Enhancing Corporates Corporate Governance

Employers or business owners must ensure implementation of corporate governance in their organisations

Corporate governance refers to the way a corporation is governed. It is the technique by which companies are directed and managed. It means carrying the business as per the stakeholders’ desires. It is actually conducted by the board of directors and the concerned committees for the company’s stakeholder’s benefit. It is all about balancing individual and societal goals, as well as, economic and social goals.

At the launch of the Corporate Governance Charter organised by the Nigerian Bar Association Section on Business Law, recently the chief executive officer of Nigerian Exchange (NGX) Limited, Temi Popoola, said the launch demonstrates the Exchange’s track record of leadership in promoting corporate governance amongst listed companies and other stakeholders within the capital market ecosystem.

“For us as an exchange, sustainability is a key component of our strategy as we aim to enhance corporate governance in the Nigerian capital market.

“In line with this, the Exchange incorporated corporate governance principles in its listing and post-listing requirements and established a corporate governance rating system (CGRS) that provides a comprehensive diagnosis of Nigerian companies’ corporate governance and business integrity practices,” he said.

Improving Corporate Governance

Recognise that good governance is not just about compliance; boards need to balance conformance  with performance aspects of the board’s work. As a part of this process, a board needs to elaborate its position and understanding of the major functions it performs as opposed to those performed by management. These specifics will vary from board to board. Knowing the role of the board and who does what in relation to governance goes a long way towards maintaining a good relationship between the board and management.

Clarify The Board’s Role In Strategy

It is generally accepted today that the board has a significant role to play in the formulation and adoption of the organisation’s strategic direction. The extent of the board’s contribution to strategy will range from approval at one end to development at the other. Each board must determine what role is appropriate for it to undertake and clarify this understanding with management.

Monitor Organisational Performance

Monitoring organisational performance is an essential board function and ensuring legal compliance is a major aspect of the board’s monitoring role. It ensures that corporate decision making is consistent with the strategy of the organisation and with owners’ expectations. This is best done by identifying the organisation’s key performance drivers and establishing appropriate measures for determining success. As a board, the directors should establish an agreed format for the reports they monitor to ensure that all matters that should be reported are in fact reported.

Understand That The Board Employs The CEO

In most cases, one of the major functions of the board is to appoint, review, work through, and replace (when necessary), the CEO. The board/CEO relationship is crucial to effective corporate governance because it is the link between the board’s role in determining the organisation’s strategic direction and management’s role in achieving corporate objectives.

Recognise That The Governance Of Risk Is A Board Responsibility

Establishing a sound system of risk oversight and management and internal control is another fundamental role of the board. Effective risk management supports better decision making because it develops a deeper insight into the risk-reward trade-offs that all organisations face.

Ensure The Directors Have The Information They Need

Better information means better decisions. Regular board papers will provide directors with information that the CEO or management team has decided they need. But directors do not all have the same informational requirements, since they differ in their knowledge, skills, and experience. Briefings, presentations, site visits, individual director development programs, and so on can all provide directors with additional information. Above all, directors need to be able to find answers to the questions they have, so an access to independent professional advice policy is recommended.

Build And Maintain An Effective Governance Infrastructure

Since the board is ultimately responsible for all the actions and decisions of an organisation, it will need to have in place specific policies to guide organisational behaviour.

Appoint A Competent Chair

Research has shown that board structure and formal governance regulations are less important in preventing governance breaches and corporate wrongdoing than the culture and trust created by the chairperson.

Build A Skills-based Board

What is important for a board is that it has a good understanding of what skills it has and those skills it requires. Where possible, a board should seek to ensure that its members represent an appropriate balance between directors with experience and knowledge of the organisation and directors with specialist expertise or fresh perspective.

Evaluate board and director performance and pursue opportunities for improvement; boards must be aware of their own strengths and weaknesses, if they are to govern effectively. Board effectiveness can only be gauged if the board regularly assesses its own performance and that of individual directors. Improvements to come from a board and director evaluation can include areas as diverse as board processes, director skills, competencies and motivation, or even boardroom relationships.