Principles of Corporate Governance.
It is a term that has become part of the common language when talking about a company is undoubtedly that of corporate governance and often used to indicate aspects of business management. It is a complex and multifaceted concept, but essential to understand some dynamics of an institution or organization.
What is corporate governance?
Before analyzing the rules and bodies of Corporate Governance, i.e., corporate governance, it is necessary to understand what it is. It concerns the rules and laws that are aimed to correct the company’s management. It identifies the set of principles and mechanisms that govern the functioning of an institution or company and expresses the rules and processes. They are based on the decisions and also based on local, national, and international standards, with the aim to achieve them, and the quantitative and qualitative measurement of results. The corporate governance structure expresses the rules and processes with which decisions are made in a company, the ways in which corporate objectives are decided, and the means for achieving and measuring the results achieved.
Usually, there are three different corporate governance systems that corporations can choose from:
- The ordinary system: It is applied in the absence of a different statutory choice. This system provides for the presence of a Board of Directors - which can be a single Director or a Board of Directors whose number of members, if not provided for by the articles of association, is determined by the Shareholders' Meeting - and a Control Board, i.e., the Board of Statutory Auditors.
- The dualistic system: It involves the division of the company's administration between two different bodies: the management board and the supervisory board.
- The one-tier system: It is typical of the Anglo-Saxon tradition, in which management is delegated to a unitary body, the board of directors, within which a control committee is appointed.
What are the aspects that fall under corporate governance?
The variety of aspects included is very wide and includes not only the processes by which companies are controlled and directed but also investment techniques that refer to active ownership, corporate governance guidelines, and the problems they have to deal with—dealing with the separation between control and property. Therefore, corporate governance includes the rules and the corporate systems, the processes, and relationships that allow you to control and exercise the fiduciary authority.
The principles of governance applied to the company
The implementation of corporate governance makes it possible to guarantee a sustainable and efficient process for creating values in accordance with all internal and external stakeholders and in compliance with legal regulations, internal statutes, and ethical principles. This introductory sentence is a bit heavy; it is true, but this ambitious project is not the simplest.
Corporate governance: Principles
The corporate governance rules govern the management and control functions of management bodies. The senior management and the body with control functions are responsible for ensuring that the intermediary complies with the obligations established by the laws and regulations regarding services.
Based on corporate governance principles, the intermediary must:
- define a division of tasks between and within the corporate bodies, ensuring the balance of powers and dialectical effectiveness;
- adopt appropriate precautions, statutory and organizational, to prevent possible detrimental effects on management, deriving from the possible presence in the same body of two or more functions;
- Ensure a composition of the corporate bodies that allow the effective performance of their duties.
There are four subjects who hold the reins of corporate governance: senior management, the body with strategic supervision function, the body with management function, and the one with control functions.
Here are the tasks of each of these bodies in detail:
- body with strategic supervisory function:
Identifies the intermediary's objectives, strategies, profile, and risk levels by defining company policies and those of the company's risk management system. It approves the processes related to the provision of services; verifies the structure of the corporate control functions; approves and verifies the organizational structure and the assignment of responsibilities; verifies the information flow system. Also, it ensures that the remuneration and incentive structure is such as not to increase corporate risks.
- Body with management functions:
implements company policies and those of the company's risk management system and verifies their adequacy; defines the information flows; clearly defines the tasks and responsibilities. It ensures that company policies and procedures are promptly communicated to all personnel concerned.
- Body with control function:
it is assigned tasks and powers necessary to detect irregularities in management and violations of the rules. It can make use of all the operating units with control functions within the company.
It should also be stressed that intermediaries establish and maintain permanent, effective, and independent functions for checking compliance with regulations and, if in line with the principle of proportionality, corporate risk management, and internal auditing.
The challenges of corporate governance
The introduction of corporate governance aims to remedy the shortcomings of traditional organizations, which durably penalize the company's sustainable performance. The implementation of fully operational governance requires the involvement and close cooperation of all stakeholders. Let's take a closer look at its role, challenges, and missions.
Corporate governance issues & missions
Corporate governance essentially aims to establish better coordination between the different entities of the organization and its partners (service providers and subcontractors).
It is, therefore, a question of setting up systems (protocols, conventions, contracts, standards, etc.) intended to facilitate constructive exchanges between stakeholders, while improving performance in the sense of each of them.
All while strictly respecting the official regulations, standards, and statutes established to implement said governance in the company. These are, in a few words, the challenges of corporate governance. Let us now see its missions and its fundamental rules.
Corporate governance missions
When corporate governance is properly established and fully operational, its role and missions begin with the development of the strategic design framework.
- Develop the strategy
- Define the strategic plan
- Formulate the "policy" of the company
- Management type
- Decision process
- Appointment of officer
- Risk management
- Guarantees of compliance with regulations, whether legal, accounting & fiscal, normative or company-specific and with the principles and statutes of established governance
- Measure and manage performance
- Reporting & audit
The fundamental rules of corporate governance
- Transparency is the first founding principle. The notion of secrecy, carefully cultivated in companies, and distorting information filters are the crucibles of rumor. This is not how we work. Each actor in the company has the right to complete and up-to-date information.
- The second founding principle is the establishment of a perfectly efficient decision-making process, ensuring that each actor has the powers and the information to act at their level.
- The implementation of a performance evaluation system sufficiently complete to comprehensively apprehend performance, that is to say in its entirety and in its details, is indeed the third founding principle.
- Finally, management specific to governance itself in order to ensure its proper and sustainable operation, accompanied by an efficiency audit guaranteeing the creation of value over time, is the fourth founding principle.
Author: Vicki Lezama