Corporate Governance 101

Corporate Governance 101
Emmanuel Teitey
Insight article written date
16-12-2022
Insights written date
Blog
Ghana

Corporate Governance-Introduction:

Corporate Governance refers to the way in which companies are governed and for what purpose. It identifies who has power and accountability and who makes decisions. It is a toolkit that enables management and the board to deal more effectively with the challenges of running a company.

Corporate governance ensures that businesses have appropriate decision-making processes and controls in place so that the interests of all stakeholders (shareholders, employees, suppliers, customers, and the community) are balanced.

Corporate Governance Structure

  • Corporate governance is defined as the structures and processes by which companies are directed and controlled.
  • It involves a set of relationships between a company’s management, its board, its shareholders, and other stakeholders.
  • Governance structures and principles identify the distribution of rights and responsibilities among different participants in the corporation and include the rules and procedures for making decisions in corporate affairs.
  • Corporate governance includes the processes through which corporations' objectives are set and pursued in the context of the social, regulatory, and market environments.
  •  A board of directors is a body of appointed or elected members who jointly oversee and regulate the activities of a company or organization.
  • The board of directors should be a representation of both management and shareholder interests and consist of both internal and external members.
  • An inside director is a member who has the interest of major shareholders, officers, and employees in mind and whose experience within the company adds value.

Significance of Corporate Governance:

It creates smoother operations:

Smooth operations are crucial to running any successful business, as they improve the efficiency and profitability of the company.

Although the board of directors typically does not take part in a company’s daily operations, corporate governance can still play a role in facilitating smoother business operations.

It builds a positive brand reputation:

One of the most important benefits of good corporate governance is that it can safeguard a company’s brand reputation among both consumers and potential investors.

Since consumers prefer to support ethical companies that have a high corporate social responsibility. This can lead to higher sales and profitability.

It improves cost efficiencies:

Companies with good corporate governance have more transparent processes and efficient operations in place, which can improve cost efficiencies.

With good corporate governance, the board of directors maintains a broader overview of business practices and is better able to detect opportunities to reduce costs and improve profitability.

It attracts investor funding:

When buying a share in a company, investors want to be certain that their funds are safe and that the company is trustworthy. For this reason, corporate governance is crucial to securing investor funding.

It ensures objectives are reached:

  • Good corporate governance is purpose-driven and includes aligning procedures, processes, and practices around company objectives.
  • Therefore, corporate governance is instrumental in ensuring businesses reach their goals.
  • Implementing strategies and road maps helps to increase the likelihood that a company will reach their set objectives

Principles of Good Corporate Governance:

  • Accountability: Good corporate governance relies on accountability, which refers to clearly defined roles and responsibilities within those roles.
  • Each board member should at any time be prepared to provide their shareholders with the rationale behind any decisions made or actions taken.
  • This accountability prevents negligence, fraud, and corruption, which could be detrimental to the company's success.

Transparency:

  •  The principle of transparency refers to stakeholders being informed about all business matters.
  •  Therefore, in order to ensure transparency, companies must provide shareholders with access to financial statements, performance reports, strategies, future risks and any other key business information.

Fairness:

  •  In order to be viewed as an ethical company that treats shareholders equally, corporate governance relies on the principle of fairness. Fairness involves outlining how the shareholders will be treated based on their holdings in the company.
  •  As investors want to ensure they receive fair treatment, operating fairly can help secure future investments.

Responsibility:(Fiduciary)

  • Corporate governance means that the board of directors has a responsibility to act in the best interest of the company and stakeholders.
  • However, responsibility doesn’t only mean ensuring the company stays profitable for the shareholders but also that the board of directors has responsibilities to society in general.

Corporate Social Responsibility (CSR):

 It is the responsibility of companies to consider the social and environmental impacts of business decisions and practices, which is known as corporate social responsibility (CSR).

Conclusion

  • The pillars of successful corporate governance are accountability, fairness, transparency, assurance, leadership, and stakeholder management.

Corporate Governance Accountability:

  • Board accountability is a key element of strong corporate governance.  In general terms, Board accountability is about taking responsibility for all of a company's activities and presenting a fair, balanced, and understandable assessment of an organization's position and prospects to stakeholders.

To watch the webinar : Corporate Governance 101

Emmanuel Teitey
Country Director

Author organization
African Research Center &Consultancy Limited
Author country
Ghana
 

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