What is Corporate Governance?
"Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of these resources. The aim is to align as nearly as possible the interests of individuals, corporations and society." Sir Adrian Cadbury- UK Cadbury Commission Report on Corporate Governance, 1992
"Corporate Governance is essentially the practice by which companies are managed and controlled. It encompasses:
- the creation and ongoing monitoring of a system of checks and balances to ensure a balanced exercise of power within a company;
- the implementation of a system to ensure compliance by the company with its legal and regulatory obligations;
- the implementation of a process whereby risks to the sustainability of a company's business are identified and managed within agreed parameters; and
- the development of practices which make and keep the company accountable to the broader society in which it operates.
Corporate Governance, then, is essentially about the responsible leadership of companies. This is leadership that is transparent, answerable and accountable towards the company's identified stakeholders. It aims at achieving a balance between economic, social, individual and collective goals, seeking to align as closely as possible the interests of individuals, the company and society as a whole."
Ramani Naidoo- Corporate Governance: An essential guide for South African companies, 2002
Corporate Governance therefore encompasses the following:
Direction and leadership - refers to the quality of the organisation's strategy, the calibre of the executive management charged with developing and implementing the strategy, and the calibre of the board charged with supervision and oversight.
Risk management and control - refers to the processes in place to identify, evaluate, monitor and control risks associated with the successful delivery of strategic and operational objectives which ensure sustainability.
Accountability and reporting - refers to the provision of a true, fair and accurate account of the stewardship of the enterprise, in a transparent manner to relevant stakeholders.
Why do we need good Corporate Governance?
"If a country does not have a reputation for strong corporate governance practices, capital will flow elsewhere. If investors are not confident with the level of disclosure, capital will flow elsewhere. If a country opts for lax accounting and reporting standards, capital will flow elsewhere. All enterprises in that country, regardless of how steadfast a particular company's practices may be, suffer the consequences. Markets must now honour what they, perhaps, too often have failed to recognise. Markets exist by the grace of investors. And it is today's more empowered investors that will determine which companies and which markets will stand the test of time and endure the weight of great competition. It serves us right to remember that no market has a divine right to investors' capital."
Arthur Levitt - Former Chairman, US Securities and Exchange Commission, 2000
Role Players in the Corporate Governance Framework
- Board of Directors
- Company Secretary
- Audit Committee