Good Governance

Governance is the framework of authority and accountability that defines and controls the outputs, outcomes and results from business activities by doing the “right things” in the “right way” in following a framework which is specifically designed to achieve the desired goals of any business. Governance is not only required for listed companies, but also for other companies of different types and sizes.

It is the system by which companies are directed and controlled. The purpose of good governance is to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company. The responsibility of good governance rests with the business owner or the Boards of directors (BOD) of a company.  In simple terms, Governance means the extent to which businesses are run in an open and honest manner.

Good governance benefits

1. Improved decision-making: By establishing clear policies and procedures for decision-making, a business can ensure that decisions are made in a transparent and inclusive manner, which can lead to better outcomes for the business for example, a small business that establishes a board of directors or advisory board can benefit from the diverse skills and expertise of its members, which can improve decision-making and lead to better outcomes.
2. Enhanced accountability: Good governance practices can help a small business to be more accountable to its stakeholders, such as customers, employees, and shareholders. This can help to build trust and confidence in the business for example by complying with legal and regulatory requirements, a business can protect itself from potential legal issues and fines, which can enhance its reputation and financial performance
3. Increased efficiency: With clear policies and procedures in place, a small business can operate more efficiently, as everyone knows what is expected of them and how things should be done. This can help to save time and resources for example by implementing ethical business practices, a business can build trust and confidence with customers and employees, which can enhance its reputation and financial performance.
4. Enhanced reputation: Good governance practices can help a business to build a positive reputation, which can attract customers and investors for example establishing clear goals and objectives for the business and building and managing a team, a small business can operate more efficiently and effectively, which can improve its financial performance.
5. Better financial performance: By managing risk and ensuring financial stability, good governance practices can help a business to achieve better financial performance for example by measuring the effectiveness of its governance practices and identifying areas for improvement, a business can continuously improve and stay ahead of its competitors.

Four important good governance policies that a business may want to consider implementing, along with some potential risk for each:

1. Conflict of interest policy: This policy sets out the rules for disclosing and managing conflicts of interest that may arise within the business and could include the following procedures:

• Requiring all employees and board members to disclose any potential conflicts of interest
• Establishing a process for evaluating and managing conflicts of interest, such as requiring that the person with the conflict recuse themselves from the decision-making process
• Training employees and board members on the importance of disclosing conflicts of interest and the consequences of not doing so

Without a conflict of interest policy, a business may be at risk of making decisions that are not in the best interests of the business or its stakeholders, which can lead to damage to the company’s reputation and financial performance.

2. Code of conduct policy: This policy sets out the values and expectations for conduct within the business and could include the following procedures:

• Clearly defining acceptable and unacceptable conduct, such as by outlining specific examples of harassment, discrimination, and unethical conduct
• Providing regular training on the code of conduct to all employees and board members
• Establishing a process for reporting and addressing violations of the code of conduct

Without a code of conduct policy, a business may be at risk of employee misconduct or unethical actions, which can lead to damage to the company’s reputation and financial performance.

3. Financial management policy: This policy sets out the processes for managing the financial resources of the business and could include the following procedures:

• Establishing a budgeting process to ensure that financial resources are allocated effectively
• Implementing financial controls to ensure the accuracy and integrity of financial records
• Regularly reviewing financial performance and adjusting as needed.

Without a financial management policy, a business may be at risk of mismanaging its financial resources, which can lead to financial losses or difficulty in securing funding

4. Data protection policy: This policy sets out the rules for protecting sensitive data, such as customer or employee personal information and could include the following procedures:

• Establishing rules for handling and storing sensitive data
• Providing training to employees on data protection best practices
• Implementing measures to protect against data breaches, such as by using encryption or secure servers

Without a data protection policy, a business may be at risk of data breaches, which can lead to damage to the company’s reputation and financial losses due to legal fines or loss of customer trust.

Businesses should strive to improve its performance along indicators of Good Governance and following the rule of law as it is the heartbeat for the successful running of your business. Improving governance and sustainability performance is just as important as improving your business financial performance to promote trust among the owner / shareholders and other stakeholders of the business to ensure success.