Corporate Governance

Corporate Governance – What You Need To Know

With the new UK Corporate Governance Code released in July by the FRC (Financial Reporting Council) we thought that it would be useful to take a wider look at corporate governance.

What is Corporate Governance?

The UK Corporate Governance Code sets the standards of good practice for listed companies and is effective as of the start of 2019 but what exactly is “good practice”? A good definition is this from the ICAEW (The Institute of Chartered Accountants in England and Wales):

“Corporate governance is about what the board of a company does and how it sets the values of the company, and it is to be distinguished from the day to day operational management of the company by full-time executives.”

Additionally, it is the responsibility of the shareholders to ensure that they appoint appropriate directors and auditors and that they are happy with the governance the board puts in place.

Why is Corporate Governance Important?

To understand why good corporate governance is needed one only needs to look at what happens when it fails. Failures such as at Carillion, Sports Direct and BHS lead to headlines in the media such as “Carillion’s collapse exposes deep corporate governance failings” and “Sports Direct hacked last year, and still hasn’t told its staff of data breach“. On the latter MPs said workers were being treated without dignity or respect. So poor corporate governance can have a negative impact on employees, an organisations public perception and its share price.

Starting Point On Corporate Governance

For a long time, we have suggested that good corporate governance is more than a narrowly defined set of processes and procedures. To be effective, good corporate governance should be put into a wider context of how an organisation is operated and managed overall. Without sound management and high levels of employee engagement, good corporate governance cannot truly exist. Indeed, when sound management is absent, organisations frequently miss targets, suffer poor employee engagement and become breeding grounds for poor corporate practices.

Sound Management And Corporate Governance

These statements, we believe, are all key to achieving sound management.

What The Corporate Governance Code Contains

As mentioned above the code sets out standards of good practice for listed companies. We were delighted to see a heavy focus on the broader aspects of good governance. Whilst it may not sound the most riveting of reads, the Code is well worth becoming acquainted with. It is definitely relevant if you are involved in any major organisation – whether you are listed or not. We suggest that even in the public sector and Not for Profit organisations it still warrants having a passing knowledge of the Code.
In highlighting the above, the Corporate Governance Code has provided a useful outline for a number of areas which organisations will need to embrace in order to lay the foundations for success. Making sure they establish integrity and ethics at their core.

Corporate Governance Code – In a Nutshell

So, to reduce the principles of the Corporate Governance Code further, here’s a good starting point:

“As an organisation, be clear on where you are going. What steps you will all take to get you there? Ensure strong buy-in from your stakeholders and their level of involvement and always ensure you act with the utmost integrity to all.”

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