Good governance is closely tied to effective and operational leadership. Take away effective and operational leadership and be rest assured that good governance will cease to exist. Good governance is all about attitude. It is called corporate governance when it relates to businesses and simply governance when it ordinarily relate to individual. Corporate governance is the system by which organizations are directed and controlled.
Businesses have many stakeholders whose interest in the business always conflict and this conflict oftentimes lead to business failure if not properly checked and monitored. In this article are some useful tips on how to set up and implement good corporate governance in a business. This will basically dwell more on the contents of corporate governance.
CONTENTS OF QUALITY CORPORATE GOVERNANCE
- The board should live up to expectation: major policies and strategic decisions should be undertaken by the board members. The composition of the board members is dependent on the attitude of the business towards success. This is the first step that must be taken in setting corporate governance. It is important to have a mind set that strategic and vital decisions are to be made by board members. This should be incorporated into the corporate governance code.
- Ensure that the board members have people with blend mix of skills: the qualification, experience and competencies of those that will be in the board of a company should be enshrined in the code of corporate governance.
- Appointment of board members should be conducted by a nomination committee: procedure for the appointment of members of the board of directors must be written in the code of corporate governance.
- Financial statements should display managers’ remuneration for the public: in order to avoid infringing on someone’s private life thereby violating privacy act of many countries, it is a good practice to always include it in the code of corporate governance that remunerations will be publicly displayed in the financial statements of the company. though various accounting reporting standards provides that managers remunerations be displayed in the financial statements but, I have seen where non inclusion of this in the code of corporate governance of a small business caused a lot of heat.
- Independent non-executives should have significant influence in a company: for there to be checks on excessive use of powers, independent non-executives should have reasonable control over the affairs of the business to ensure transparency and accountability. Their number and the extent of power to be given to them should be included in the code of corporate governance. This will save a lot of headaches in the long run.
Remuneration should depend upon performances: Responsible managers are accountable for their results. This should be written in black and white in the code of corporate governance. Care should be taken in order not to rely too much on material motivation that will obviously work against the long-term goal of a business. Performance appraisal is a complex subject matter that has been dealt with by authorities in different capacities. Buy these books displayed here for more on performance appraisal.
- Who should set the directors’ remuneration: it should be contained in the code of corporate governance that a special group should be responsible for setting directors’ perks (remuneration inclusive).
- Audit committee should always be in contact with external auditors: put it in the corporate governance code that there should be a cordial relationship between the audit committee and external auditors.
- The board should maintain a regular communication channel with shareholders: in order not to fall victim of oversight, always include this in the code of conducts of a company. This may sound obvious but is causing problems in many companies as I write this now.
ELEMENTS OF CORPORATE GOVERNANCE
Management and reduction of risk: corporate governance revolves around the management and reduction of risk and should reflect such.
Framework for ethical operation of business: code of corporate governance should be seen as a framework for ethical operation of business. Care should be taken to make sure that it is prepared to meet the standard of frameworks.
Overall performance linked to good supervision: because good supervision go a long way in determining the overall performance of businesses, code of corporate governance should be tailored to uphold quality internal control and good supervision.
Application of law: good governance is not about having the best rules, procedures and policies. It is all about the application of the laws with passion. Remove the spirit of law and it becomes ordinary piece of writing. An important element of corporate governance is the application of law.
Knowledge of how to establish good corporate governance is what every auditor that really want to be a force to reckon with must have.
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