The Right Governance Framework for Public Entities

Lauren Mcmenemy
6 min read

Once an organization makes the decision to list and go public, its compliance and governance burden takes on new meaning. Now, it’s no longer just their own stakeholders and potentially the local authorities keeping an eye on how the organization is running; once it lists, that organization becomes public property.

It’s opened itself up to intense scrutiny. Market fluctuations will impact its share price, but the scrutiny can impact price, too. The movements and decisions of the Board will be publicly available for access by anyone with a genuine interest, and investors will have the opportunity to ask questions and express concern about business operations.

And if there’s an issue somewhere in the business, well, reputation takes a major hit alongside the public entity’s market conditions. Rogue entities and mismanaged subsidiaries are worst-case scenario for public entities, with jurisdictional sanctions out there somewhere in the group structure causing headaches that reverberate all the way to the parent or holding company.

This is why public entities need robust and sound governance practices. Strong governance can help to mitigate some of those risks, and help to ensure everyone in the business — as well as the market and investors — are aware of the steps the organization is taking. It means transparency around compliance and operations is supported by clear communications, and a paper trail can lead back to the reasons for any decisions as well as the ultimate consequences.

If proactive, modern governance is essential for public entities, then a strong governance framework is the obvious first step in helping an entity’s governance team to enforce policies, influence culture and ensure the right amount of transparency is balanced with maintaining commercial privacy.

How does governance differ for public entities?

Once an entity lists and becomes a public entity, it is bound by an obligation to report to the market on a regular basis. A schedule of reporting on board meetings and accounts, any changes in management, any security breaches and so on will be expected, as well as a detailed annual report — and if they don’t get filed with the exchange, the public entity, and potentially its parent, will face sanctions and fines.

There’s also the governance and compliance expectations of the listing organization itself; these can include a minimum share price, a minimum number of publicly traded shares, and requirements around earnings, capitalization and assets. It can even mean following the organization’s own corporate governance rules, which is the case with any public entity listed on Nasdaq in the United States.

Yet there’s no one size fits all when it comes to public entities and compliance, which means those developing and monitoring the internal governance and compliance capabilities will need to keep a keen eye on local regulation. Global regulations around governance are an ever-changing and increasingly complex matter that can also influence local regulation, and public entities won’t be exempt from complying with both local and global regulation just because they’re listed.

How can a governance framework help public entities?

As we said earlier, the increasing complexity of liabilities for public entities, and the increasing scrutiny under which these organizations are placed, leads toward the need for a robust governance framework to help steer the good ship governance into steady waters.

A governance framework helps to center an organization’s approach around common themes, including who has a voice, who makes decisions and who has accountability. The governance framework acts as an essential supporting structure, a framework of rules and practices by which the board ensures accountability, fairness and transparency in both how the company runs and how it communicates with its stakeholders.

As public entities develop and monitor their governance frameworks, they are, in essence, ensuring there are clearly assigned roles and responsibilities, that those responsibilities are carried out in the right way at the right time by the right people, and that the appropriate record is filed to keep track of what has happened. And, of course, any governance framework should be subject to regular audits to ensure it’s still fit for purpose, and still providing the right checks and balances.

Which governance framework is correct for public entities?

Alas, there is no one governance framework that can be held up as the right governance framework for public entities, or any entities for that matter. The right governance framework is the one that fits the specific organization’s own ways of working, its own structure, its own regulatory obligations wherever it is operating and its own obligations to the listing body.

There can, however, be commonalities across sectors. Take the recent example of the Australian financial sector. The country’s big players across consumer banking, insurance and investment were subject to an official investigation after accusations of misconduct and an apparent profit-at-all-costs mindset in retail financial services. The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was chaired by the Honorable Justice Kenneth Madison Hayne AC QC, and it put banks, super funds, wealth managers, insurers, mortgage brokers and others under the spotlight.

After months of investigation and interviews, Justice Hayne ruled that there was a severe failure in governance across the industry, with boards ignoring conflicts of interest, encouraging a culture of sales first rather than customers first, and with unethical and non-compliant cross-pollination of directors on subsidiary boards. The Australian financial sector’s public entities clearly had a common approach to governance, even if that approach was ultimately a failure, and must now install the right governance framework to ensure compliance with both new regulations and expectations around culture and governance.

How can deploying entity management software support public entities’ governance frameworks?

All of this leads toward the question: How can the right governance framework for public entities be enforced, when things are moving so quickly and getting increasingly complex?

The answer, of course, is to harness technology that is plugged into regulatory requirements, that can be tailored to the internal governance needs of an organization, and can get the right information to the right people at the right time in the right format, helping to bolster the right governance framework for public entities.

Entity management software, such as Diligent Entities, acts as a central repository for the corporate record, storing entity information, documents and organizational charts in a highly secure format to create a single source of truth. Compliance calendars, reminders and workflows enable better, more accurate entity data, while electronic filing automation helps to ensure no compliance deadline goes unmet.

Diligent Entities also integrates seamlessly with Diligent Boards and a secure document-sharing platform to create the Governance Cloud; the organization’s governance framework can then be enforced through a full suite of integrated technologies accessible from anywhere at any time.

Get in touch and schedule a demo to see how Diligent’s Governance Cloud can help you to create the right governance framework for public entities.

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Lauren McMenemy

Lauren has been writing about the world of compliance and governance for half a decade, but she's been a journalist and copywriter for longer '' that's 20 years spent writing for media, for agencies and for businesses across sectors including finance, professional services, healthcare, technology, energy and entertainment. As an editorial strategist, she has set the tone for national and multinational companies, and loves nothing more than getting to the heart of great stories. An Aussie in London for 13 years, and married to a true English eccentric.