The Role of Governance Evaluation in Today's Australian Business Environment

In business and legal settings, it is crucial to start with clear definitions, so here we go.  

'Governance', inspired by Sir Adrian Cadbury’s definition, is best described as “the framework of rules, relationships, systems, and processes through which authority is exercised and controlled within a corporation.” 

'Evaluation' is  “a systematic determination and assessment of a subject's merit, worth and significance, using criteria governed by a set of standards.” 

Together, Governance Evaluation represents the systematic review of whether an entity – and by extension, its Board – is meeting its governance obligations and how effectively those obligations contribute to organisational outcomes. For example, does the clarity and alignment of governance practices lead to better, more efficient decision-making and improved performance in achieving organisational objectives? 

The concept of governance is multifaceted. It can refer to Board Governance and Board practices, or Corporate Governance, which focuses on the framework of rules and systems under the Board’s responsibility. Increasingly, governance also extends to Risk Governance and Cyber Governance. Therefore, it is vital to understand the specific governance context under discussion. This article focuses on Board Governance and how organisations can gain assurance that governance risks are effectively managed at the Board level. Boards are also responsible for setting parameters for Corporate Governance, ensuring that authority is exercised appropriately through robust processes and oversight. 

The Importance of Governance Evaluation 

Governance Evaluation is becoming increasingly important in Australia due to several key factors. First, regulators are placing greater emphasis on ensuring that Boards and organisations not only comply with legislative requirements but also have fit and proper Directors with the necessary skills and qualifications for their sectors. 

Recent legal frameworks, including legislation around Cyber Security, Modern Slavery, and Sustainability Reporting, require Boards to establish strategies, plans, and policies to ensure compliance. Boards can only gain assurance that these obligations are being met –and that the associated systems are effective – through rigorous Governance Evaluation. This process provides a structured mechanism to evaluate the Board’s effectiveness in meeting these legal and organisational responsibilities. 

Current Trends in Corporate Governance

A significant trend shaping Corporate Governance is the growing recognition of an entity’s broader impact on
society. Concepts such as the Social Licence to Operate (SLO) and the rise of B Corp Certification reflect this shift. 

The Social Licence to Operate aligns with the notion of social acceptability – the perception that an organisation meets the expectations of local stakeholders and broader society. B Corp Certification has emerged as a practical framework to showcase an organisation’s social and environmental impact. To achieve certification, companies must meet B Lab’s rigorous standards, integrate stakeholder commitments into governance documents, and maintain a minimum score through ongoing assessments. 

While B Corp certification highlights an organisation’s positive social impact, it is not without its challenges. Questions arise regarding the alignment of B Lab’s standards with the evolving international landscape, the cost of certification, and concerns about certain certified organisations’ environmental footprints (i.e. single-use producers). These factors reflect the ongoing debate surrounding governance standards and practices.

Challenges in Corporate Governance 

Corporate Governance faces many of the same challenges as the broader business environment. For instance, cost-of-living pressures are softening market confidence, leading to resource constraints and a push to do more with less. This dynamic impacts Administration and Secretarial functions, creating opportunities for flexible, on-demand governance support, such as contract company secretaries. 

Additionally, the changing nature of business operations requires Boards and Company Secretaries to adapt their processes. For example, the adoption of Board Portals such as Convene, collaboration tools like Microsoft Teams, and emerging AI technologies for tasks such as drafting Board minutes are transforming traditional practices. 

However, the use of AI in governance introduces important considerations. Organisations must ensure compliance with legal obligations for minute-taking and safeguard confidential or sensitive data. Effective AI Governance practices, including responsible-use frameworks and cyber security controls, are essential. Some organisations are implementing AI tools within secure, controlled environments to mitigate risks while enabling innovation. 

For a deeper understanding of AI’s role in governance, the Governance Institute of Australia has produced an insightful issues paper on AI and Board Minutes: AI and Board Minutes. 

Conclusion 

In light of these governance trends and challenges, there are several priorities for Boards, Directors, and Executives: 

• Adopt a robust Governance Evaluation process to provide assurance that legislative, entity-specific and Director obligations are being met effectively. Many organisations are required to undertake an external Board evaluation every three years, a practice widely supported as good governance. 

• Prioritise board capabilities, particularly in response to increasing scrutiny on Director qualifications, skills and fitness to serve. This focus aligns with potential updates to the ASX Corporate Governance Principles. 

• Conduct a comprehensive Skills Matrix evaluation to ensure the Board possesses sector-specific expertise, qualifications and experience, enabling data-driven decision-making around Board composition. 

• Build ESG and digital literacy skills on the Board to position the organisation for the future. Boards must proactively integrate these capabilities now to meet evolving governance standards and expectations. 

Through structured Governance Evaluation and Board Evaluation processes, organisations can strengthen their governance frameworks, enhance decision-making and ensure compliance in an increasingly complex business environment. 

To speak with us about which Governance Evaluation product or Director Skill Matrix may be right for your organisation, or to discuss a tailored solution please contact Leon Cox or get in touch at hello@governwith.com 

Click here to learn more about GovernWith x Convene –The ultimate solution for Governance Evaluatin and Board Management.

Leon Cox 
Chief Accounts & Partnerships Officer 
GovernWith 
Email: leon@governwith.com