We start by defining what is meant by the terms Corporate Governance. This can be defined as the structure of processes, rules and practices through which an organization is controlled and directed. It involves the process of equalizing the interests of the many different stakeholders. These stakeholders include customers, suppliers, shareholders, financiers, the government, senior management executives and the community at large.
We have several principles of corporate governance. In this article we will discuss five of these principles which include;
Responsibility between the shareholders and the directors is a two-way traffic. It’s the responsibility of a board to fulfill the shareholders dreams by carefully managing the company away from risk, around challenges and gear its performance towards success while remaining true to its mission, and adhering to the rule of law while staying sensitive to the politics around them. Its not an easy job but that is what responsibility entails. Its one of the most important functions of the board to select a CEO who can enable the organization and its workers to attain their full potential.
It is the key to a company’s prosperity and survival. The board should always be in the know how about the landscape of the risks around the organization. The boards are all the time at the forefront in being aware of the risks not only for the reason that they are responsible but because they are usually in their roles from the many years of experience. This experience equips them with the ability to identify as many risks as possible, small or large, long term or short term. The board’s responsibility is not to eliminate the risks completely as no company can do this, but it is to be aware and decide which risks are to be avoided and the ones to be taken.
A board should be able to back up any decision it makes. Essential corporate decisions will for sure bring about questions which in its sense is not a bad thing. It shows engagement and diligence and as board members, they should always expect many questions flow from other stakeholders regarding their decisions. Their duty is not to challenge the questions but to remain calm and collected while explaining their answers clearly. They should own these decisions and be ready to be answerable to them with confidence and without fear.
Transparency means that quality of being easily seen through. In the business world, it stands for one being true and honest. In this corporate world, boards are responsible to keep records and report on everything that they are expected to do as clearly and thoroughly as possible. This includes financial statements and also any conflicts of interests that occurs whether severe or not over strategy and the risks management of the company. They should be truthful and honest in reporting and documenting each and everything expected of them.
The board of an organization should handle decisions with an independent mindset ensuring that they are not favoring their own interests or those of their close colleagues which could come in between the right business decisions and these interests. The board should always strike a perfect balance between their many different roles, their superiors and those that answer or report to them. Impartiality is not an easy principle but it is very essential. It tends to make people slip out of practice allowing personal beliefs and friendships interfere with the objectivity of their decisions. Therefore, a board should be aware of the principle of impartiality and endeavor to take care in ensuring that it doesn’t allow its interference.
As a conclusion, these five principles form a foundation of good leadership and governance of any organization. Any organization founded on them sets a good path towards success in the productivity and employee satisfaction. The decisions made are independent and accountable for. The boards that are aware of their responsibilities and are accountable for their decisions forms a firm foundation for the growth and thriving of their organization.