella’s Health and Safety Policy)
• Remuneration Policy; outlines how employees will be compensated and is part of GRI 2- General Disclosures (Example: Stellantis’ Remuneration Policy)
• Anti-Bribery and/or Anti-Corruption Policy (Example: Sonoco’s Anti-Bribery and Foreign Corrupt Practices Policy)

Published Human Rights and DEI policies are also becoming more commonplace; see Chapter 4- Social for more details.

Please note that examples are provided as reference points only so that ReMA members may see how other companies have addressed this issue. Examples and links should not be considered an endorsement of the policy or document’s content.

Summary

A focus on governance helps drive change and improvement in the health of companies.  To understand the value of good governance, and transparency in reporting on governance, one only needs to look at examples of companies that have failed due to a lack of governance, from Enron in the 1990’s to FTX in 2022. It all starts with governance – or the lack of good governance.

Our June 2023 Workshop provides an overview of the Governance component of ESG (download slide deck):

[1] Sustainability and ESG: The Governance Factor and What It Means for Businesses (harvard.edu); The impact of corporate governance on financial performance: a cross-sector study | International Journal of Disclosure and Governance (springer.com); The impacts of corporate governance on firms’ performance: from theories and approaches to empirical findings | Emerald Insight