orporate Governance can be defined as the set of processes, customs, policies, laws and institutions affecting the way a corporation is directed, administered or controlled. Corporate governance can therefore be viewed as the structures and the relationships which determine corporate direction and performance with a view to achieving long term strategic goals. The relationship which exists between the board of directors and the primary stakeholders, typically shareholders and management is critical and central to corporate governance.
Corporate governance also includes the relationships among the many other stakeholders involved and the goals for which the corporation is governed. These stakeholders include employees, suppliers, customers, banks and other lenders, regulators, the environment and the community at large. The corporate governance framework therefore consists of the legal, regulatory, institutional and ethical environment in which the corporation finds itself.
Key elements of good corporate governance structure therefore include fairness, honesty, trust and integrity, openness and transparency, performance orientation, responsibility and accountability, mutual respect, and commitment to the organisation and its stakeholders
Of importance is developing a model or governance structure that aligns the values and goals of all corporate participants and stakeholders and ensures an outcome that meets the needs of the individuals involved as well as those of the community as a whole. The aim is to therefore to align the interests of individuals, corporations and society.
Principles of corporate
Equitable and Fair Treatment
Interests of Other Stakeholders
Responsible and Ethical
Ethical procedures and principles of conduct can be regarded as a form of self regulation, placing the responsibility to act professionally and ethically with the organisation. It has been empirically established that organisations that practise good corporate governance are more sustainable in the long term and display superior performance results. The board has an obligation to act responsibly when making decisions involving the corporation’s assets and ultimately stakeholder’s interests and investments. Being socially and environmentally responsible is as important as being financially responsible.
Disclosure and Transparency
Disclosure of material matters concerning the organisation’s performance and activities should be timely and accurate to ensure that all investors have access to clear, factual information which accurately reflects the financial, social and environmental position of the organisation. Organisations should clarify and make publicly known the roles and responsibilities of the board and management to provide shareholders with a level of accountability. Procedures should be implemented to independently verify and safeguard the integrity of the company's financial reporting. The quantity, quality and frequency of financial and managerial disclosure should be clearly defined and ad heard to.
The Role and Responsibilities
of the Board of Directors
One of the board’s main functions is to safeguard and protect invested capital. Regular board meetings allow potential problems to be identified, discussed and resolved. Executive directors possess superior knowledge of the decision-making process and therefore evaluate top management on the basis of the quality of its decisions that lead to financial performance outcomes.
The board is ultimately accountable and responsible for the affairs and performance of the company and should act fairly and independently to ensure that all relevant information is available to the stakeholders as needed. For this reason the board should retain full and effective control over the organisation and be involved in all decisions which materially impact the financial, social, legal and environmental standing of the organisation.
To ensure an appropriate balance of power and independent objective decision-making, the board should delegate certain of its responsibilities to management. The appointment of various committees such as an audit, remuneration and risk management committee comprising of independent non-executive directors is a viable option when delegating powers but it should be kept in mind that the ultimate responsibility and accountability for the performance and affairs of the company lies with the board of directors
The CEO’s responsibilities should preferably be separate from those of the chairperson and there should be a good balance between executive and nonexecutive directors, with the majority being nonexecutive. Independence ensures objectivity and discourages conflict of interest.
Responsibilities should be outlined clearly. Policies surrounding the adoption of strategic plans, monitoring of operational and managerial performance, risk management and internal control systems, and director selection, orientation and evaluation should be clearly defined.
Strategic risk management is a core element of corporate
governance, the responsibility of which should reside with the board.
The designing, implementation, and monitoring of an effective risk management
process will be the responsibility of management but the board will have
to oversee the process and ultimately judge its effectiveness through
a systematic documented assessment.
Good corporate governance, which is based on the principles of fairness, honesty, accountability transparency and consideration, should therefore form the cornerstone of any responsible organisation. The mutual benefits flowing from a well governed organisation ensure sustainability, growth, profitability and the creation of a positive corporate culture.