Corporate Governance – What you Should Know

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This article is provided as general guidance only and should not be relied upon without obtaining specific advice.

Most companies big and small would agree that it is essential to have a clear sense of direction as well as control over the way in which the business is operating.

Ask the same individuals how they deal with corporate governance and the chances are that you might well get a few blank stares.

However, corporate governance in its most base form is simply about control and direction, even though the phrase makes it sound far more intimidating. If you think your business hasn’t really considered corporate governance, the chances are that it probably has – you just haven’t realised that’s what you were doing!

If you aren’t exactly sure how to approach the subject of corporate governance or what it should cover, this guide setting out the basics is for you.

In a nutshell

Put simply, to govern means to ‘control the behaviour or actions of’ which is a good way of expressing the very core of corporate governance.

The end result is usually achieved by a combination of different processes, procedure, policies, audits and rules which ensure that the day to day tasks are carried out in the right way and the company is properly controlled, administered and directed. Another way of describing it would be the implementation of a robust framework of internal controls.

Management of risk is a key component of corporate governance and asking yourself how your organisation can be properly monitored and controlled without impeding its performance in the market is a good place to start.

Risk management

No business can be a truly competitive player in the market, regardless of the industry, without accepting that a degree of risk is inevitable.

However, what is crucial is being able to measure the risk and make a calculated decision about whether it is acceptable to the business. Therefore having adequate corporate governance in place doesn’t mean eliminating risks, but rather having the system in place to being able to monitor and constantly evaluate them to ensure the business is not unduly exposed.

The environment in which a company operates will constantly evolve and as a result, the risks a company is dealing with will also constantly change. Whether these risks are internal – such as a change in personnel – or external  – such as a new project – is immaterial; what is critical is that there are the right processes in order to be able to cope and react when necessary.

An integral part to this framework is the ability to have an early warning system, so that any potential breaches or problems are spotted early and appropriate action taken. Monitoring risk delivers very little real benefit if the business is not able to detect and deal with issues before they become problematic! Working with a company like http://www.elementalcosec.com/ will help architect the right systems to provide the required early warnings.

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A cohesive risk management strategy and system is key to good corporate governance

Leadership and delegation

Strong and clear leadership is essential in order for a business to perform at its optimum level but the ability to delegate effectively must also play a part.

The board from the director down must have confidence that its senior members of staff have the skills, knowledge and competence to be able to perform their role and take on responsibility as required. However, in order to have the confidence to empower staff in this way, there must be adequate controls within the corporate governance framework which check that powers are being exercised in an appropriate and suitable way. This once again links back to the management of risk.

Staff throughout the company should be empowered to accept the business objectives and there should be an appropriate performance recognition programme in place to promote this climate of ownership and trust.

Board responsibilities

Whilst delegation and the performance of day to day duties and functions is fundamental to the success of the company, the board also have a large part to play within corporate governance.

Dialogue with stakeholders is a critical part of their communication and ensuring that all parties agree on the direction and goals of the business is key to its success. For their part, the board should ensure that there is a high quality flow of information to stakeholders which accurately reflects the performance of the business as well as demonstrating the internal controls and risk management strategies which are in place.

Despite being removed from the nitty gritty of the business, the board should also take steps to ensure they keep their finger on the pulse and are regularly assured that the controls they have in place are adequate and relevant. Even when there is a successful system, it is essential for the board to discuss continuous improvement as resting on their laurels could be a fatal mistake in terms of competitive edge.

In keeping with this, there should also be some formal review cycle in place which allows the whole operation to be looked at in some depth, which can then be reported back to stakeholders. The review should include all aspects including compliance, financial, operational and risk management.

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The boardroom is the heartbeat of corporate governance from where the success of a company can be driven

Conclusion

Corporate governance is much easier to put in place than you might anticipate but to really get the best out of your company, and to ensure you have the proper systems in operation you might want to consider getting help from the experts. There are companies who can offer tailored corporate governance programmes providing professional and expert advice on every aspect of your company.

 

Image credits: Dave_Hallmon and The_Warfield

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