GOOD CORPORATE GOVERNANCE

GOOD CORPORATE GOVERNANCE

Good corporate governance means establishing a management structure and mechanism within the organization to create relations between the Board of Directors, the management, employees, suppliers, clients and shareholders to serve the best interests of shareholders, taking into account the interests of all stakeholders.

Corporate governance is most often viewed as both the structure and the relationships which determine corporate direction and performance. The board of directors is typically central to corporate governance. Its relationship to the other primary participants, typically shareholders and management, is critical. Additional participants include employees, customers, suppliers, and creditors.

Corporate governance is the control of management in the best interests of the company, including accountability to shareholders who elect directors and auditors and vote on say on pay. How a company is governed influences rights and relationships among organizational stakeholders, and ultimately how an organization is managed, and whether it succeeds or fails. Companies do not fail: boards do.

In broad terms, corporate governance refers to the way in which a corporations is directed, administered, and controlled. Corporate governance also concerns the relationships among the various internal and external stakeholders involved as well as the governance processes designed to help a corporation achieve its goals.

Seven Characteristics/Principles of Good Corporate Governance

Managers must ensure good corporate governance.

To be effective, your company’s leaders must take responsibility for their decisions and the performance of the organization as a whole. For example, the leaders of a company should design and adhere to a code of ethics that helps management promote each of the important characteristics of good corporate governance.

Clear Strategy

Good corporate governance starts with a clear strategy for the organization. For example, a furniture company’s management team might research the market to identify a profitable niche, create a product line to meet the needs of that target market and then advertise its wares with a marketing campaign that reaches those consumers directly. At each stage, knowing the overall strategy helps the company’s workforce stay focused on the organizational mission: meeting the needs of the consumers in that target market.

Effective Risk Management

Even if your company implements smart policies, competitors might steal your customers, unexpected disasters might cripple your operations and economy fluctuations might erode the buying capabilities of your target market. You can’t avoid risk, so it’s vital to implement effective strategic risk management. For example, a company’s management might decide to diversify operations so the business can count on revenue from several different markets, rather than depend on just one.

Discipline

Corporate policies are only as effective as their implementation. A company’s management can spend years developing a strategy to push into new markets, but if it can’t mobilize its workforce to implement the strategy, the initiative will fail. Good corporate governance requires having the discipline and commitment to implement policies, resolutions and strategies.

Fairness

Fairness must always be a high priority for management. For example, managers must push their employees to be their best, but they should also recognize that a heavy workload can have negative long-term effects, such as low morale and high turnover. Companies also must be fair to their customers, both for ethical and public-relations reasons. Treating customers unfairly, whatever the short-term benefits, always hurts a company’s long-term prospects.

Transparency

Managers sometimes keep their own counsel, limiting the information that filters down to employees. But corporate transparency helps unify an organization: When employees understand management’s strategies and are allowed to monitor the company’s financial performance, they understand their roles within the company. Transparency is also important to the public, who tend not to trust secretive corporations.

Social Responsibility

Social responsibility at the corporate level is increasingly a topic of concern. Consumers expect companies to be good community members, for example, by initiating recycling efforts and reducing waste and pollution. Good corporate governance identifies ways to improve company practices and also promotes social good by reinvesting in the local community.

Self-Evaluation

Mistakes will be made, no matter how well you manage your company. The key is to perform regular self-evaluations to identify and mitigate brewing problems. Employee and customer surveys, for example, can supply vital feedback about the effectiveness of your current policies. Hiring outside consultants to analyze your operations also can help identify ways to improve your company’s efficiency and performance.