The principles of corporate governance
The words “corporate governance” can make your eyes glaze and maybe even cause your head to drop on the desk with boredom.
But once you drill into it, it’s quite interesting. When it goes wrong, it can cause huge ramifications for your company – including putting you out of business.
Craig Stevens, managing director of CCASA (Company Compliance for Australian Business), advises that in today’s business environment, “ignorance is not a defence”.
This means as a director or board member it’s your responsibility to understand the laws around your industry.
The principles of good corporate governance centre around fairness, accountability, transparency and responsibility. This is all about making sure your business has integrity and can be trusted by your customers, clients, shareholders, investors and government authorities.
For Stevens, all principles of corporate governance relate back to two simple questions:
- What are your rights?
- What are your responsibilities?
For example, a company director has a right to determine and approve a company’s strategies, vision and purpose.
However, that director also has a responsibility of being accountable to all members of the organisation and to always act in the best interest of the organisation.
So, when you break down the overarching theme of rights and responsibilities, Stevens suggests splitting it down into further sections.
ASIC – What does the Corporations Act require you to do?
ATO – What are their laws? What do they require a company to adhere to in the following areas, for example:
- record keeping
- Tax returns
Running a company – are all the following things in place, finalised and easy to find?
- Employment contracts
- Business plan. Although this is not technically corporate governance, Stevens believes it’s vital because “otherwise what are you doing? How are you running your business? What are you trying to achieve?” Make sure all business partners or directors understand the business plan.
Good transparency – While not everyone would agree with this, Stevens says it’s vital.
“With transparency everyone knows what’s going on. No one can say ‘I didn’t know’ and nothing is hidden. Everyone is very clear on their roles and responsibilities and very clear on what’s going on with the business,” he says.
“If you don’t understand what is going on in every aspect of your business, you can’t have good governance. If you don’t know the responsibilities you have from the different departments, you can’t have good governance.
Stevens says operating without a business plan is like sailing a ship without a rudder.
“One company I’m working with has a great product, already has customers wanting to buy the product, and they’re trying to do it without a business plan,” he says.
“Every meeting I have with them the goal post is changing so they don’t know what they’re doing. I look at that and think ‘How can you have good governance if you don’t know what your business is doing?’.”
“What I often find is that too many people will have the ATO stuff down pat, but very few will have the other areas sorted.”