Over the last few years the subject of good governance has experienced a resurgence. The focus is now concentrated to the realm of the legislative compliance by the directors of publicly listed companies; their fiduciary duty to corporate shareholders and investors. In the Caribbean the resurgence of interest is evidenced by the recent adoption of corporate governance codes of conduct and recommendations for public companies in the islands of Barbados, Trinidad and Tobago and Jamaica from 2006 to 2015 according to the Caribbean Corporate Governance Institute.
A closer examination of good governance reveals that it is applicable to a variety of organisations not only public companies but also private companies and entities such as foundations and family offices. The utilization of good governance is particularly important in private organizations where the lack of good governance can have severe consequences and there are limited remedies available to members, shareholders and investors.
What are the benefits of good governance
A good governance programme increases the overall profit and performance of the organization and increases levels of transparency and accountability. Generally, in many private organisations there is natural governance usually having one charismatic leader: informal decision-making processes and a general lack of transparency, which is prone to risk. However the implementation of a formal governance structure not only offers a clear vision for the organisation but also reduces risk and encourages transparency in the decision-making process.
What is Good Governance
There are no limit of definitions for good governance but at its core good governance is the decision-making process which regulates the duties of the board of directors in relation to its shareholders and investors, ideally resulting in the overall increasing performance of the company and higher returns. In tailoring a successful governance programme, consideration should be given to the nature of the organisation, its size, vision for the organization and legal and regulatory requirements.
Four Elements of Good Governance
The essential elements to a good governance programme can be categorized under the headings of leadership, standards and controls, training and communication and risk assessment to ensure overall transparency.
- Leadership: The leaders of the organization should encompass trust, ethics and integrity which would reverberate throughout the organisation from the Board of Directors to the lower levels. The establishment of a chain of command, the proper definition of roles and the delegation of authority, encourages a culture of transparency in the organisation.
- Standards and Controls: A system of accountability and control is necessary for each member to understand their role and the expectation of the organization of them. It encompasses continual audits and assessments and a process for conflict resolution so that no one individual should have unfettered decision-making as exemplified in the standard set out in the code of conduct.
- Training and Communication: All organizations should be aware of any gaps in their knowledge base which is important for the proper running of the organization. In addition communication throughout the organization to its members ensures that everyone shares the same vision and goals.
- Risk Analysis and Assessment: According to the G20/OECD Principles of Corporate Governance Report 2015 risk assessment is essential for effective governance. The identification of risk both present and in the future and how best they can be addressed should they arise should be on the agenda of all organisations.
Many private organisations such as foundations and family offices can benefit from the application of good governance practices to increase their overall performance especially where the environment in which it operates becomes more complex.
A review of two elements such as leadership and risk analysis illustrates this point for family offices and foundation. For example, the leadership of the organisation may wish to create a mission statement, which focuses on social impact investing and corporate responsibility. In addition the risk analysis and management process may wish to focus on cyber security and breaches in confidentiality. In both instances it is necessary for the organisation to determine its risk tolerance and the types of endeavours in which it engages.
Good governance practices is integral to the success of any organisation and the above review definitely illustrates that there is more to it than meets the eye and therefore it would be in the interest of every organisations to implement some level of formal governance to ensure its longevity and success.