Importance Of Effective Corporate Governance

888 Words 4 Pages
An effective corporate governance covers following points :
1. Identify that good governance is not just about compliance

Boards need to balance conformance (i.e. compliance with legislation, regulation and codes of practice) with performance aspects of the board’s work (i.e. improving the performance of the organisation through strategy formulation and policy making). As a part of this process, a board needs to detail its position and understanding of the major functions it performs as compared to those performed by management. These specifics will differ from board to board. Knowing the role of the board and who does what in context to governance goes a long way towards maintaining a good relationship between the board and management.
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It assures that corporate decision making is continuous with the strategy of the organisation and with owners’ expectations. This is best done by recognizing the organization’s key performance drivers and establishing suitable measures for ascertaining success. As a board, the directors should establish an agreed format for the reports they investigate to ensure that all matters that should be reported are in fact reported.

4. Understand that the board employs the CEO
In most instances, 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 critical to effective corporate governance because it is the link between the board’s role in ascertaining the organization’s strategic direction and management’s role in attaining corporate objectives.

5. Identify that the governance of risk is a board responsibility
Establishing a sound system of risk oversight and management and internal control is another integral role of the board. Effective risk management assists better decision making because it develops a deeper understanding into the risk-reward trade-offs that all organizations
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To ensure that the line of responsibility between board and management is clearly depicted, it is mainly important for the board to develop policies in relation to delegations. Also, under this topic are processes and procedures. Poor internal processes and procedures can lead to insufficient access to information, poor communication and uninformed decision making, resulting in a high level of dissatisfaction among directors. Enhancements to board meeting processes, meeting agendas, board papers and the board’s committee structure can usually make the difference between a mediocre board and a high performing

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