All corporations, big or small, need to be controlled and directed. Corporate governance is the term given to the system of rules, practices and processes through which an organization or a firm is directed and controlled.
Corporate governance helps you to keep track of your company’s progress and growth and make sure everything is working as expected. It includes looking after a myriad of fields such as balancing the interests of your organization’s many stakeholders like the management, customers, shareholders, the community, etc. Basically, it controls everything- right from the internal controls to performance measurement as well as corporate disclosure.
Governance structures and principles identify the distribution of rights and responsibilities among different participants in the corporation (such as the board of directors, managers, shareholders, creditors, auditors, regulators, and other stakeholders) and include the rules and procedures for making decisions in corporate affairs.
Monitoring of actions, policies, practices and decisions of corporations, their agents and affected stakeholders are some of the governance mechanisms.
There has been an increased interest towards, and therefore a greater need for, corporate governance ever since the downfall of large corporations during 2001-’02 and then again after the financial crisis in 2008. It is important to include governance measures to avoid any amount of corporate scandals which can very easily spell doom for your organization.
It is important to communicate your company’s corporate governance to ensure that the relationship between the community and the investor is strong.
Now, who influences or takes charge of corporate governance? It is mainly taken care pf the board of directors who are elected by shareholders or appointed by other board members and they are the representatives of the shareholders of the company and therefore it is necessary that their needs be met.
The board makes important decisions, and their role also extends to managing certain social or environmental concerns that need to be prioritized.
Boards are often made up of inside and independent members. Insiders are major shareholders, founders and executives. Independent directors do not share the ties of the insiders, but they are chosen because of their experience managing or directing other large companies. Independents are considered helpful for governance because they dilute the concentration of power and help align shareholder interest with those of the insiders.
There are certain general principles around which businesses are expected to operate-
- Rights and equitable treatment of shareholders: Shareholders have certain rights which an organisation should respect and they should be allowed to exercise these rights. Your company can help shareholders exercise their rights by openly and effectively communicating information and by encouraging shareholders to participate in general meetings.
- Interests of other stakeholders: Organisations should recognize that they have legal, contractual, social, and market-driven obligations to non-shareholder stakeholders, including employees, investors, creditors, suppliers, local communities, customers, and policy makers.
- Role and responsibilities of the board: The board needs sufficient relevant skills and understanding to review and challenge management performance. It also needs adequate size and appropriate levels of independence and commitment.
- Integrity and ethical behavior: Integrity should be a fundamental requirement in choosing corporate officers and board members. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making.
- Disclosure and transparency: Organisations should clarify and make publicly known the roles and responsibilities of board and management to provide stakeholders with a level of accountability. They should also implement procedures to independently verify and safeguard the integrity of the company’s financial reporting. Disclosure of material matters concerning the organization should be timely and balanced to ensure that all investors have access to clear, factual information.
Following these principles makes sure that your way of governance is compliant to everyone’s (all kinds of stakeholder’s) needs.
VComply, a GRC software tool, makes sure that your organization is working perfectly- keeps track of what your employees are doing, and when, whether their performance is up to the mark or not, what compliances your organization needs to be meeting, etc. This way, you get to govern your organisation without having to worry about constantly keeping a track of the various departments manually; VComply basically gives you a consolidated report, all at one place and thus makes it easier to spot and errors of discrepancies very easily.
Corporate scandals will very soon be a thing of the past with the evolution of more and more software tools of this kind.
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