Corporate Governance is a hot topic at the moment, so I think it is probably an opportune time to re-post this excellent article that was written for this blog some time ago by Chris Baker, Technical Director at the Institute of Internal Auditors.  I was reading some comments on a quality management chat forum recently where people were arguing that the apparent failures across the News Corp organisation was a failure of QUALITY management. Discussions like this make me wonder whether the concept of Corporate Governance is really understood. There are some that will argue that Quality Management encompasses all processes and disciplines, but in my opinion this is incorrect and simply displays an ignorance of the complexities that other processes, professions and disciplines

I could suggest that if the only tool you have in your tool box is a hammer, then it is perhaps understandable to see every problem as a nail. Anyway, for what its worth, here’s a summary of Corporate Governance principles

GOVERNANCE PRINCIPLES

The phrase “corporate governance” is prominent in both the business world and the public sector. This is due to the increasing pressure to protect shareholder value and public money following a number of high profile financial scandals, which have received media attention

Good governance is about the effective supervision of the company, and managing risk, so that business is done competently, with integrity and due regard for the interests of all stakeholders. It is the means by which organisations can achieve their objectives and sustain performance

Investors, including banks, place a growing emphasis on how well companies manage their affairs. Those organisations that can demonstrate that relationships are managed with probity are seen as presenting a lower risk to investment, and secure an obvious competitive advantage. It should be noted at this point that demonstrating probity is not the same as being presumed innocent until proved otherwise

The benefits to be gained from applying best practice in governance include:

• Confidence of investors – who may be more inclined to support development and growth
• Trust of employees – with the likelihood of increased commitment and retention
• Stakeholder & Customer confidence – leading to increased competitiveness in the market place
• Long-term sustainability – through achievement of aims and financial strength
• Resilience and adaptable to change – built upon a firm foundation of risk management and control

The key guidance on corporate governance is directed towards companies listed upon the stock exchange and is set out within the Combined Code, which was originally published in 1998 but has been revised in 2003 and 2006. The code is voluntary and is designed to strengthen and increase the effectiveness of the unitary Board system (one main board with a chairman and a CEO). The main principles of the code are as follows:

A. Every company should be headed by an effective board collectively responsible for the Company. Their duties should include:

o Setting the company’s strategic aims

o Providing the leadership to put strategies into effect

o Supervising the management of the business

o Reporting to shareholder on their stewardship

B. Levels of remuneration should be sufficient to attract, retain and motivate directors. There should also be a transparent policy for setting executive remuneration.

C. The Board should carry out a balanced and understandable assessment of the company’s position:

o The board should maintain a sound system of internal control to safeguard shareholder’s investment and the company’s assets

o The board should at least annually conduct a review of the effectiveness of the system of internal control and should report to shareholders that they have done so.

o The review should cover all material controls, including Financial, Operational and Compliance controls and Risk Management systems

D. Dialogue with shareholders based on objectives, including an AGM to encourage shareholder participation

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