Wednesday, August 17, 2022
More
    - Advertisement -
    - Advertisement -
    UncategorizedCornerstones of corporate governance

    Cornerstones of corporate governance

    Date:

    Having justice in a company will encourage employees at every level to be highly productive. Any delay in decision-making will lead to the failure of the company, writes Assegid Gebremedhin.

    Governance – apart from other things – is all about justice and security. States and organizations that cannot guarantee these two essential features lose their rights to govern and/or command whatever resources that are under their stewardship. Irrespective of the philosophy and the system adapted for governance, the people at large must feel secure from internal and external risks of dangers, and they must be confident that dispute resolution will be done in a fair manner.

    It has been said now and then that the most key assets within the frame of corporate governance are people at every level of organizational hierarchy. And on these assets there is an invisible immense potential to be cultivated under sound corporate governance. The governance is to the people from the people and by the people.

    If a company ensures justice, security, stability, belongingness, productivity, promote employee engagement, assure quality, add value to customers satisfaction and build the image of the company, it can take the company to new heights.

    If a company does not value corporate governance, it opens doors to bribery, nepotism, chaos and periodic deterioration. In general, a broken corporate governance leads to the failure of the company.

    If there is no justice and security in a company, there is no fairness, insecurity will be rampant, and there will be no room for productivity.

    In order to achieve development, there are various elements that be should be considered and the main one is ensuring dynamism. Otherwise, the planned targets could not be achieved and that could lead to loss of the targeted income eventually leading to bankruptcy. In that regard, one can say that justice and security are two of the six cornerstones of corporate governance in a modern company.

    In addition to justice and security, a well-developed corporate governance in a modern company should guarantee sustainable income, learning and growth, stimulate and effect development and maintain healthy and sound customer relations.

    These cornerstones of corporate governance should be fully embraced by the leadership of the company. Otherwise, the company will be on the wrong path and that will lead to failure.

    Much of the contemporary interest in corporate governance is concerned with mitigation of the conflicts of interests between stakeholders. In large firms where there is a separation of ownership and management and no controlling shareholder, the principal–agent issue arises between upper-management (the “agent”) which may have very different interests, and by definition considerably more information, than shareholders (the “principals”). The danger arises that, rather than overseeing management on behalf of shareholders, the board of directors may become insulated from shareholders and beholden to management. This aspect is particularly present in contemporary public debates and developments in regulatory policy.

    Ways of mitigating or preventing these conflicts of interests include the processes, customs, policies, laws, and institutions which have an impact on the way a company is controlled. An important theme of governance is the nature and extent of corporate accountability. A related discussion at the macro level focuses on the impact of a corporate governance system on economic efficiency, with a strong emphasis on shareholders’ welfare. This has resulted in a literature focused on economic analysis.

    Any form of modern organization should render justice to all employees, ensure security to the business, have in place fair and competitive income generation schemes, devise an innovative way to instill a sense of belongingness in employees, stimulate and effect development, and maintain healthy and sound relationship with stakeholders.

    The first three are essential in forming the triangle of corporate governance while the fourth – innovation  – provides the base for effective governance. Innovation distinguishes present day business patterns and medieval despotic business practices. Stimulating development is also vital since it lays the groundwork for economic power. If the leader at the helm of the organization is short-sighted, these essential elements will not be realized. The six cornerstones maintain healthy and sound relations with stakeholders and will enable the company to compete effectively and maximize its brand value. In that regard, the function of the board of directors is to equate those business hexagons of corporate governance.

    It goes without saying that justice delayed is justice denied. In the business world it can be  pronounced as justice denied leads to failure of a company. Having justice in a company will encourage employees at every level to be highly productive. Any delay in decision-making will lead to the failure of the company.

    If a company has a static justice system in a turbulent business environment, the cornerstones of corporate governance will be challenged by changing environment. In that regard, the leadership should reoriented the justice system.

    Even if a company is in a strong financial position, when leaders of companies cannot walk the talk – especially with regards to having a good system of corporate governance – the end result will be gloomy to say the least and the leadership will loose credibility from every dimension. That is why having in place and implementing the six cornerstones of corporate governance should be the main task of leaders. 

    If there is lack of transparent corporate governance, which is acceptable by employees, stakeholders and customers, nothing can prevent the company from falling in to bankruptcy. In addition, the opaque system will be manipulated by rent-seekers

    The board of directors or leaders should understand and have an endless appetite for having in place and ensuring the implementation of the six cornerstones of corporate governance. Otherwise, the end result will ultimately be devastating and will lead to bankruptcy.

    Ed.’s Note: Assegid Gebremedhin is Marketing and Branch Coordination manager at Berhan Insurance SC. The views expressed in this article do not necessarily reflect the views of The Reporter. He can be reached at [email protected].

     

    Contributed by  Assegid Gebremedhin

     

    - Advertisement -

    Subscribe

    Popular

    More like this
    Related

    PP’s probe into uncharted ideological territory

    Three months ago, cabinet members of the Addis Ababa...

    Ethiopia could lose up to USD eight billion if Ukraine war continues

    -It could cost Ethiopia 7.6 percent of GDP in...

    Fed unveils new tax to finance conflict rehabilitation project

    Officials expect 19.5 billion birr from the new tax...

    To survive foreign competition, central bank governor suggests mandatory mergers, acquisitions

    The bankers' association is upset about the tax on...