What is Corporate Governance?
Corporate governance refers to the set of rules, relationships, systems, and processes within an organisation by which authority is exercised and controlled. It encompasses the mechanisms by which companies and those in control are held accountable. The governing body, often a board of directors, acts as a steward, ensuring the organisation is effectively led.
Governance vs Management
It's crucial to distinguish between governance and management. While the board is responsible for setting the organisation's strategy, risk tolerance, policy, and culture, the management team handles the day-to-day operations. In essence, governance is about oversight, while management is about execution.
The Importance of Good Governance
Good governance is not just a regulatory requirement but a cornerstone for organisational success. It enables authority to be exercised appropriately and holds those who exercise it accountable. Good governance is about effective decision-making and the proper exercise of power within an organisation. It sets the tone for the organisation's activities and culture and influences its relationship with stakeholders.
Tailoring Governance to the Organisation
There is no one-size-fits-all approach to governance. Organisations must consider factors like size, purpose, and structure when developing their governance framework. Larger organisations may have the resources to develop a sophisticated governance system, while smaller ones may rely on more informal approaches. The Australian Institute of Company Directors has tools and resources to assist organisations and directors with establishing governance structures.
Corporate governance is an essential aspect of any organisation, be it profit-oriented, not-for-profit, or public sector. It provides the framework for how an organisation is run and how it interacts with its stakeholders. By adhering to the principles of good governance, organisations can ensure they are effectively led and are accountable to those they serve.