by Matthew A. Struck, CPCU, ARM – November 27, 2017
“There never is a good time for tough decisions. There will always be an election or something else. You have to pick courage and do it. Governance is about making tough, even unpopular, decisions.” – Jairam Ramesh
Governance refers to the way a corporation or organization is governed. It is the technique by which organizations are directed and managed. Good governance is essential to develop added value to all of the stakeholders of an organization.
What are the Benefits of Good Governance?
- Organizational Growth and Success
- Lowers the Cost of Operating
- Minimizes Waste, Corruption, & Mismanagement
- Improved Reputation
- Fewer Fines, Penalties, & Lawsuits
- Decreased Conflicts and Fraud
Examples of Governance Failures
- Enron – unethical practices, improper financials, and illegal loans contributed to the failure of a $111 Billion company
- Lehman Brothers – lack of risk management, extremely high amounts of leverage, and directors acted on their own behalf and not those of the stakeholders (shareholders, employees, and customers)
- Volkswagen emissions scandal – concerted effort to skirt or break governmental regulations (EPA emissions standards)
- Federal Employment Guidance Service (FEGS) of NYC – board members unfamiliar with nonprofit accounting practices and failed government audits led to the failure of a $250 million not-for-profit agency
Best Practices for Achieving Good Governance
- Diversified board of directors with a wide range of expertise…and evaluate their efforts
- Appointment of non-employee/executive directors to the board
- Define roles, responsibilities, and accountabilities
- Commit to abide by all applicable regulations and laws
- Tie compensation to performance
- Audit Committees
- Commit to making decisions from a position of good risk management
- The Advantages of Corporate Governance – Chron.com
- Corporate Governance – Definition, Scope and Benefits – Management Study Guide
- Corporate Governance Best Practices – Board Effect
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