A corporate governance framework or governance model is a set of guidelines, processes and practices that control how organisations operate. It sets the tone for key business themes, such as decision-making, risk management and accountability, serving as a foundation for good governance.
Purpose of the framework
Ensuring accountability
A robust governance structure outlines the clear responsibilities of specific members of an organisation. It requires the board and management to justify the purpose of their actions and decisions, ultimately holding them accountable for the company’s performance.
Promoting transparency
A corporate governance framework dictates how different groups within a company — the board, committees, management and employees — should interact. It specifies reporting, disclosure and open communication protocols, ensuring clear visibility of company operations and finances.
Protecting shareholder interests
An effective governance framework establishes sound guidelines and practices, such as maintaining open communication channels, to ensure that shareholders’ rights are respected and their interests are reflected in corporate decision-making processes.
Risk management
It sets out clear processes for recognising, evaluating and managing business risks, helping companies maintain responsible practices and avoid lawsuits and reputational damage.
Supporting ethical behaviour
The framework includes a code of conduct that sets ethical standards for all employees and requires a strong commitment from leadership to uphold company values, creating a culture of integrity, fairness and transparency.
Components of a corporate governance framework
Board structure: Defines board composition, roles and responsibilities, including size, number of independent directors and recruitment criteria.
Decision-making processes: Outlines how decisions must be made at different levels within the organisation, including key personnel involved and voting procedures.
Policies and procedures: Establishes internal policies and sound operational practices, ensuring compliance with laws and regulations.
Shareholder rights: Details the rights of shareholders, including voting rights, information access and the ability to participate in key corporate decisions.
Shareholder engagement: Encourages active communication and interaction between investors and the board, facilitating feedback and involvement in key governance matters.
Stakeholder relations: Recognises the importance of engaging with all stakeholders, including employees, customers, suppliers and the community, to foster positive relationships and enhance corporate reputation.
Internal controls: Implements internal systems and practices to ensure accurate financial reports and regulatory compliance, mitigating risks of financial fraud and mismanagement.
Audit functions: Establishes internal and external audit mechanisms to maintain sound corporate governance practices and compliance with policies and regulations.
Who plays a role in the framework?
The board
The board of directors is responsible for providing strategic oversight, setting the direction of the company and protecting shareholder interests. It monitors management performance and establishes various committees to focus on key governance areas.
Management
Company management translates the board’s strategic objectives into actionable plans. It oversees daily operations, enforces corporate policies and ensures employee accountability, playing a critical role in implementing the governance framework.
Compliance
Effective compliance practices are necessary to uphold good governance. These include the development and implementation of compliance programmes that educate employees about legal and ethical obligations, monitoring regulatory changes, conducting audits and addressing operational gaps promptly. These practices ensure that the organisation follows internal policies and all applicable laws and regulations.
Enhanced trust: Increases stakeholder confidence through transparency and accountability.
Improved decision-making: Facilitates informed, strategic decision-making through structured models and practices.
Risk mitigation: Establishes internal controls and risk assessment practices to help companies avoid potential fraud, operational inefficiencies and regulatory non-compliance.
Positive corporate culture: Encourages a collaborative environment that encourages integrity, fairness and responsibility.
Increased shareholder value: Promotes ethical and responsible business practices that improve financial performance and overall business valuation, ultimately leading to greater returns for shareholders.
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