A google search of the words “corporate governance” notes that there are 26.5 million references to be found in the worldwide web. However, in this month’s article, we will endeavour to simply this search for meaning and summarise those references by providing our definition of what underpins the principles and practice of good governance.
Governance principles: Directors should act always to optimise and sustain the economic value and potential of the company…
- according to a well-informed conscience;
- with astute commercial judgement and a sound understanding of the company’s business;
- in the best interests of the company as a whole;
- with due care and diligence;
- solely for a proper purpose;
- free from any conflicts of interest or duty; and
- in accordance with the spirit as well as the letter of the law.
Application of these core principles will establish a value’s based framework to guide and mange an organisation.
The Practices of good governance can be represented as 7 Pillars, incorporating:
Direction: what business are we in, what are we trying to achieve and what are the values and principles that frame the way we do business?. The board is responsible for these key strategic issues and for proving leadership in establishing the right culture to drive the performance of the business. Without clear direction, the organisation will flounder and likely never to realise its long term goals and potential.
Viability & sustainability: a key priority in today’s dynamic, ever changing environment. Is the business built on a foundation that provides relevant, client focused services/products and is there a market that will pay a fair price to enable the organisation to sustain its activities over the medium term at least? Are the assumptions upon which the business model is based upon tested on a regular basis to ensure viability can be maintained? Does the board continually challenge itself on these most important matters?
Stakeholder engagement: Do the organisation in general and the board in particular, understand who the key stakeholders are, how they interact with the business and how they are engaged with to ensure the best outcome for the organisation? Is stakeholder engagement included in the annual agenda and strategic plan?
Risk management: does the organisation have a risk management plan in place, is this reviewed over the year and updated on an annual basis? Does the board have a discussion each year on its appetite for risk, how this impacts on its risk management plan and how this will be managed during the year? Is there a business continuity plan in place?
Performance management: the organisation, the CEO and the board itself – how is performance managed for each of these? Does every board member have a real understanding of how the organisation is performing both historically and in terms of lead indicators? Does the board have a system in place to monitor the performance of the CEO and an opportunity to provide mutual feedback on an annual basis? Does the board review its own performance and seek ways to enhance its own functioning?
Compliance: doe the organisation have a culture of compliance that” it is the right thing to do rather than something that must be done to avoid penalties?” Is a register in place to assist in compliance management and to provide evidence to the board of how this is being managed within the organisation?
Professional development & succession: are resources allocated for ongoing professional development of the board and is there an annual plan in place that demonstrates this has been thought about within the context of the board’s needs? Is there a plan in place for board renewal that both retains knowledge and experience and ensures appropriate representation?
In summary, the responsibility an individual assumes when accepting a position as a Director of an organisation is considerable and one that should only be taken with a clear understanding of, and commitment to, fulfilling this responsibility to the best of their ability. When an individual agrees to become a director of a non profit organisation, that person moves from being a volunteer to being accountable. Having a clear understanding of the principles and practices of good governance will enhance the performance of both the individual and the organisation – so how do you and your organisation stack up against this checklist of good governance?