Good corporate governance just makes business sense

19 May 2022 ,  André van Niekerk 1220

With the business world seeming to move faster and faster and companies apparently only interested in increasing their profits, it can be easy to think your company only has one goal, namely to make money. But is this true? Are companies expected to live up to a higher standard, and if so, does it make business sense to do so? In this article we take a look at corporate governance practices and what this means for a company.

Businesses all over the world are constantly forced to change through technological developments, climate change, societal demands and the expectations of stakeholders. To navigate these changes corporate governance practices have evolved to help provide certainty and accountability for businesses as they are forced to constantly adapt.

Corporate governance can be described as a system of rules, practices, and processes in terms of which a business is required to operate and function. These include guiding principles and practices which are instructive to the management and decision-making powers exercised in the company and help determine whether directors of a company have discharged their duties appropriately. That said, both the shareholders and directors of a company have a role to play in ensuring that there are adequate corporate governance practices within a company.

In South Africa, the King Committee has drafted several reports on corporate governance which provides recommendations of best practices for good governance within certain industries. King IV currently sets the standard for best practice in corporate governance in South Africa.

In addition to the oversight role for management, good corporate governance practices can also assist a company to gain the trust of customers and the community at large and to influence the long-term success of the company. A good corporate governance framework is fundamental to the success of any business as it exemplifies the principles of responsibility, accountability, fairness, and transparency in the company, all principles that would and should be equated with a successful company.

Implementing appropriate corporate governance frameworks and practices within your company may have the following benefits:

1.    Improved financial performance and sustainability
2.    Improved reputation and public perception
3.    A clear framework for business objectives
4.    Improved capability to adapt to changing landscapes
5.    Improved accountability and transparency

A proper corporate governance framework should cover a range of policies and procedures that deal with decision making, day-to-day activities and the conduct that is expected from management. Such a framework may also require changes to your Memorandum of Incorporation (MOI) to ensure the necessary accountability and objectives as envisaged by the King IV Report for best practices in corporate governance in South Africa.

Should you feel your company could benefit from establishing or refining your current corporate governance framework, make contact with your attorney or corporate specialist to help you evaluate and implement an appropriate framework for your company.

Disclaimer: This article is the personal opinion/view of the author(s) and is not necessarily that of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever and no action should be taken on the basis thereof unless its application and accuracy has been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken on the basis of this content without further written confirmation by the author(s).