In recent times the term ‘corporate governance’, and the increasingly popular ‘good corporate governance’, appear to be regular topics of discussion both in the media and the general population.
These terms are routinely used when considering the actions of a wide range of companies from very small local companies through to global giants such as McDonalds and Nike.
However, it is not always clear what these terms actually mean or what steps a company or its board of directors need to take to ensure they are able to demonstrate that they are exercising good corporate governance.
What is ‘corporate governance’?
At its simplest, the term ‘corporate governance’ refers to the way in which companies or organisations, including not for profit organisations, are run.
Corporate governance covers the rules, practices and processes that are in place to direct and control the operation of all companies and organisations.
Why is ‘good corporate governance’ so important?
It is not enough for a company or organisation to simply adopt rules and practices that benefit only its directors, shareholders or employees. In order to demonstrate good corporate governance, a balance needs to be struck between the needs and objectives of all stakeholders including those within and outside the company or organisation.
Depending on the type of business concerned, stakeholders may include a diverse group of interested parties including shareholders, employees, management, clients or customers, organisations that provide funding such as banks or other lending institutions, the government and even the broader community. In relation to the latter, land owners are typically included in the stakeholder group of businesses which operate mining leases.
In the current climate of ever expanding media scrutiny and trial by social media it is vitally important that organisations are able to clearly articulate and demonstrate that they are socially responsible corporate citizens and that the manner in which they go about their daily business is beyond reproach.
Good corporate governance is an essential component of demonstrating good corporate citizenship.
How does corporate governance affect how a company or organisation is run?
Corporate governance covers almost every aspect of a company or organisation’s management model. It affects everything from the most fundamental decisions about where supplies are sourced and where products are produced or services provided through to how staff performance is evaluated, employees remunerated and, increasingly these days, whether a company has adopted environmentally sustainable practices both in Australia and overseas.
Other relevant concerns can include how overseas employees are treated and whether a company uses what is often colloquially referred to as “sweat shop labour” or engages offshore suppliers or contractors who support these types of labour arrangements.
The guiding principles of good corporate governance
Regardless of whether your company or organisation is small, a not for profit concern or a larger commercial entity, there are some general principles that need to be considered and adhered to in order for good corporate governance to occur:
Getting in wrong
Ignoring good governance or paying inadequate attention to it can be costly if things go wrong. There are provisions in some laws which allow a court to establish a civil or criminal offence or impose a penalty on a business if it is proven that the business had a culture that directed, encouraged or tolerated the offence in question.
Good corporate governance is integral to the proper management of any company or organisation and seeking legal assistance when needed can be an important part of both individual directors and the board ensuring that they fulfil their roles with both skill and integrity.
If you or someone you know wants more information or needs help or advice, please contact us on (02) 9238 0060 or email firstname.lastname@example.org.