Good corporate governance ensures that an organisation’s board of directors meet regularly, retain control over the business and have clearly defined responsibilities. It also ensures a robust risk management system. Corporate governance is one of the cornerstones of any good business. Show Corporate governance encourages robust and effective decision-making through processes, practices and policies. Moreover, it provides the first line of defence against any allegation of malpractice or dereliction of corporate duty. It can encompass many tasks, and systems of governance vary by company. To take one high-level description, the Oxford University Press Business English Dictionary defines corporate governance as the “way in which directors and managers control a company and make decisions, especially decisions that have an important effect on the shareholders.” As we’ll see, good corporate governance has never been more essential to running a successful company. New urgencyCorporate corruption and scandals are nothing new, from the fall of the Medici in the fifteenth century to Volkswagen’s false emissions claims in the 2010s. Rogue directors, sloppy controls and corporate implosion feature regularly in the business world. But the rise of ESG, the expectations and responsibilities placed on directors, and the ease with which corporate shortcomings can be exposed by company insiders and others on digital media are — or should be — focusing the minds of corporate decision-makers like never before. Given these pressures and the competitive global economy, corporate governance is becoming an increasingly important part of corporate strategies. Employing good corporate governance not only lowers the risk of non-compliance with statutory and regulatory obligations, it helps a company discourage or counter charges or assumptions that it’s not progressive or open-minded. Sound corporate governance policies and practices can lead to corporate diversity, green credentials, fair supply chains and other outcomes that today’s investors value. As a result, corporate governance can be a significant business differentiator. Some hallmarks of good governanceThe board should meet regularly to maintain effective oversight and control over the business. Meeting minutes should be thorough and show constructive challenge, or debate, from a diverse board with an appropriate balance of executive and non-executive directors. The chair should be a facilitator, not a dictator. Senior managers, particularly directors, should have thorough inductions into their roles and understand the culture of the business. Once in place, managers should receive ongoing training and assessments and be monitored so the board can understand how the company is functioning. Likewise, boards and board committees should be subject to regular evaluations to ensure they are operating effectively. Senior leaders should communicate effectively and regularly with the board and maintain corporate records and board papers. Corporate policies that promote regulatory compliance and ethical behaviour must also be developed and implemented across the entire corporate group. Roles and responsibilitiesThe whole board is collectively responsible for developing, implementing and maintaining a sound corporate governance system. It is the chair’s job (supported by the company secretary) to ensure the board remains focused on governance. He or she should ensure the company’s governance code and procedures are adopted by the entire board and indeed by the entire corporate group, with local variations based on regulations, cultures and other factors. While ultimate responsibility lies with the chair and board, it is shared by multiple departments within an organisation. Human resources, finance, procurement, and of course legal counsel and compliance typically have major roles in supporting corporate governance. Good governance promotes well-managed and accountable decision-making at all levels of a business. Each new joiner should understand his or her responsibilities in this area, including what is expected and forbidden, and how to do the right thing — or know whom to contact — when confronted with an ethical dilemma. The importance of reportingCorporate governance reporting takes many forms, including regulatory returns, meeting minutes, audit and accounting outputs, and reports for investors. Generating and retaining these reports across all countries of operation represents a significant administrative burden and often requires an entity management system (EMS). Despite these costs, the return on investment for establishing and maintaining good corporate governance reporting is realised in many situations. Lenders and investors, commercial partners, state funding bodies and others expect high standards of corporate governance and related documentation when entering into agreements. A list of considerations for companiesThe list below outlines some important considerations for companies looking to improve their corporate governance frameworks. For more information, see our article Corporate governance explained.
Corporate governance has earned its place as an essential tool in the management and growth of companies, and will continue to grow in importance as investor and regulator demands for transparency increase. Virtually all companies can benefit by taking steps to increase the quality of their corporate governance systems. This is an updated version of a previously published article. For more information, watch our webinar Corporate governance now: Protecting your reputation and growing your bottom line What is the process by which organizations are directed and controlled?Corporate governance is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders' role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place.
Who defined corporate governance as the system by which companies are directed and controlled?Corporate Governance: Commission Definitions
ISO 37000 defines good governance as a human-based system by which an organization is directed, overseen and held accountable for achieving its defined purpose in an ethical and responsible manner.
What is governance structure of an organization?Governance structure refers to the framework of project management, especially regarding rules, procedures, roles and the division of responsibilities within the whole decision-making process. It keeps the project in check, allowing it to run flawlessly and in accordance with the plan.
What are the 4 governance principles?The board of directors must act following the four principles of governance — accountability, transparency, fairness and responsibility — for the best interest of stakeholders, shareholders and the business as a whole.
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