Corporate governance refers specifically to how a corporation is directed, administered, or controlled – what’s its governing structure?
This includes not only laws and customs, governmental and corporate-specific, which dictate how a corporation is run, but also the goals toward which it is directed.
Participants in corporate governance include shareholders, management of the company, and the Board of Directors, and may also include regulatory personnel employed by the government or a trade organization; company employees; suppliers, partners, and customers of a corporation; and ultimately the voting population and others in the communities where a corporation has an effect.
Because there are so many parties concerned with a corporation’s goals and results, corporate governance systems need to be streamlined, rigidly structured, and as transparent as possible to its stakeholders.
Corporate governance monitors whether outcomes are consistent with goals, and motivates the corporation to maintain its direction or alter it to better adhere to goals.
The primary function of corporate governance, though, is encouraging individuals affected by the corporation to align their behaviors with the corporation’s goals and ideals. When all the fish swim in the same direction, the net is much easier to untangle.
Corporate governance of many companies has come under harsh scrutiny lately with the collapse of supposedly-rock solid companies like Enron. Because of new and upcoming legislation, it behooves corporations to carefully plan and maintain their systems of corporate governance.
Maintaining accountability
Primarily, those who promote good corporate governance are interested in maintaining accountability. For this reason, many new methods of corporate governance are promoting single-person responsibility, more open auditing, and a division between the roles of CEO and Chairman of the Board.
In order to manage this level of accountability, a corporation focuses on having good rules, relationships, systems, and processes.
Good rules are like good fences – they make well-ordered communities. When your rules are well-defined, clear, fair, and most of all followed through on, you will have an orderly corporation.
Relationships between all parties involved in the governance of a corporation need to be managed. This is not limited to the owners, board of directors, and employees, but grows outward to embrace regulatory agencies and the community at large.
With well-defined relationships, a company can easily govern its communications both internally and externally. And with two-way communication – devising methods especially for those involved peripherally in a corporation, such as the community – the corporation also raises its profile in the community at large, encouraging relatively-uninvolved people to share in the corporate goals.
Systems and processes are all the things that deal with the day-to-day management of a company – the specific tasks that are to be accomplished by a specified role, all the way up through the governance issues like who has authority, how do you change management, and how do you deal with regulatory agencies.
Systems and processes break down if your rules and relationships aren’t well-defined or focused.
Systems and processes also deal with such matters as fiduciary duty and accountability. For almost every system or process, there must be a goal or an ideal end product, and the system designed to most efficiently achieve that goal.
With accountability, orderliness, and adherence to rules, you can turn your corporation into an efficient and orderly system. If you want to practice good corporate governance, create your framework and then live within it.
