Five key elements of corporate governance enhancement
In the world today, public entities are under intense pressure to address corporate governance issues and fully comply with the rules and the regulations established by the relevant regulatory bodies. This has been necessitated by the numerous occurrences of misuse of powers vested on the executive, misappropriation of public investments as well as wrong decisions made on matters relating to social responsibilities. This article will pinpoint the five key elements of corporate governance enhancement in line with updates on world finance.
Establishment of balanced board of directors
The composition of the board of directors must always adhere to the set requirements of at least a third of non executive directors. These help in in checking on the excesses of the executive and ensuring the shareholders’ interests are well taken care of. As a result of the agency relationship existing between the management of the corporate entities and the ultimate owners-the shareholders, there could arise a conflict of interest with the shareholders being concerned about the long-term posterity of the entity whereas the management may be preoccupied with displaying a positive image without necessarily being concerned about the future of the entity. In such situations the non executive direction acts as an important balance to counteract these differences.
Audit departments and audit committees
All corporate public entities must have well established and functional audit departments to spearhead the audit function of the entity. An audit committee should be put in place as an appropriate oversight tool in matters relating to audit both internal and external. An internal audit function will also form a key component of the audit department and must be equipped with the appropriate tools and atmosphere to independently perform reliable appraisals of the entities’ operations.
The shareholders being the ultimate beneficial owners of the corporate entity must be fully involved in the key decision making processes.
Whereas the shareholders have delegated running of the day-to-day operations of the entity to the management,they ultimately reserve the rights of voting for the key decisions relating to their investments. Therefore, it is of great importance to ensure that regular forums of shareholders consultation and involvement are in place in which the owners make their voice heard. It is thus a requirement that corporate entities hold an Annual General Meeting for the shareholders and any Special General Meetings as circumstances may require.
Corporate social responsibilities
Corporate social responsibility initiatives are designed to address the concerns of the communities and the environs within which an entity operates. They are therefore conscious steps taken by an entity either to pay back to the communities or to mend any wrongs emanating from its presence and\or its operations.
At the end of each financial year,the management of the entity is expected to come up with comprehensive reports on the financial performance of the entity,its financial position as well as other relevant areas of concern surrounding the entities posterity. Such reports are addressed to the shareholders of the entity in question and must be presented in the annual general meeting of the shareholders or any other special general meeting as the need may be.
The incorporation of corporate governance issues in maters of management of public entities is a key step in ensuring that the interests of the shareholders are well taken care of while at the same time displaying a positive image to both the larger public and regulatory authorities. For any entity to succeed in the achievement of its goals and objectives,its operations must be formulated in accordance with the existing updates on world finance.