Broadly speaking, corporate governance refers to the structures and practices through which businesses manage their affairs and work to meet their strategic, legal and financial objectives. It’s sometimes assumed that only well-established, large companies need to concern themselves with this area of management. In reality though, companies of all sizes and at any stage of their development can benefit from having effective governance policies in place.
Although there’s no one-size-fits-all approach to corporate governance, there are certain basics that all businesses can benefit from considering, and here are three of the most important.
- Implement robust risk management policies
Risk management is something that all organisations must master. There are a host of potential pitfalls facing companies, including reputational, financial, legal, security and environmental threats. Rather than adopting a reactive approach to containing these dangers, it is essential that companies have proactive procedures in place. For this reason, effective risk management is an essential element of good corporate governance.
There are various things that companies can do as a matter of course to control risks, and arguably the most important is to ensure that they have robust training frameworks in place that can adapt in line with changing organisational demands. Highlighting the significance of this issue, organisational learning and development expert GP Strategies Limited note that companies require disciplined behavioural change processes that address their entire business model. Development programmes must cover everything from the awareness and assessment of risk to effective control and treatments of it.
Personnel should be equipped to perform the full spectrum of risk management tasks relevant to their roles. This could include everything from conducting suitable risk assessments to creating company codes of conduct and implementing monitoring and auditing procedures.
- Establish clear lines of accountability
Everyone within an organisation, from managers, to the chief executive officer, to the chair, should understand exactly what their role is and what responsibilities they have – and these details should be clearly defined and written down. This helps to ensure that important tasks are completed by the right people and that businesses pull together and work in harmony without experiencing internal power struggles.
Clear lines of accountability are particularly important in pressurised situations when everyone needs to know immediately and precisely what they are expected to do.
- Engage in ongoing performance evaluation
Managers often must devote the vast majority of their time and energy to dealing with the daily challenges associated with running companies, and this can make them blind to organisational weaknesses. To remain competitive and maximise their chances of long-term success, businesses must therefore formulate effective ways to appraise themselves on a continual basis. For this reason, ongoing performance evaluation is an integral part of sound corporate governance. Evaluations can cover everything from external measures of success – such as sales levels – to internal assessments of managers and employees.
When appropriate benchmarks are used, regular assessments serve to alert businesses to potential problems and they can highlight areas for improvement.
Getting corporate governance right isn’t always easy, but it can make the difference between success and failure – so this isn’t an issue that any business can afford to ignore.
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