Taking the Mystery Out of Governance

What does Corporate Governance mean?

A company’s direction and control are governed by a set of rules, procedures, and processes known as ‘corporate governance’.

Corporate governance is balancing the interests of a company’s various stakeholders, including shareholders, top management executives, consumers, suppliers, financiers, the government, and the general public.

The Four P’s of Corporate Governance are:

• • People
  • Process
  • Performance
  • Purpose

The Basic Principles of Corporate Governance are:

• • Accountability
  • Transparency
  • Fairness
  • Responsibility

Why is Good Governance important?

The fundamental reasons why organizations should adopt good governance practices include:

To maintain and strengthen stakeholder confidence – dealing with a disgruntled stakeholder group because of a lack of trust in the governing body is a major distraction for any organisation. On the plus side, a supportive stakeholder base can provide benefits for the organisation through social and emotional support, both of which are intangible but extremely valuable traits that all organisations should strive for and maintain.

To lay the groundwork for a high-performing organization – achieving goals and long-term success necessitates input and support from all levels of a company. The Board, through excellent governance practises, offers the framework for performance planning, implementation, and monitoring, and without a solid basis on which to construct high performance, achieving this aim becomes difficult. An organization’s long-term goal should be to achieve the highest performance and results feasible within its current capacity and competence.

Today’s business world is always evolving to ensure that the organisation is well-positioned to respond to a changing external environment. Technology has ushered in an information era that has altered our world, and for a business to both thrive and remain profitable in order to fulfil its mission and vision, it must have a system in place to help it spot changes in both the external environment and developing trends. This process of comprehending our changing reality does not happen by accident; it requires the governing body’s leadership, commitment, and resources to build and maintain such a system within the organisation.

Types of Bad Governance Practices

• • Companies that do not collaborate with auditors adequately or do not select auditors on a scale that is appropriate, resulting in the disclosure of false or noncompliant financial documents
  • Inadequate executive compensation packages that do not provide the best incentive for corporate officers
  • Boards that are poorly formed, making it harder for shareholders to remove inefficient incumbents.

Summary

To summarize, governance refers to the procedures for directing, controlling, and holding organizations accountable. It encompasses an organization’s authority, accountability, leadership, direction, and control. The application of strong governance concepts and practices throughout an organization can inspire passion and lead to greatness, which is why governance is so crucial.