5 steps to improving corporate governance January 18, 2018

“Corporate governance” describes the processes, practices and structures through which a company manages its business and affairs. A process that helps a business to meet its financial, operational and strategic objectives and achieve long-term sustainability.

In brief corporate governance is generally a matter of law based on corporate legislation, securities laws and policies, and decisions of the courts and securities regulators. The objective of corporate governance is to promote strong, viable competitive corporations accountable to stakeholders.

Read further to see the 5 steps to improving corporate governance:

Roles & Responsibilities - There should be clarity regarding individual responsibilities, organisational expectations of executives and the role of executive and steering committees.

Monitor organisational performance

Monitoring organisational performance is an essential board function and ensuring legal compliance is a major aspect of the board’s monitoring role. It ensures that corporate decision making is consistent with the strategy of the organisation and with owners’ expectations.

This is best done by identifying the organisation’s key performance drivers and establishing appropriate measures for determining success. As a board, the directors should establish an agreed format for the reports they monitor to ensure that all matters that should be reported are in fact reported.

Understand that the board employs the CEO

In most cases, one of the major functions of the board is to appoint, review, work through, and replace (when necessary), the CEO. The board-CEO relationship is crucial to effective corporate governance because it is the link between the board’s role in determining the organisation’s strategic direction and management’s role in achieving corporate objectives.

Prioritise Risk Management

Every board should establish an effective system for risk oversight and management. “Risk” is not confined to compliance risks. It is a broader term which incorporates all of the risks to the company – e.g. financial risks, global warming, cyber-security, and other risks outside the compliance with law and policy requirements. Effective risk management leads to better decision-making and accurate cost-benefit or risk-reward decisions.

Appoint a competent chairperson

Research has shown that board structure and formal governance regulations are less important in preventing governance breaches and corporate wrongdoing than the culture and trust created by the chairperson. As the “leader” of the board, the chairperson should demonstrate strong and acknowledged leadership ability, the ability to establish a sound relationship with the CEO, and have the capacity to conduct meetings and lead group decision-making processes.

Regardless of the type of enterprise, only good governance can deliver sustainable and solid business performance.

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