Introducing Corporate Governance

Have you ever stopped to wonder how the business world actually operates? It doesn’t matter whether you work for a small, local start up or a large, global operation there are a set of defined rules and guidelines that keep the wheels of commerce moving. To complicate things even further, each company also has its own guidelines that help define and structure how the business will deliver its goods or services.

The formal term for these guides is ‘corporate governance’. One formal definition describes this as ‘The system of rules, practices and processes by which a company is directed and controlled’.

Simply put it is a number of interconnected contractual agreements between various parties for the purpose of achieving the organisation's objectives. These parties include shareholders, directors, managers, suppliers, employees, customers, financiers, government authorities, other stakeholders and the society in which the company operates. The type of contractual agreements range from formal written ones to implicit agreements. In addition, some of them will be financially based and some are not. (http://www.succurro.com.au/articles/49-governance/85-what-is-good-corporate-governance-.html).

There are many reasons that corporate governance is needed in business. Investopedia says that it is there to ‘balance the interests of the many stakeholders in a company [including] its shareholders, management, customers, suppliers, financiers, government and the community’.

So what benefit can you gain from understanding the inner world of business? Well, if you understand the context and history of your company you will see how it has evolved and reached its present stage. This in turn can help you see where the business is going and why certain decisions are made by the management team. And if those decisions will affect you or your job you can plan ahead.

To get a better understanding about the way your company operates find out about the following:

The wider business environment

Go online and read about your company and the business sector(s) it operates in. Look for news items, case studies and formal records. Investigate other companies that are successful and those that have failed and see if you can spot any critical differences between them.

Next look at other, related industries that may have an impact on your own e.g. product or service companies that are two or three times removed from your company (e.g. they may be connected to one of your own suppliers).

Best practice for your industry

Some industries are more complicated than others e.g. both finance and energy have a high degree of regulation as do any sectors where health and safety is a big issue. Find out what best practice looks like and how complicated the corporate governance is for your business.

How is your employer doing?

When you have built up a picture of the industry take a look at your own organisation. Check out the company history as well as how it is managed today. How is the organisation structured? Is there a Board and what do they do? Are there any external checks and balances (e.g. auditors) who review how the company is managed? Speak to your manager and any colleagues involved with legal or fiduciary aspects, financial management or corporate social responsibility (CSR).

Who are the key players?

Knowing who manages the company can be really helpful to you. This may be an owner manager (informal) or a Board with executive and non-executive directors (formal). What is their background? Do they have similar values to your own? Do they support and improve corporate governance issues. How much do they take into account corporate governance issues when making key decisions within the business?

Keeping an eye on business

Once you have a clear picture of the organisation it is worth checking in on changes that are made and comparing them to an external benchmark (pick an organisation that impressed you when you were researching the industry). It will work best if the organisation is similar in size and age. Check the progress of both organisations (say every 3 months) - that way you will become familiar with how they operate and more likely to spot changes when they occur.

By learning about corporate governance, and understanding how it affects your business, you will be introduced to some of the factors that influence business strategy and decision making.

This may not turn you into a business expert but it will help you:

  1. develop your business knowledge:
  2. improve your effectiveness in your job;
  3. increase your value to the company; and
  4. (as an added benefit) make you more marketable to other companies!