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What is Corporate Governance?

by | Oct 15, 2021

Corporate Governance involves a structure set to enhance the management of a company. Governance entails rules, policies, practices and processes that ensure compliance with the Companies’ Act by public companies and the Mwongozo for state corporations. Good governance provides a framework through which the companies’ goals and objectives are set and met. Good governance provides for monitoring of set company goals and legal requirements and offers causes of action in case the company does not attain the desired targets.

Principles of good governance

Good Governance practices at a corporate level help in noticing/ identifying and clearly pointing out the person who is “in charge”, whoever is responsible for making managerial decisions. Good governance requires that ways of doing things and those in charge be clearly communicated to the team. In case the company needs to appoint a new director, good governance states that there is need for a provision in the company’s Articles of Association and Memoranda for the same. The presence of policies, structures, clear lines of authority, a country constitution and a functional board is a major part in good governance. It helps ensure that one is compliant with the set rules.  It ensures businesses run smoothly and balanced decisions are made for the interest of stakeholders, shareholders, employees, suppliers, customers and the community.

The need for Corporate Governance

Corporate governance can make an impact in organization performance and help in cultivating companies’ values/integrity. Importantly, it helps in keeping individuals responsible and accountable for every action. The company thrives by avoiding mistakes and inefficiencies, and making sure that interests are aligned within the organization and with its objectives. It also helps in keeping good communication between and among the teams; this provides the company with better works and results. To attain an impactful level of good governance one can take up a governance audit. This audit enables the company to identify areas that they are lacking or poor in terms of good governance. The Governance audit also improves the company’s credibility. Investors and other stakeholders trust the structures put in place and assume that a company that is willing to have its systems and structures audited is a trustworthy and reliable company.

For good corporate governance, the teams must be well balanced, competent and open-minded. Having people who understand the business and individuals who bring in good innovative ideas. For success, this team must be reviewed regularly and their tasks and responsibilities evaluated.