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The Cadbury Report which was released in the UK in 1991 outlined that “Corporate governance is the system by which businesses are directed and controlled.” Good corporate governance is a key factor in underpinning the integrity and efficiency of a company. Poor corporate governance can weaken a company’s potential, can lead to financial difficulties and in some cases can cause long-term damage to a company’s reputation.

cadbury-report

A company which applies the core principles of good corporate governance; fairness, accountability, responsibility and transparency, will usually outperform other companies and will be able to attract investors, whose support can help to finance further growth.

  • The board approves corporate strategies that are intended to build sustainable long-term value; selects a chief executive officer (CEO); oversees the CEO and senior management in operating the company’s business. It includes allocating capital for long-term growth and assessing and managing risks; and sets the “tone at the top” for ethical conduct.
  • Management develops and implements corporate strategy and operates the company’s business under the board’s oversight.  It is with the goal of producing sustainable long-term value creation
  • Management, under the oversight of the board and its audit committee, produces financial statements that fairly present the company’s financial condition.  Also, to make timely disclosures to investors and analyse the business soundness and risks of the company.
  • The audit committee of the board retains and manages the relationship with the outside auditor. It oversees the company’s annual financial statement audit and internal controls over financial reporting.  It looks after the company’s risk management and compliance programs. VComply is a compliance tool which helps the organization to maintain a indelible log of compliance procedures.
  • The nominating/corporate governance committee of the board plays a leadership role in shaping the corporate governance of the company. It strives to build an engaged and diverse board whose composition is appropriate in light of the company’s needs and strategy. Last but not the least, it actively conducts succession planning for the board.VComply
  • The compensation committee of the board develops an executive compensation philosophy, adopts and oversees the implementation of compensation policies.  They should fit within its philosophy. They also design compensation packages for the CEO and senior management to incentivize the creation of long-term value. Also, they should develop meaningful goals for performance-based compensation that support the company’s long-term value creation strategy.
  • The board and management should engage with long-term shareholders on issues and concerns that are of widespread interest to them.  These issues affect the company’s long-term value creation. Shareholders are encouraged to disclose appropriate identifying information. They should assume some accountability for the long-term interests of the company and its shareholders as a whole.
  • As part of this responsibility, shareholders should recognize that the board must continually weigh both.  It can be short-term and long-term uses of capital. This is  when they need to determine how to allocate it in a way that is most beneficial to shareholders and to building long-term value.
  • In making decisions, the board may consider the interests of all of the company’s constituencies. It includes stakeholders such as employees, customers, suppliers and the community in which the company does business, when doing so contributes in a direct and meaningful way to building long-term value creation.
Conclusion

In a way, this is asking board members to deliver multiples of responsibilities. But then again, how different is it from us accepting the need to balance differently. It can be sometimes conflicting – responsibilities in our daily life? A good mix of people who can constructively challenge each other in the board room can help businesses to make meaningful decisions in rapidly changing markets.

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