Most companies that have failed have been marred by bad decision-making founded on either faulty business acumen or unethical practices.
There are numerous examples of large companies going bankrupt or insolvent since the start of the 21st century. The number of enterprises facing this fate seems to be increasing over the years. Enron, Orange County, and Barings Bank are some of the classic examples. Apart from deliberate fraud, there have been incidents of systemic failure owing to poor corporate governance. The latest in India is Byjus, who went from being a unicorn to almost nothing in a matter of two years or so. The effects of the failure of enterprises are far-reaching. More than the financial losses, the loss of social equity, investor confidence, and consequent virulent damages to the ecosystem of businesses are colossal.
Despite highly seasoned management professionals, advisors at the helm, and decent availability of funds, why do such organisations fail in the first place?
Looking at the ruckus created in the aftermath of such episodes of business failures, two things become very evident. There seems to be communication failure due to counterproductive organisational culture and vice versa, and the second reason could be that there have been no regulatory benchmarks or standards that need to be systematically followed.
Byjus being a household brand has caught attention for the wrong reasons, but there can be many organisations, perhaps smaller, that have gone defunct unnoticedly. These days, managing and leading businesses have become more instantaneous and complex as the course keeps changing with disruptions due to technology and its impacts on the pysche of customers. The growth trajectory seems to be constantly evolving. Gone are the days when and where businesses were fairly steady and stable.
Over the years, there have been a lot of discussions on sustainable business leadership about some form of standard to be put in place not only to ensure investors’ protection but also to add value to the smallest of the shareholders of an enterprise.
ISO 37000 (2021) is the most recent standard for corporate governance. It may not be a complete panacea to the woes of an organisation due to bad decision-making by the top management, but it definitely looks like a solution to at least create a framework for understanding how organisations are managed in these modern days.
There are several excellent reasons for organisations to adopt ISO 37000, which is the international standard for the governance of organizations. Here are some key takeaways:
1. Augmented organisational performance: ISO 37000 advocates an effective framework for effective governance that can help improve overall organisational performance and decision-making. Most companies that have failed have been marred by bad decision making founded on either faulty business acumen or unethical practices. The framework takes care of ethical practices in a structured manner that can have an influence on the internal communication mechanisms of an organisation. Sound ethics is positioned as a foundational principle for the standard.
2. Risk Management: The standard assists enterprises identify, assess, and mitigate risks more effectively. There are scores of organisations supposedly successful that are either unaware of or very hesitant to adopt any form of risk management system in their organisation. Although corporate companies that offer shares to the public are mandated to include a risk management function, this mandate does not apply to other forms of incorporation. All public limited companies listed on the stock exchange must have a risk management function as their organisational component. The same is not the case with organisations that are closely held. The scenario is much worse in organisations that are privately incorporated. Anecdotes of mayhem created by deficient decision-making and gross ignorance of risks are aplenty in these private companies. When carefully analysed, most company failures would be found not to have factored in risks in their growth plans.
3. Stakeholder Confidence: Embracing ISO 37000 can increase stakeholder confidence as it showcases a visible commitment to good governance practices that ensure investors' interests are taken care of. It can be noticed that an enterprise failing within an industry is followed by the failures of a few of its co-habitants in the same industry. The ecosystem gets disturbed, and there is a domino effect to it pervading into many layers of the economy. Adoption of ISO37000 can be helpful in communicating to the prospective investors that there is a certain framework that is in place to protect their interests.
4. Legal and regulatory compliance: The standard helps in ascertaining compliance with concerned laws and regulations. Take the case of businesses that are large and involve multiple domains in the course of configuring their value chain. They are subjected to multiple regulatory statutes. Failing to fulfil the statutory obligations is one of the biggest risks that could affect the enterprise. It is important to ensure compliance issues are well addressed, and it will be really helpful if there is a systemic process through ISO 37000 that ensures this.
5. Ethical Aspects: ISO 37000 advocates the development of an ethical organisational culture and responsible business practices. As mentioned earlier, a lack of ethics is one of the main reasons for a business debacle. This standard has ethics as an important foundational principle that helps stakeholders understand that ethical issues are well captured in an organisation.
6. Enhanced Accountability: It establishes clearly defined lines of responsibility and accountability within an organization. Passing the buck is a common phenomenon during an aftermath of an incident that increases the risk exposure of an organisation. Therefore, laying granual emphasis on accountability aspects in an organisation helps in decision making and execution. Stakeholders that understand accountability is one of the cornerstones of business management in an organisation will help in their relationship with the organisation in a big way.
7. Sustainability: The standard emphasises on long-term strategic thinking and sustainable practices. The longevity of a multinational enterprise has been diminishing over the past few decades. Businesses tend to become unsustainable to due several reasons. Emphasis on long-term thinking will help manage sustainability issues within an organisation.
8. Global Standard: ISO 37000 is an international standard that is recognized worldwide, potentially enlarging an organisation's reputation for its business practices and creating more confidence in stakeholders in every order.
9. Easy Adaptation: The standard takes a principles-based approach that makes it applicable to organisations of different types, sizes, and natures. All said and done, though organisations may vary from one another in many ways, their failure to succeed mostly boils down to a common set of causes that hover around business acumen and ethics. Since there is a lot of commonality in the causes of failure, the adaptability of the standard is quite high.
10. Kaizen: The standard facilitates progressive evaluation and continuous improvement of governance practices that help organisations match and mitigate the constant volatility in their course of their traverse.
It is time that more and more organisations are governed responsibly and the promoters display augmented accountability while going about conducting their businesses by adapting to ISO37000. It also looks like this standard is here to stay and is in for some game-changing ways in the near future, as stakeholders seem to encounter news of organisations staring at bankruptcy more often than not. This standard can provide a much-needed respite.
About the Author
Prof.(Dr) Narendranath Uppala is an exponent across multiple domains with profound international experience. The areas of expertise are Business, Business Communication, Enterprise-wide Risk Management, Academic Management, Leadership Coaching, Human Capital Development, Linguistics, Sales & Marketing and ERP. He is an International Speaker and speaks often on Business, Leadership, Emotional Intelligence, Transactional Analysis, Communication Strategies, Risk Management, Academic Research on many National and International forums.