Good Governance

• Governance

  • (General) refers to a process whereby elements in society wield power, authority, and influence and enact policies and decisions concerning public life and social upliftment.
  • comprises all the processes of governing whether undertaken by the government of a country, by a market or by a network - over a social system and whether through the laws, norms, power or language of an organized society
• Governance

  • (World Bank, 1992) released a report entitled, "Governance and Development" which set out the definition of Good Governance as "the manner in which power is exercised in the management of a country's economic and social resources for development"
• Governance

  • (United Nations) the exercising of political and administrative authority at all levels to manage country's affairs
  • comprises of mechanisms, processes and institutions, through which citizens and groups articulate their interests, exercise their legal rights, meet their obligations and mediate their differences
• Governance

  • (International Monetary Fund, IMF) broad concept covering all aspects of how a country is governed, including its economic policies, regulatory framework, and adherence to rule of law
• Governance

  • (Specific reference) has also been made to democratic governance
  • a process of creating and sustaining an environment for inclusive and responsive political processes and settlements
• Governance

  • (General terms) considered the process of decision-making and the process by which decisions are implemented (or not implemented) through the exercise of power or authority by leaders of the country and/or organizations
• Governance

  • can be used in several contexts such as corporate governance, international governance, national governance, and local governance
• Characteristics of Good Governance

  • Whatever context good governance is used, the following major characteristics should be present:
  • Participation, Rule of Law, Transparency, Responsiveness, Consensus-Oriented, Equity & Inclusiveness, Effectiveness & Efficiency, Accountability
• Participation

  • Opportunity to participate
  • Participation by both men and women is a key cornerstone of good governance. Participation could be either direct or through legitimate institutions or representatives. It is important to point out that representative democracy does not necessarily mean that the concern of the most vulnerable in society would not be taken into consideration in decision making. Participation needs to be informed and organized.
• Rule of Law

  • Equal before law
  • Good governance requires fair legal frameworks that are enforced impartially. It also requires full protection of human rights, particularly those of minorities. Impartial enforcement of laws requires an independent judiciary and an impartial and incorruptible police force
• Transparency

  • Access to information
  • Transparency means that decisions taken and their enforcement are done in a manner that follows rules and regulations. It means that information is freely available and directly accessible to those who will be affected by such decisions and their enforcement. It also means that enough information is provided and that it is provided in easily understandable forms and media.
• Responsiveness

  • Communicate and assist
  • Good Governance requires that institutions and processes try to serve the needs of all stakeholders within a reasonable timeframe
• Consensus-Oriented

  • Viewpoint of society
  • Good governance requires mediation of the different interests in society to reach a broad consensus on what is in the best interest of the whole community and how this can be achieved. It also requires a broad and long-term perspective on what is needed for sustainable human development and how to achieve the goals of such development. This can only result from an understanding of the historical, cultural, and social contexts of a given society or community.
• Equity & Inclusiveness

  • No exclusion
  • Ensures that all its members feel that they have a stake in it and do not feel excluded from the mainstream of society. This requires all groups, but particularly the most vulnerable, have opportunities to improve or maintain their well-being.
• Effectiveness and Efficiency

  • Utilization of resources
  • Good governance means that processes and institutions produce results that meet the needs of society while making the best use of resources at their disposal. The concept of efficiency in the context of good governance also covers the sustainable use of natural resources and the protection of the environment.
• Accountability

  • Answerable
  • Accountability is a key requirement of good governance. Not only governmental institutions but also the private sector and civil society organizations must be accountable to the public and to their institutional stakeholders. Who is accountable to whom varies depending on whether decisions or actions taken are internal or external to an organization or institution.
• Corporate Governance

  • system of rules, practices, and processes by which business corporations are directed and controlled. Basically involves balancing the interest of a company's many stakeholders, such as shareholders, management, customers, suppliers, financiers, government and the community.
• Corporate Governance

  • topic that has received growing attention in the public in recent years as policy makers and others become more aware of the contribution good corporate governance makes to financial market stability and economic growth. Good corporate governance is all about controlling one's business and so is relevant, and indeed vital; for all organizations, whatever size or structure.
• Corporate Governance structure

  • specifies the distribution of rights and responsibilities among different participants in the corporation, such as the board, managers, shareholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the objectives are set and the means of attaining those objectives and monitoring performance.
• Purpose of Corporate Governance

  • to facilitate effective, entrepreneurial, and prudent management that can deliver long-term success of the company. In simple terms, the fundamental aim of corporate governance is to enhance shareholders' value and protect the interests of other stakeholders by improving the corporate performance and accountability. It also about what the board of directors of a company does, how it sets the values of the business firm.
• Objectives of Corporate Governance

  Fair and equitable treatment of shareholders

  • A corporate governance structure ensure equitable and fair treatment of all shareholders of the company. In some organizations, a group of high net-worth individual and institutions who have a substantial proportion of their portfolios that enable them to guard their interests. However, all shareholders deserve equitable treatment and his equity is safeguarded by a good governance structure in any organization.
• Objectives of Corporate Governance

  Self-assessment

  • Corporate governance enables firms to assess their behavior and actions before they are scrutinized by regulatory agencies. Busness establishments with a strong corporate governance system are better able to limit exposure to regulatory risks a fine. An active and independent board can successfully point out deficiencies or loopholes in the company operations and help solve issues internally on a timely basis.
• Objectives of Corporate Governance

  Increase shareholders' wealth

  • Another corporation governance's main objective is to protect the long-term interests of the shareholders. Firms with strong corporate governance structure are seen to have higher valuation attached to their shares by businessmen. This only reflects the positive perception that good corporate governance induces potential investors to decide to invest in a company.
• Objectives of Corporate Governance

  Transparency and Full Disclosure

  • Good corporate governance aims at ensuring a higher degree of transparency in an organization by encouraging full disclosure of transactions in the company accounts.
• Basic Principles of Effective Corporate Governance

  • Effective corporate governance is transparent, protects the rights of shareholders and includes both strategic and operational risk management. It is concerned in both the long-term earning potential as well as actual short-term earnings and holds directors accountable for their stewardship of the business.
• Basic Principles of Effective Corporate Governance

  1. Transparency and Full Disclosure - Does the board meet the information needs of investment communities?
  2. Accountability - Does the board clarify its role and that of management?
  3. Corporate Control - Has the board built long-term sustainable growth in shareholders; value for the corporation?
• Application of the Basic Principles of Corporate Governance

  1. A company should lay solid foundation for management and oversight. It should recognize and publish the respective roles and responsibilities of board and management.

  Best Practice

  1. Formalize and disclose the functions reserved to the board and those delegated to management.
• Application of the Basic Principles of Corporate Governance

  2. Structure the board to add value. Have a board of an effective composition, size, and commitment to adequately discharge its responsibilities and duties.

  
  

  Best Practice

  2-a. A board should have independent directors.

  2-b. The roles of chairperson and chief executive officer should not be exercised by the same individual.

  • The board should establish a nomination committee
  • The chairperson should be an independent director
• Application of the Basic Principles of Corporate Governance

  3. Promote ethical and responsible decision-making. Actively promote ethical and responsible decision-making.
• Best Practice

  3-a. Establish a code of conduct to guide the directors, the chief executive officer (or equivalent), the chief financial officer (or equivalent) and any other key executives as to:

  • The practices necessary to maintain confidence in the company's integrity: and
  • The responsibility and accountability of individuals for reporting and investigating reports of unethical practices

  3-b. Disclose the policy concerning trading in company securities by directors, officers, and employees
• Application of the Basic Principles of Corporate Governance

  4. Safeguard integrity in financial reporting. Have a structure to independently verify and safeguard the integrity of the company's financial reporting

  Best Practice

  4-a. Require the chief executive officer (or equivalent) and the chief financial officer (or equivalent) to state in writing to the board that the company's financial reports present a true and fair view, in all material respects, of the company's financial condition and operational results and are in accordance with relevant accounting standards
• Best Practice

  4-b. the board should establish an audit committee.

  4-c. Structure the audit committee so that it consists of:

  • Only non-executive or independent directors:
  • An independent chairperson, who is not chairperson of the board; and
  • At least three (3) members.
• Application of the Basic Principles of Corporate Governance

  5. Make timely and balanced disclosure. Promote timely and balanced disclosure of all material matters concerning the company.

  Best Practice

  5-a. establish written policies and procedures designed to ensure compliance with IFRS.

  5-b. Listing Rule disclosure requirements and to ensure accountability at a senior management level for compliance
• Application of the Basic Principles of Corporate Governance

  6. Respect the rights of shareholders and facilitate the effective exercise of those rights.

  Best Practice

  6-a. Design and disclose a communications strategy to promote effective communication with shareholders and encourage effective participation at general meetings.

  6-b. Request the external auditor to attend the annual general meeting and be available to answer shareholder questions about the audit.
• Application of the Basic Principles of Corporate Governance

  7. Recognize and manage risk. Establish a sound system of risk oversight and management and internal control.

  Best Practice

  7-a. The board or appropriate board committee should establish policies on risk oversight and management.
• Best Practice

  7-b. The chief executive officer (or equivalent) and the chief financial officer (or equivalent) should state to the board in writing that:

  • The statement given in accordance with best practice recommendation 4-a (the integrity of financial statements) is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the board; and
  • The company's risk management and internal compliance and control system is operating efficiently in all material respects
• Application of the Basic Principles of Corporate Governance

  8. Encourage enhanced performance. Fairly review and actively encourage enhanced board and management effectiveness.

  Bets Practice

  8-a. Disclose the process for performance evaluation of the board, its committees and individual directors, and key executives.
• Application of the Basic Principles of Corporate Governance

  9. Remunerate fairly and responsibly. Ensure that the level and composition of remuneration is sufficient and reasonable and that its relationship to corporate and individual performance is defined.

  Best Practice

  9-a. Provide disclosure in relation to the company's remuneration policies to enable investors to understand:

  • The costs and benefits of those policies: and
  • The link between remuneration paid to directors and key executives and corporate performance
• Best Practice Recommendations

  9-b. The board should establish a remuneration committee.

  9-c. Clearly distinguish the structure of non-executive director's remuneration from that of executives.

  9-d. Ensure that payment of equity-based executive remuneration is made in accordance with thresholds set in plans approved by shareholders.
• Application of the Basic Principles of Corporate Governance

  10. Recognize the legitimate interests of stakeholders. Recognize legal and other obligations to all legitimate stakeholders.

  Bets Practice Recommendations

  10-a. Establish and disclose a code of conduct to guide compliance with legal and other obligations to legitimate stakeholders.