Five tenets of good corporate governance

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The corporate governance debate has come some way over the last decades, yet many still see it as a compliance exercise. Businesses need to realize the importance of a motivated and engaged workforce and positive relationship with their environment for long term prosperity. It’s time to shift the governance focus to outcomes from the processes and procedures from the current emphasis on compliance. ACCA’s publication on the ‘Five tenets of good corporate governance’ helps in shifting this debate to outcomes.

Society determines, in the long run, which businesses thrive, and how. ACCA, the global body of professional accountants, has a stake in this as the profession mediates between undigested data and the useful information on which society and businesses, equally, rely.

Five themes that are recurring in the corporate governance debate:
1. The relationship between companies and society -Aligning the vision of a company with that of society will help that company to prosper in the long term. Aiming to be part and fulfilling the needs of a society will help a company to navigate its challenges and uncertainties and create value from opportunities.
2. Diversity and balance- Diversity and balance in the composition of the workforce are important at all levels of the organisation. They are vital within leadership.
3. Enabling an effective board- Every board member should be accountable for enabling effective boardroom discussion, with the chair playing a critical role.
4. Executive remuneration- Any approach to the challenges related to executive remuneration must consider two discrete issues that underlie the pay debate. One of the issues is the mismatch between pay and performance. Executive pay has risen steadily over years, generally surpassing the rate of inaction where many employees have seen stagnant or failing wages in real terms. The second issue is the increasing sense of inequality. The general public observes a widening gap between the pay of executives and average employees.
5. Gatekeepers of corporate governance- The ‘gatekeeping’ of corporate governance involves more than just companies and their owners: the wider public and policymakers also play a role.

These themes, both individually and taken together, demonstrate that the long-term prosperity of society relies on businesses and vice versa. The tenets look at each in turn and set out ACCAs current thinking to help readers navigate the complex yet dynamic issues involved.

A recent trend in company law and corporate governance codes is to include the concept of a ‘ESG’ environment, society & governance as a license to operate a business. Indirectly implying that a company operating at odds with its environment & society would be rejected and ultimately fail. However, this has not always been the case in practice and many corporates continue to remain unpunished despite unsustainable activities.

Therefore, it is important that the public engages with the topic to maintain trust in business: it should help highlighting the better practice that some companies already strive to achieve and inspire the rest to meet the same standard.

Source: www. accaglobal.com

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About surenraj

“Views expressed are my own”
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