The Importance of Conscious Governance in Organizations

Enrique Aznar, Director IE-Elecnor Ethical Governance & Business Knowledge Hub 

In today’s business world, characterized by uncertainty and rapid change, conscious governance is a fundamental approach for the success and sustainability of organizations. This concept integrates ethical principles and social responsibility into management practices, seeking economic benefit along with the well-being of all stakeholders. The following explores the importance of conscious governance, its key components and how it can become a competitive advantage.

What is Conscious Governance?

Conscious governance goes beyond profit maximization. It is based on four fundamental pillars:

1. Consciousness: it involves a deep understanding of the impact of business decisions at all levels, considering not only the financial but also the social and environmental implications. A conscientious company recognizes its role in society and acts to benefit all its stakeholders.
2. Responsibility: Refers to the organization’s commitment to be accountable for its actions. It includes the adoption of ethical practices and transparency in communication. Responsible companies maintain high standards of integrity and fairness in their interactions.
3. Transparency: This is essential to build trust and credibility. It requires clear disclosure of relevant information to stakeholders, which enables understanding of business decisions and fosters trust and loyalty.
4. Sustainability: It involves efficient management of resources and the creation of long-term value for all stakeholders. Sustainable companies adopt practices that guarantee their future viability, minimizing their negative impact on the environment and society.

Examples of Conscious Governance Decisions

Use of Artificial Intelligence: Example of Conscious Governance

A company using artificial intelligence (AI) must consider its ethical and social impact. For example, when developing AI systems for personnel selection processes, a conscious governance decision would involve ensuring that the algorithms are unbiased and do not reproduce existing biases. The organization must implement constant monitoring and auditing processes to detect and correct potential inequities in the decisions that AI produces.

In addition, conscious governance in AI involves transparency in the use of data. Companies must clearly communicate to users how their data is collected and used, providing the option of informed consent and ensuring privacy. The creation of an ethics committee to oversee the development and use of AI technologies is another example of conscious governance practice, ensuring that AI products respect human rights and promote positive social impact.

Governance Issues: The OpenAI and FTX Cases

OpenAI: In the case of OpenAI, one of the main conscious governance challenges has been balancing the original mission of the organization with pressure from commercial interests. OpenAI was founded for the purpose of developing advanced artificial intelligence in a safe and ethical manner for the benefit of humanity. However, the exponential growth of technology and the need for multi-million dollar investments to remain competitive have led to controversial decisions, such as accepting investments from companies seeking to maximize short-term profits.

A conscious governance dilemma faced by OpenAI was the decision to transform from a non-profit to a capped-profit organization. This transformation created tensions around the organization’s transparency and ethical commitments, especially in how AI technology would be shared or controlled. OpenAI’s challenge reflects the importance of maintaining the original mission and vision while navigating financial and commercial complexities.

FTX: FTX, one of the world’s largest cryptocurrency platforms, collapsed in 2022 due to serious governance problems and lack of internal controls. The company operated with a weak governance structure, where key decisions were centralized in a small group of people. The lack of transparency and oversight, coupled with risky decisions in the management of client funds, led to a severe financial shortfall and subsequent bankruptcy.

The FTX case highlights the importance of conscious governance in the financial and technology sector. Conscious governance would have involved the implementation of clear accountability policies, independent audits and the creation of a diverse and expert board of directors to oversee the company’s operations. The lack of these mechanisms at FTX not only affected the company but also thousands of investors and customers, demonstrating how governance practices directly impact the sustainability and reputation of an organization.

Recent Example in Spain: Inditex and its Sustainability Strategy

A recent example of conscious governance in Spain is Inditex and its strategy to implement sustainable and responsible supply chain practices. Inditex, the textile giant that owns brands such as Zara, has taken a proactive approach to sustainability and business ethics. The company has developed a series of policies aimed at reducing its environmental impact and improving labor conditions in its production chain.

In 2023, Inditex announced its commitment to achieve the use of more sustainable materials in its garments, such as organic cotton and recycled fabrics. In addition, it is investing in more efficient production processes to reduce water and energy use. Transparency is also an essential part of its strategy, as it publishes detailed annual reports on its environmental impact and labor practices. This decision demonstrates how conscious governance can be integrated into all aspects of a company, from the supply chain to the relationship with consumers.

Why is Conscious Governance Important?

1. Improves Reputation and Trust: Organizations that operate with ethical principles and transparency gain the trust of customers, employees and society, which translates into greater loyalty, attraction of talent and better relationships with suppliers and the community.
2. Encourages Innovation: An open and ethical culture motivates employees to come up with creative ideas and solutions, driving the company’s continuous growth and development.
3. Risk Reduction: By considering the social and environmental implications of their actions, companies with conscious governance are better prepared to anticipate and manage risks, avoiding crises and promoting a culture of proactive management.
4. Investment attraction: Investors are increasingly looking for companies that are profitable and responsible. Conscious governance attracts those interested in social and environmental impact, who are often willing to make a long-term commitment.
5. Contribution to Sustainable Development: By adopting conscious governance practices, companies contribute to inclusive and environmentally friendly economic development, creating an enabling environment for their own long-term success.

How to Implement Conscious Governance

The first step is to establish a culture that values and promotes awareness, accountability, transparency and sustainability. This requires leadership commitment and training for all employees.

The next step is to develop codes of conduct and social and environmental responsibility policies. In addition, accountability mechanisms and processes must be established to continually evaluate and improve these practices.

It is important to maintain an open dialogue with all stakeholders. Listening to their concerns and perspectives improves transparency and provides valuable information for continuous improvement of the organization.

Finally, monitor and evaluate performance in terms of sustainability and responsibility, adjusting strategies as necessary. Constant feedback and learning are essential to stay aligned with conscious governance principles.

Conclusion

Conscious governance is a strategic necessity for organizations seeking to thrive in today’s environment. Adopting ethical, responsible and sustainable practices enhances reputation, fosters innovation, reduces risk and attracts investment. Cases such as OpenAI, FTX and Inditex’s recent sustainable approach in Spain show how conscious governance can significantly impact a company’s sustainability and success. Beyond being a trend, it is an investment in the future that ensures sustainable and responsible growth, generating value for shareholders and society as a whole.