What defines good governance?
First, it would be essential to look into the fundamental question, what is governance?
Governance, according to the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP), is “the process of decision-making and the process whereby decisions are being implemented.” It considers how organisations handle human rights; a system free of abuse and corruption, as well as remain well-regulated and law-abiding entities. Good governance is measured by participation, the rule of law, transparency, responsiveness, consensus orientation, equity and inclusivity, effectiveness and accountability.
As a corporate affair, governance can be seen as a controversial topic, as there are several schools of thought regarding it. Governance can only be administered at the highest level of an organisation, and the highest members of authority in an organisation must set an example by being transparent, accountable and effective in their policies.
“Whether a governing board is effective or not, it is constitutionally responsible for the governance of the organisation,”
explains Graeme Nahkies, Practice Leader at Boardworks.
“In a real sense, therefore, whether to govern well (in other words provide clear direction and effective control) or not, is hardly a choice. Is any organisation going to wish on itself weak and chaotic governance? It is hard to imagine any reason, aside from ignorance, why an organisation and its stakeholders would not expect it to be well governed.”
Good governance ensures a company’s stakeholders that the organisation is in good hands and functioning at its highest regulatory potential. By consolidating its ethical code, the reputation of the company is boosted.
“However, many stakeholders are primarily interested in whether an organisation makes a positive difference in their lives. How this is achieved and by whom is of comparatively little interest. Provided things are going well they could care less about the concept of ‘good governance’,” adds Nahkies.
The seven benefits of good governance
Below we share with you seven benefits of good governance – an inspiration for organisations to adapt and consolidate it.
Good governance ensures consistency. A company needs to make sure that governance is repeatable – from the top of the corporation, trickling all the way down. As a result, overall productivity and efficiency are boosted.
2. Error visibility
Transparency and visibility are the priority for an organisation once they adopt good governance. Influential board directors must be able to quickly identify errors and possible ways of improvement to boost the organisation. With good governance, equity should be enforced, allowing for different board members to openly communicate and share opinions, experiences, and methods to enhance the organisation. By focusing on transparency and visibility, the corporation allows for a more significant minimisation of error.
3. Operations run smoother
By ensuring good governance, all board members can communicate and work together in unity. In addition, good governance ensures that boardroom members reach a consensus before a decision is implemented. This leaves more time for other, more pressing discussions to be had. As a result, it allows for operations to run smoother.
4. Builds reputation
Practicing good governance naturally builds a company’s reputation. The output of good governance means putting the right products and services out onto the market. In doing so, the organisation experiences an escalation of business performance and the possibility of market domination.
Organisations with a well put in place governance practice are able to tackle issues much more effortlessly. With a clearly formed mission, vision and core values, employees and stakeholders can easily align with the organisation’s fundamental culture.
6. Financial sustainability
Good governance ensures a drastic reduction of any sort of safety, performance, or legal issues that may arise and affect the organisation. By practicing good governance, the corporate body is able to focus on more of the organisation’s progressive needs rather than wasting on unnecessary expenses. By having financial sustainability, it also means that stakeholders are ensured of their own financial stability.
7. Stronger external environment response
The modern market is an ever-changing entity that needs to be diligently studied. Strong leadership, commitment, resources and responsibility is needed from the board in order to effectively understand the external environment. Establishing good governance practices allows appropriate response patterns for Boards to quickly identify changes and adapt strategies.
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“Good governance is almost always associated with clarity of decision-making rights. Everyone knows who, or which body, has responsibility for making which decisions. Corporate purpose, direction and priorities are widely known. This creates an effective framework within which authority can be delegated and decisions consistent with that framework can be made throughout the organisation. People at all levels know what is to be achieved and what situations and circumstances are to be avoided. Part of an effective corporate governance system is a feedback loop that evaluates performance and ensures that what is off track can be redirected.
When decision-making rights are not clear, however, conflict and declining organisational performance are not far away. It is seldom the case that smooth running operations can occur for long in the absence of good governance,”
Adopting good governance practices allows Boards to act in the organisation's best interest of the organisation. It should start at the very top of a corporation’s authority levels and trickle downwards. Adopting good governance ensures business sustainability and profitability as well as helps build a reputable image and healthy culture. Although it might take some effort to establish good governance, the benefits are worth the investment.