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What is Corporate Governance?

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Corporate governance describes the policies, processes, checks and balances, values, laws and regulations by which an organization is directed and controlled, for the sustainable benefit of its owners and stakeholders.  It is of immense value to all companies and organizations, public or private.

Without corporate governance, a company will fail to maximize its potential and may fail entirely.

Picture an organization as an engine with moving parts.  Corporate governance is the engineer that will ensure that all the engine’s many component parts work together in unison to produce the power needed for the task.

There are numerous approaches to corporate governance; one size does not fit all.  While the core concepts overlap, their application will vary depending upon prevailing culture, the business sector,the objectives of the owners and intrusiveness of stakeholders.  However, regardless of this variability, the price paid for corporate governance failures is high.

There can be no assumption that an initiative or code adopted in UK or USA is automatically applicable in other countries; there is no room for corporate governance imperialism.  Each issue should be looked at individually and appropriate weight given to the prevailing local factors.

Characteristics of good corporate governance are:
  • An engaged and involved board that will take informed decisions and ensure management delivers performance targets legally, morally and without excessive risk;
  • Appropriate systems of risk management which will improve anticipation, identification, measurement and mitigation of risk thereby reducing financial and other losses and improving predictability;
  • Appropriate internal controls which will improve cost management and operational efficiency, reduce employee fraud and indirectly increase profitability;
  • Common values and ethics embedded in the workforce promoting the well-being of the company and its stakeholders, creating a virtuous circle in which illegal or unethical conduct is reduced and the interests of the company and its customers are promoted.
Why now?

The current financial and economic crisis clearly demonstrates the high price of ineffective corporate governance and has renewed expectations that all organizations will apply a robust corporate governance framework. The price of corporate governance failure is there to be seen by all. Many organizations have failed, but the failure rate has been particularly pronounced in financial services and Banks. Weak corporate governance was a major contributory factor in each and every failure. The debate on whether adequate corporate governance is a core building block of a bank is over: it has been proven beyond doubt that banks with poor corporate governance are more likely to fail.

The question to ask is this:  Why continue to run a corporate governance risk when, with a modest investment, that risk can be eliminated by a solution that will add to the overall effectiveness and profitability to the organization?

For more information please contact the Corporate Governance Department of Majlis Partners