The word governance has been bandied about a lot lately, whether it be in relation to the failure of our institutions to protect the young and venerable or the banking and financial sector and their failures in ensuring the right culture was embedded in their organisations.
It is not uncommon, however, when a conversation about governance is initiated within the general population that one of the first questions is: what does the word governance actually mean? If you Google the words “corporate governance”, you will be advised that there are 98,400,000 references to these words in the stratosphere, however in this article I will try to provide a simple definition, provide some basic principles and then explain why it is so important that organisations, both in the public and private sectors, incorporate good governance principles and practises into their daily business activities.
Governance can be defined as: “The system by which entities are directed and controlled. It is concerned with structure and processes for decision making, accountability, control and behaviour at the top of an entity. Governance influences how an organisation’s objectives are set and achieved, how risk is monitored and addressed and how performance is optimised.” Governance is a system and process, not a single activity and therefore successful implementation of a good governance strategy requires a systematic approach that incorporates strategic planning, risk management and performance management. An organisation, in most cases, is an incorporated body and is recognised by law as a legal entity, however it is an inanimate object; it does not have a soul, it cannot have empathy nor is it able to determine right from wrong – someone else, in this case, the Board and senior management are responsible for humanising the organisation - its governance practices play a leading role in this quest.
And like culture, an organisation’s governance is a core component of the unique characteristics of a successful organisation.
Again, there are many variations to a common theme of good governance; however below we list the fundamental requirements and expectations to meet this standard:
Directors should act always to optimise and sustain the economic, social and environmental value and potential of their organisation
If these basic principles are applied, good governance will naturally follow, and Directors will be meeting their fiduciary, personal and societal duties, and responsibilities.
The fundamental reasons why organisations should adopt good governance practises include:
In summary, governance encompasses the processes by which organisations are directed, controlled and held to account. It includes the authority, accountability, leadership, direction and control exercised in an organisation.
Good governance does not guarantee long term success, however the “highway of business failure” is littered with the carnage caused by poor governance. The choice of which path to follow is yours to make.