Who Cares About Good Governance?

23.07.16

Anyone that wants to run a successful company.

Good corporate governance plays a vital role in underpinning the integrity and efficiency of a company. It is a set of standards relating to the effective administration of an organisation. It governs the way in which boards oversee the running of a company by its managers, and how board members are in turn accountable to either shareholders or members and the company. It can be seen as a balance between Performance and Compliance.

There is no standard definition of the term "Corporate Governance".

The Australian Standard AS8000 cites corporate governance as the:

Process by which organisations are directed, controlled and held to account. It encompasses:

  1. authority,
  2. accountability,
  3. stewardship,
  4. leadership,
  5. direction and
  6. control exercised in an organisation.

Essential to good governance is an effective working relationship between the chair, director's/board members, the CEO and other senior management. It is critically important that there is a clear understanding of and agreement on:

Roles and responsibilities

  • The required mix of directors
  • How effectively the board operates
  • How effectively the board interacts with management
  • The board's accountability to its constituents/members
  • Directors' accountability to one another

The degree of structure and detail relating to Good Corporate Governance will depend on the size, nature and complexity of the company's operations such as:

If Company is limited by guarantee under the Corporations Act
An Incorporated Association under the Associations Incorporations Act

For Example - What Does Good Governance Look Like on NFP Boards?

There is a clearly defined purpose and strategic direction for the organisation with goals and objectives and these are communicated to all relevant stakeholders;
The board's role is well defined;
The board is aware of its duties and responsibilities, the legislation under which it operates, and has appropriate documentation of policies and procedures;
The board composition reflects the skills, knowledge and experience needed to achieve the organisation's purpose;
Manage financial responsibilities—establish policies and delegations, set criteria/indicators of good financial health and ensure management reports on this to each board meeting, determine financial priorities, etc.;
There is adequate D&O or management liability insurance.

Essential to good corporate governance is Due Diligence—whereby it is a set of processes and behaviours that when applied, provides duty holders with evidence of effective risk management. It is enshrined in WHS Legislation BUT has great application across all parts of a business.

A business that is firmly committed to effective Governance through the application of a principles-based approach is supported by an "if not, why not" approach.

The following Governance principles should apply across any Governance Framework:
  • Governance facilitates the achievement of business objectives through informed decision-making
  • Governance is supported by being clear about the authority and accountability of individuals and groups
  • Governance is integrated within all business processes and activities
  • Governance is based on a strong organisational culture and awareness of risks and controls
  • Governance is supported by fit for purpose policies and procedures, training and awareness activities
  • Governance supports effective and timely disclosures and reporting.
To sum it up, the importance of good corporate governance is that:
  1. It's essential for any business to act ethically and with integrity and with transparency
  2. It guides the company
  3. It's essential for the progress and prosperity of any company
  4. It prevents fraud
  5. It protects the rights of shareholders or members along with protecting the long-term objectives of the company.

Essential to good corporate governance is the clear delineation of the roles and responsibilities of the Board and the CEO.

Roles of a Board


The role of the board is to supervise a company's business in two broad areas:

  1. Overall business performance
  2. Overall compliance performance


Specifically:

  • Appoint a CEO and evaluate his or her performance;
  • Set and review the medium and long term goals of the organisation in consultation with management;
  • Approve budgets;
  • Monitor business performance;
  • Approve large investments and any major financial decisions;
  • Monitor the controls framework to ensure major risks are identified and managed;
  • Challenge the assumptions of management;
  • Ensure there are systems in place to enable accurate financial reporting and so the organisation complies with all aspects of the law;
  • Ensure the continuing development of the executive management team;
  • Determine appropriate remuneration for the executive team;
  • Make provision for succession planning;
  • Communicate with shareholders and other stakeholders;
  • Be accountable to shareholders/members.

Roles of a CEO

  • Developing and recommending business plans for the board's consideration;
  • Submitting reports, budgets and financial statements to the board;
  • Implementing all approved plans, policies and programmes and achieve agreed targets;
  • Overseeing the financial management of the organisation;
  • Maintaining awareness of the business, economic and political environment as it affects the organisation;
  • Overseeing the effective operation, administration and development of the company;
  • Protect and enhance the image and reputation of the company;
  • Ensuring compliance with legal and regulatory obligations.

As Dr Seuss once said:

"Only you can control your future."

I'm passionate about Good Governance and how it can help you .

Adam Carter | Carmalk Consulting

Chief

M: 0400 761 700

W: (07) 3869 2573

E: info@carmalkconsulting.com.au

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