Corporate Governance in the Modern Era
Corporate Governance in the Modern Era
Corporate boards in this era are faced with
significant and unprecedented trials including but not limited to the COVID-19
pandemic crisis, the economic fallout and more. The Boards of directors have
been compelled to direct and navigate unanticipated risks created by these
sources whilst ensuring business financial performance. This also means that a
good board of directors will have to include individuals from diverse
background to enable strong governance and better handling of unprecedented
circumstances.
What
is Corporate Governance?
As stated by
As defined by
Reformed
Corporate Governance
The need for the change did not happen overnight and
the evolution of corporate governance paced gradually.
Corporate governance concept emerged in the 19th
century during the British legislation on joint stock incorporation and limited
liability granted companies autonomous legal personhood and created the entity
of a corporation
The corporate governance concept emerged from the Cadbury
Report following failures of renounce large scale corporate entities. With the
increase in businesses getting de-regulated, the public began questioning the
laws and rules set around corporate activities, calling for a more scrutinized
corporate governance
It is evident that the larger a corporate is, the
more potential to wield significant power and the more profound influence they
have to a wider group including employees, society, the environment and the economy.
Therefore it is very important that such corporates are governed with
integrity, transparency and delivery efficiency to shareholders.
The new corporate governance has been created with
the aim to encourage corporates ensure proactive engagement following in-depth
code and compliance. This will also change the ways in execution of governing
duties with greater emphasis on employee engagement, understanding views of
shareholders and entity’s wider stakeholder. It also prioritizes ensuring that
policies around remuneration for senior executives and the general workforce
are aligned.
The
role of 4P’s;
Source: Corporate
Governance Importance, Pillars and Principle
As indicated in above diagram, people, purpose,
process and performance are pillars of governance that aid in enhancing
organization operations and performance. Organization sustainability is
achieved through enhanced performance and optimum utilization of effort by
resources. Use of corporate governance to process of engaging all
organization’s stakeholders assures that company’s both mission and vision are
achieved
Board
of Directors;
Robust corporate governance practices at the core of
successful, ethically responsible and sustainable organizations. Creating and
maintaining a sound governance is one of the primary responsibilities of the
company board.
It is essential that the right information is raised
to the board such that they are able ask the right questions, take appropriate
action and navigate the organization for success through effective corporate
governance. This has become a tremendously difficult task in today’s world due
to complexity. This is why it is vital to have the best combination of board of
directors to govern and lead the organization.
The modern era compels an approach that empowers
boards with tools that navigate complex and multifaceted business leading to
emergence of the modern governance.
The modern corporate governance provides the board
of directors and the management the due information thereby enabling them to
ask the right questions, flagging of issues and address the same. In these
unprecedented times and looming unknown risks, modern corporate governance is
going to make the difference and create competitive advantage for the company.
There are new provisions around board tenure,
effectiveness, succession planning and evaluations
Increased
data analysis in short span of time
Increased requirements for company-wide data,
reports and analysis allow directors to gain greater exposure to the views of
the workforce, shareholders and wider stakeholders. It is utmost important that
the board has the most latest and accurate information and analysis presented
at the board meetings, which will enable the board to respond to changing
market conditions more confidently. In addition, the level of scrutiny of companies
have increased rapidly which further emphasizes the need to have accurate and
timely information for informed decision making.
Increased
regulatory requirements
The increasingly complex regulatory environment has
compelled organizations to improve the processes and systems of governance
Effective
and open communications
Although this is important to ensure successful
board operations, positive flow of ideas and knowledge-sharing can be a
challenge.
It is important to create a setting of often relevant
communication encouraging board of directors to questions and share their
insight.
Entity
visibility
It is vital that board of directors have clear visibility
across entities, territories and business units. As organisations grow larger
and more complex, keeping track of the different entities, local legislation
and compliance issues naturally becomes more difficult.
With the holistic view of governance, risk and
compliance, it will be less difficult to measure and set improvement targets.
In addition it will also help senior management visualize future goals
User
of directors’ time and skills to the fullest potential
When you have a strong board composed of talented
individuals, you want to make the most of their skills and get them working
together for the benefit of the organization. Given that many directors sit on
multiple boards and have other high-level commitments, it’s important that they
can be efficient in discharging their duties.
Corporate
Social Responsibility (CSR)
In the past, CSR has been conceptualized an act of
compassion or charity. However this perception has now changed from a charity
model to a more stakeholder participation based model in the modern era which
has been embedded to organization’s corporate governance practices in large
sized firms. Corporate Governance and CSR is aimed at ethical business
practices and organization response to the all its stakeholders, its wider
community and environment. According to Verma
& Kumar (2012), Corporate Governance and CSR results in a better
corporate image which directly links with firm’s performance. Verma & Kumar (2012) in this research
study, further adds that both corporate governance and CSR has similar
objectives and results whereby these concepts;
·
Increase transparency in financial and
non-financial reporting which aids in gaining public confidence and trust which
ultimately creates shareholder value;
·
Creates a robust organization
reputation;
·
Improved stakeholder relationship;
·
Actively contribute to the development
of the wider community the company operates in
Conclusion
As public entities commit to follow the new
corporate governance code, it will be important to assess the tools that can be
used to support the process of governance. Strong enterprise governance
management that includes technical tools and resources to improve
communication, visibility and accessibility will alleviate some of the pressure
on the company secretariat, enabling it to provide the high-quality board
information that competent decision-making requires. This will support
corporate governance at the highest level and help boards to deliver success
and sustainability as responsible corporate citizens.
Protection of human rights, environmental issues,
and expectations from the wider community has gained significant focus in
recent years. As a result forcing businesses to manage their operations and
conduct business according to a defined ethical standard. Improving quality of
governance remains a challenge in Corporate Social Responsibility.
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