Boards have, since time immemorial, been regarded as an honored set of individuals who provide leadership, vision, strategic direction and indeed crystalize the collective aspirations of organizations. Top organizations have common characteristics which include strong leadership and efficient governance processes. Guided by vision, philosophy, mission, values; leadership and governance is reflected through the ability of leaders to understand risks and adapt to opportunities and changes.
Corporate governance refers to all laws, regulations, codes, and practices that define how a company is administrated. It determines the rights and responsibilities of all active agents within an organization, attracting talent and financial capital, boosting internal efficiency, and providing economic value to stakeholders long-term.
Good governance entails creating an environment that is inclusive, sensitive and responsive to the needs of the people and effective to the many challenges it encounters. Governance can be used in several contexts such as corporate governance, global governance, national governance, local governance and governance of the various sectors.
Good governance among other things, involves participation, transparency, accountability and rule of law. It also involves effectiveness and equity in governance activity. Good governance ensures that political, social and economic priorities are based on broad consensus in society and that the voices of the poorest and the most vulnerable are heard in decision-making over the allocation of development resources.
PRINCIPLES OF GOOD GOVERNANCE
- Integrity comprises both straightforward dealing and completeness. It is based upon honesty and objectivity, and high standards of propriety and probity in the stewardship of public funds and resources, and management of an entity’s affairs. It is dependent on the effectiveness of the control framework and on the personal standards and professionalism of the individuals within the entity. It is reflected both in the entity’s decision-making procedures and in the quality of its financial and performance reporting.
- Accountability is the process whereby the organization, and the individuals within them, are responsible for their decisions and actions, including their stewardship of public funds and all aspects of performance, and submit themselves to appropriate external scrutiny. This is achieved by all parties having a clear understanding of those responsibilities, and having clearly defined roles through a robust structure. In effect, accountability is the obligation to answer for a responsibility conferred.
- Communication with Stakeholders: There should be clear channels of communication with stakeholders on the organization’s mission, roles, objectives and performance and appropriate procedures to ensure that such channels operate effectively in practice. Therefore, an organization needs to account to its stakeholders on its intentions, objectives and strategies and the actual results achieved.
- Transparency: The board should provide timely, accurate, and clear information about such things as financial performance, conflicts of interest, and risks to shareholders and other stakeholders.
- Risk Management: The board and management must determine risks of all kinds and how best to control them. They must act on those recommendations to manage them. They must inform all relevant parties about the existence and status of risks.
- Responsibility: The board is responsible for the oversight of corporate matters and management activities. It must be aware of and support the successful, ongoing performance of the company. It must act in the best interests of a company and its investor
THE BENEFITS OF GOOD CORPORATE GOVERNANCE
Good corporate governance has positive impacts that occur when risks are controlled, and organizational procedures are streamlined and consistent. The benefits include:
- Efficient Processes – due to the repeatability and consistency of tasks performed.
- Visibility of Errors – this repeatability and consistently helps to quickly identify the nonconformities in processes.
- Reduced Costs – when tasks are streamlined, companies can eliminate the waste from scrap, rework, and any other costly inefficiencies.
- Compliance – a culture that supports corporate governance allows for its product to reach the market while meeting its intended specifications and working correctly.
Good corporate governance practices have an impact on the effectiveness and efficiency of business operations in organizations. Every organization should prioritize good corporate governance for sustainability.