What Is Corporate Governance?

Corporate governance is the structure of rules and processes used to ensure the smooth running of a company. The key to effective governance involves balancing the interests of the shareholders, senior management, and suppliers, as well as running the organisation in accordance with the law. 

Key elements of corporate governance

The essentials of good corporate governance include:

• Robust board structures

Sound processes and rules to organise the board and improve transparency, fairness and accountability.  

• Independent directors

Independent directors are board members without any material relationship with the company. They remain unbiased and bring in new perspectives to tackle important decisions.  

• Effective board committees

Board committees are tasked with important duties to support the proper functioning of the board. These committees — such as the nominations committee and audit committee — take care of company finances, ensure compliance with the law and decide director compensations.

• Clear policies and procedures

A detailed and well-written set of policies and procedures ensures that your company’s standards, culture and values are clearly outlined.

• Robust risk management practices

In corporate governance, the audit and risk management committee is tasked with overseeing financial, legal and operational risks. Sound risk management practices ensure that the organisation can foresee and mitigate potentially damaging occurrences. 

• Strong internal controls

Strong internal controls formalise the processes by which the organisation ensures the board has access to the most accurate and up-to-date information on which to base decisions. 

Benefits of good corporate governance

These are the benefits of maintaining good corporate governance:

• A clear definition of roles boosts overall decision-making
• Minimises risk by using sound practices to identify and handle them ahead of time
• Streamlines the company’s operations and adds transparency
• Improves capital flow due to robust financial reporting systems
• A sound structure of rules fosters better workplace relations and encourages positive behaviour
• Boosts your company’s reputation and brand value
• Improves performance reporting and management efficiency

Current trends in corporate governance

Here are the emerging trends in corporate governance:

• Board diversity

Having a diverse board means utilising a better mix of backgrounds and expertise to improve decision-making and the overall functioning of the board. Good corporate governance necessitates diversity across the boardroom.  

• Sustainability

Sustainability and good governance go hand in hand. ESG (environmental, social and governance) reporting is gaining traction and investors want to see companies manage their impact in these areas.

• Technology

Board portals are becoming the norm in boardrooms. Good governance warrants the use of the latest technology to save money and allow the board to streamline its processes. With fewer barriers to meeting attendance, virtual meetings improve board diversity, attendance and performance.

• Cyber security

Cybercrime has become rampant in the business world. Boards should be updated on all cybersecurity measures to safeguard their company’s operations and assets. It is vital for the board to consult IT experts to gain a better understanding of the risks.

• Compliance

Compliance with international and local laws and policies increases company transparency, improves its value and protects the interests of its shareholders.