The role of the Corporate Governance Officer (CGO) has emerged in a rapidly evolving socio-economic environment shaped by various crises – from Enron and the global financial meltdown to the COVID-19 pandemic. These events have significantly influenced how the legislation and organisations approach governance.

Governance Complexity

Corporate governance is inherently complex, encompassing two essential dimensions: Values and Systems. The Values dimension reflects the ethical principles and stakeholder expectations that an organization upholds. The Systems dimension includes the governance architecture such as the board of directors, shareholders’ meetings, committees as well as the formal procedures and behaviours of governance actors.

The key to effective governance lies in the optimal combination of these two dimensions.

Over time, corporate governance has evolved significantly:

Level 1 – Management Rules

Historically, organisations were governed by managers for managers with little to no distinction between ownership and leadership. Consequently, governance was limited to the internal management rules set by each manager.

Level 2 – Management of Management

Over time, economic evolution has shown that there was a growing difference between investors and managers. It became necessary to define the limits of managerial power and establish oversight mechanisms. This marked a shift to governance as the management of management.

Level 3 – Governance Regulation

Later, the need to regulate governance through professional associations and administrative authorities emerged.

Level 4 – Governance Harmonization

A more recent development is the effort to harmonize governance framework across jurisdictions while integrating fundamental societal principles such as CSR, human rights, and constitutional values.

These four levels often coexist and interact, contributing to the increasing complexity of modern governance.

Transition from Vertical to Horizontal Decision-Making Systems

Another factor which has contributed to the complexity of corporate governance is the transition from vertical to horizontal decision-making systems. This shift results from a combination of economic, technological, social, and cultural factors.

First, the need for flexibility and adaptability played a crucial role, as companies had to quickly adjust to market changes that rigid vertical structures could not accommodate. The increasing complexity of markets also pushed organizations to decentralize decision-making, allowing experts to intervene directly at the operational level without going through multiple hierarchical layers.

The rise of digital technologies and digitalization has profoundly impacted how information flows within organizations, making decision-making processes faster and more accessible at all levels. Real-time communication and collaboration tools have allowed businesses to move away from long chains of command.

Simultaneously, employees’ expectations have evolved: they seek more accountability, autonomy, and participation in decision-making processes. The horizontal system, by offering more empowerment opportunities, responds to these new expectations and enhances motivation.

Finally, global competitive pressure forces organizations to be faster, more innovative, and more responsive to survive, something much easier to achieve in a horizontal model, where decisions are made closer to operations. This shift, therefore, brings greater complexity and speed to governance.

Regulatory Pressure

Governance harmonization and regulation (see Levels 3 and 4 above) have been widely adopted by states in recent years, resulting in increased regulatory pressure. Organizations face a growing number of regulations, repeated audits, and the need for constant regulatory monitoring, making compliance increasingly difficult. This has led to the creation of roles dedicated to specific legislation or the establishment of specialised teams whose actions must be integrated into the organization’s decision-making process. This growing number of actors within the governance system makes it even more challenging to manage.

Consequently, organizations must find fundamental solutions to proactively address these numerous challenges while managing complexity and simplifying internal processes. The multiplication of structures and/or specialists may have seemed a viable response to the evolving socio-economic environment, but the associated costs - financial, time-related, and in terms of inertia demonstrate that a different approach is necessary to create long-term value.

It is within this context that the CGO role was created.

Next: The CGO Journey part 3: CGO, the definition.