By Fiona Yiend
If your role involves helping run a company you probably know that good corporate governance is essential for the successful and smooth operation of your business. But you might not fully understand what that really entails or the extent of the business benefits that good corporate governance can deliver, and the risks it can avoid. Here are three steps to good governance and better business.
Step 1 – Understand what good corporate governance is, and why it’s important
Corporate governance is defined as the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled in a corporation.
At its best good corporate governance enables companies to make insightful decisions, positions companies favourably for major transactions such as acquisitions, ensures compliance, and builds culture and reputation, all while delivering streamlined, efficient services that make business life easier. As an example, demonstrably following governance best practice is extremely valuable if you wish to attract investors.
On the flip side, the risks of improper governance include fines for non-compliance, damaged company reputation, and wasted time in inefficient business processes. The opportunity-cost for poor governance practices can be significant. And the recent headlines about Westpac’s failings are the latest warning bells of what can happen when good governance isn’t in place.
Good governance means that business processes and documentation are based on transparency (clearly communicating organisational practices and performance with relevant stakeholders), accountability (proper decision-making and follow-through), stewardship (appropriate management and culture in line with priorities), and integrity (ethical and legal approach embedded across the organisation).
At a practical level, governance impacts activities such as leadership and operational decision-making, shareholder meetings, Board meetings and appointments, company policies, and legislative compliance such as the Corporations Act 2001 (Cth) and ASX Listing Rules.
Step 2 – Get specialist expertise
The regulatory framework is complex and can change. Keeping up to date with requirements and best practice requires specialist expertise. Additionally, keeping on top of company records is an ongoing, time-consuming process – it’s a very document-intensive exercise.
The Company Secretary is the company officer responsible for administering much of this, including documenting the processes and structures and recording the outcomes of those processes. An experienced company secretary is vital to ensure that not only are all legal requirements fulfilled, but the company benefits from value-adding, efficient processes and documentation, that help deliver real business outcomes. Having someone to assist you who has “been there and done that” can make a world of difference.
Luckily, this doesn’t need to cost the earth. The value added by an experienced company secretarial team shouldn’t be underestimated. Some people consider that only ASX listed entities need to concern themselves with governance professionals. However, the right company secretary can assist any business in simplifying, streamlining and implementing good governance practice to facilitate better informed decisions.
Step 3 – Governance practices become business-as-usual
If it seems daunting to put in place a best practice governance framework, a corporate governance audit is a good place to start. This determines the status of a company’s corporate governance systems and compliance. It provides a comprehensive checklist of what’s in place, what’s missing, and what could be improved. This provides a pathway to adopting governance practices for better business.
It’s worth noting that good governance is not just a Board-level function. It should be embedded across the organisation. It’s essential that while governance should be championed from the top, all management and teams need to be on-board. Everyone should know and understand what is needed, and why, and how their role contributes. Communication and cultural change are key drivers of ensuring that transparency, accountability, stewardship and integrity are ingrained in your company’s DNA. When good practices become ‘business-as-usual’ – rather than something extra that’s looked after by someone else – companies really stand to benefit.
Like any critical business function, your governance practices should be reviewed on a regular basis.
If you’d like to discuss how your business could benefit from good corporate governance, contact Source’s senior lawyer and experience company secretary Fiona Yiend via firstname.lastname@example.org
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