GOVERNANCE and leadership are the main ingredients for successful organisations. If you are in a company with leadership without governance, you risk despotism and fraud.
guest column:Emmanuel Zvada
Such organisations are toxic.
All the same, if you have governance without leadership, you risk bureaucracy and indifference. Several companies have at some point faced difficulties associated with corporate governance flaws.
Corporate governance is not just something that happens in shiny big boardrooms, it is rather the cornerstone of any good business and should be practised with due diligence. Only the ethical will survive.
Many business executives think the culture of their organisation is what they want it to be. They conduct workshops to define values and they display missions and goals on posters and in manuals.
Some even go to the extent of conducting orientation sessions for new hires that describe what the company stands for.
Yes, this works but in reality, a company’s culture is defined by what the top executives actually do. Employees emulate their boss’ behaviour.
They do what the boss does because they get paid by the boss, recognised by the boss, and, eventually, promoted by the boss.
This means if the boss is unethical the employees are likely to sing their boss’ song and breed unethical practices and poor corporate governance.
What are governance and ethics issues?
Governance issues are not alien to Zimbabwe and the concept has existed for years though nowadays words such as corporate governance, organisational governance or good governance have become so popular.
Several companies have at some point faced difficulties associated with corporate governance flaws. The rising tide of corporate governance around the globe left traces on the African continent.
The concept of corporate governance is merely to summarise the means by which organisations conduct themselves.
The main difference between corporate governance and ethics is that the ethics are the moral decent standards that a corporation attempts to stand by, while governance processes are the means by which a corporation attempts to remain as ethical as possible while still making a profit.
Advantages of corporate governance
Corporate governance is about enabling organisations to achieve their goals, control risks and assuring compliance.
With the support of a solid compliance culture, boards of directors can benefit in a multitude of ways from best-practice corporate governance. Below are some good corporate governance practices and examples.
Without good reputation it is very difficult for a company to survive or to make progress. The key role of corporate governance has to be the improvement and protection of corporate reputation.
Good reputation is the key condition of stakeholders’ support to a company in competitive relations, and it is an important factor of value of organisations on the financial markets.
If organisations publicise their corporate governance policies and detail how they work, stakeholders’ confidence will be boosted.
Having in mind that corporate reputation is created both inside and outside of the company reflects the quality and the efficiency of the way the company is conducting its business.
If you want people to say positive things about your business, do the right thing in terms of your corporate governance practices.
Promotes effective board decision-making
There is a strong and demonstrable link between an organisation’s governance and rapid decision-making associated with improved performance.
It’s an undeniable fact that quite a number of performance failures have been directly linked to poor governance.
Good governance also enables rapid and accurate prioritising of actions. Boards are at the helm of the company, making important decisions and the power has been delegated to the shareholder.
The board itself, as superior, further delegates to top management and its subordinates. If there are no proper governance procedures there will be a situation where the shareholder will always interject with the operations of the business, thus overriding the board.
A board can only become effective if it is organised as a collective decision-making body.
Reduces conflict of interest
By establishing rules to avoid conflict of interest namely through minority shareholders being given their share of voice by being represented by independent directors.
The main role of the board of directors is to recognise and monitor the conflict of interest between managers and shareholders or between the majority shareholder and minority shareholders.
Right-sized governance practices will positively impact long-term corporate performance — but companies must design and implement those that both comply with legal requirements and meet their particular needs.
Assuring internal controls
By implementing corporate governance correctly across the organisation, the board may be certain that an adequate and effective control environment is in effect, with the level of assurance associated with each important component of governance.
Running a business of any size has always, of necessity, involved implementing a system of internal control. Internal controls are important because they help ensure that a business meets its objectives.
Controls designed to ensure that information, including financial information, is timely and accurate are essential to decision-making.
Controls designed to ensure compliance with laws and regulations help ensure that businesses retain the right to operate.
Controls are equally important in smaller businesses, but they tend to be more informal, they are less likely to be documented and they often rely to a greater extent on the hands-on, day-to-day involvement of management in running the business.
A company committed to good governance is able to quickly identify and resolve any issues, as a result reducing the likelihood of costly corporate crises and scandals.
Of course, matters and issues may arise and an organisation may not be able to anticipate or detect but with a governance system in place such eventualities can be detected and an organisation can respond quickly in order to safeguard its reputation and future.
Corruption and bribery issues can be reduced
Corruption is a corrosive drain on public trust and on the legitimacy of public and private sector institutions. Its toll can be devastating to a national economy, particularly at a time when open global markets can rapidly reverse investment and capital flows if confidence and trust are compromised by revelations of systemic corruption.
Corruption affects all types and sizes of business firms from global conglomerates to small and medium-sized enterprises with varying degrees of resources and capabilities to deal with the consequences. It has the power to destroy firms and with them, the livelihoods of stakeholders who depend on a company’s
It should be noted that the “comply or else” approach does not promote good corporate culture.
Companies must not pretend to embrace good corporate governance when they fear penalties from regulators when their behaviour is not genuine to adherence of good corporate governance practices.
Strong governance practices typically increase levels of transparency, trust and integrity, all of which create an environment conducive to reducing risks, opportunities for corruption and any source of mismanagement.