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Archive for the ‘Governance & Accountability’ Category

Good corporate governance is a highly relative concept, made even more slippery by the post-war global business environment. Well-known corporate scandals throughout the first decade of the 2000s, such as the accounting fraud at Enron, have brought corporate governance to new prominence, and governments, in response, have engaged in tightening corporate accounting standards.

Features

The basic factors in good corporate governance are the board of directors, shareholders en masse, and management. How these three power centers work together can make all the difference for a company.

The basic structure is to keep management accountable for its actions, maintain good cash flow, and satisfy the shareholders as a group.

Function

These factors, working together, are meant to keep a firm not only profitable but reputable. Investors want to be a part of a firm that is well-run, ethical, and still profitable. For these reasons, the makeup of the board of directors is extremely important.

How often they meet and the specific areas of expertise of its members are important to keep not only a watch on management and corporate activities, but also to do so in an environment of competence.

Significance

Few will deny that both investors and governments have become more cynical since the corporate scandals typified by Enron and Tyco. More than ever, the state has become a major factor in corporate governance.

This means that governments have clamped down on anything that smells of a conflict of interest and, importantly, the lack of independence of any independent accounting firm. A strict “separation of powers” among the factors of corporate governance has been necessitated by the desirability of independent auditing. Read the rest of this entry »

The term “corporate governance” describes an incredibly broad, multifaceted concept. It includes the systems, procedures and structure a corporation uses to convey authority, responsibility and accountability among stakeholders.

Good corporate governance balances the interests of, and relationships between, a company’s employees, owners and customers to ensure the long-term sustainability and success of a corporate venture.

Laws and Regulations

One of the primary aspects of corporate governance is company compliance with all applicable federal and state legal regulations. Corporations must adhere to a set of strict, comprehensive laws administered by national and local governments.

These laws shape the structure of a corporation’s corporate governance before it even begins to operate. All corporations, for example, are required to hold annual shareholder meetings, report income and justify its use of assets.

Interests of Stakeholders

The stakeholders of a corporation are employees, customers, creditors and owners. Each of these individuals or organizations have invested assets into the corporation.

Corporate governance describes how a corporation meets the interests of each of these stakeholders without compromising the overall integrity of the company or neglecting obligations to other stakeholders.

Ownership

The owners of a corporation are called shareholders. They are primary stakeholders in the company. The success of their investment in the corporation is directly dependent on the success and sustainability of a corporation’s actions and decisions.

Shareholders meet annually to elect members of a board of directors who act as their fiduciaries in the context of their investment in the company. Shareholders to not play a role in the company’s operations or development.

This “disconnect” between the owners of a corporation and the company itself is one of the most critical aspects of corporate governance. Good corporate governance includes a healthy, transparent relationship between the owners, the board and the company’s operations.

Board of Directors

The board of directors in a corporation serve as the central body in the corporate governance structure. Board members oversee the budget and operations of a company. They are duty-bound to analyze and report this information to shareholders honestly and accurately.

The board appoints high level management officials for the corporation. These officials have a great deal of authority and responsibility, and can ultimately determine the success or failure of a company.

The board is the primary conductor of corporate governance. They are the bridge between the owners and employees of a company. They make the strategic, long-term decisions that shape a corporation’s structure and integrity. Read the rest of this entry »

The financial meltdowns of Enron, Tyco and AIG have increased attention and concerns about corporate governance, which is a system of regulations and policies designed to hold corporate leaders accountable and protect company stakeholders.

While compliance with federal regulation such as the Sarbanes Oxley Act, SOX, is one way of defining corporate governance, good corporate governance is a mixture of meeting both the letter and spirit of the law.

Whistle Blowing System

A sound whistle blowing system is a critical component of good corporate governance. While public companies are required to meet SOX whiste blowing standards, private organizations, as well as small businesses, have also followed suit.

Features of a firm whistle blowing system include clear methods for reporting claims, confidentiality assurance and protection against retaliation. In addition to being good corporate governance, whistle blowing is in an organization’s financial interest.

Tips from employees and vendors catch 34 percent of fraudulent activity and 48 percent of owner or executive fraud, according to a 2006 report from the Association of Certified Fraud Examiners.

Company Climate

Good corporate governance is anchored in organizational culture, not compliance. Good corporate governance cultures are marked by consistency, responsibility, accountability, fairness, transparency and effectiveness, according to Dr. Yilmaz Arguden, chairman of Arge Consulting.

Board members should be chosen not only for qualifications but for their judgment, ethics and experience in making the tough decisions. In addition, corporate leadership should focus on both performance and how that performance was achieved, according to Arguden.

Code of Ethics

A code of ethics, which clarifies and stipulates adherence to some of more abstract ideals of trust and accountability, is another indicator of good corporate governance.

Effective codes of ethics spell out who must adhere to the rules, division of power between company leadership and its board of directors and guidance on other gray areas such as political contributions, conduct and compensation.

While the SOX requires public companies to have a code of ethics, creation and adoption of an ethics code is a best practice for those organizations not covered under the legislation. Read the rest of this entry »