CHAPTER 3 Flashcards
(32 cards)
10 Practical Tips For Good Governance
Balance board composition
Evaluate the board regularly
Ensure directors independence
Ensure auditors independence
Be transparent
Define shareholders right
Aim for long tem value creation
Manage risk
Follow sustainability best practice
Document policies and procedures
If all board members have the same level of experience and similar skill sets, you will not find the diversity of opinion required to rigorously challenge the company’s strategy and ensure it is watertight.Greater diversityon boards introduces new ways of thinking and creative methods of solving problems, which prevent directors from resting on their laurels.
Board diversity is all about filling gaps in boardroom expertise to provide a broader range of viewpoints and a fresh perspective using strategic succession planning.
Balance board composition
— A diverse boardthat works well on paper is one thing, but how they actually perform in real life is another thing altogether. This is why regular evaluations are important.
— They help you track progress over a period of time and understand where your own strengths lie as well as give you a good understanding of the areas that need improvement.
— Evaluations are mandatory in some jurisdictions, but they are also important, no matter what the legislation mandates. They are critical to building sound corporate governance and stakeholder value.
— Open communication and transparency in the evaluation process breed confidence and trust within the company and help you in your efforts to grow that diverse board of directors.
— Evaluations should not be a tick-the-box exercise; they should feature candid, in-depth conversations that give you real data to work with to instill a culture of continuous improvement.
Evaluate the Board Regulary
— Independence desirable on a board that wants to break away from safe, conservative thinking. Forward-looking boards need directors that are not afraid to think outside of the box, rather than simply continue down the same road the company has always taken.
—It helps create innovation and avoid stagnation.
In addition, independent directors are more likely to provide insights that benefit the shareholders, given their different perspective on matters
Ensure Directors Independence
Undue influence over the work of audit committees and independent auditors is a concern in terms of corporate governance. Investors need to know that they can trust the financial reporting that an issuer makes, so independence is key to show that the reports are accurate and tell the true tale of the company.
Ensure Auditors Independence
— The previous point feeds into this one. It is essential for good corporate governance.
— The openness and willingness to share accurate, clear and easy-to-understand information with stakeholders, including shareholders, breeds trust and solidifies a business’s reputation.
— This means that organizations have toaccurately report the bad news as well as the good. Trying to avoid negative publicity only to be found out later is more damaging for a business and its reputation. Full disclosure breeds integrity.
— Create a plan of what you will share with shareholders and how often so that they can see that your intention is to be as transparent as possible.
Be Transparent
— Shareholders should know their rights when they invest in your business and you should ensure that the rights you provide are backed up by your Articles of Association, constitution and company bylaws.
—Decide whether all shareholders have the same voting rights or whether different classes of holdings have preference.
— Can they approve certain transactions?
— Can the board act without their approval?
—
Do you have policies for extraordinary transactions?
—
These are all issues you need to resolve before formalizing shareholder rights and ensuring you regularly review your policies.
Define Shareholders Right
Although short-term wins look good and create opportunities for publicity, long-term value creation should be the aim of a company with solid governance. A business that is committed to sustainable growth is likely to be much less volatile than a company with its eye only on the short term.
Aim for long-term value creation
Identifying risks is important, but taking a proactive approach to mitigate that risk before you face it is the goal. Rather than attempting to weather the storm, it is better for the organization to avoid the storm completely.
A solidrisk management process, an internal control framework and an up-to-date disaster recovery plan are all key to achieving this aim
Manage Risk Proactively
Sustainability and strategic managementare increasingly intertwined in the corporate world, as investors make their preferences heard. Major events such as Covid-19 and the climate crisis have thrown into sharp relief the need for a sustainable outlook from issuers. Consumers have also started to prefer shopping withbusinesses that boast sustainable practices.
Follow sustainability best practices
There should be easy-to-access documentation of your policies and procedures relating to shareholder rights, executive compensation, board meeting operation, the election of new directors, and more. This ensures transparency and consistency within the organization.
Document policies and procedures
is the term that describes the situation when the goals of different interest groups coincide.
Goal Congruence
concept that refers to the alignment of goals between different levels of an organization or between individuals within an organization
Goal Congruence
A way of helping to achieve goal congruence between shareholders and managers is by the introduction of carefully designed remuneration packages for managers which would motivate managers to take decisions that were consistent with the objectives of the shareholders.
Goal Congruence
Agency theory sees employees of businesses, including managers, as individuals, each with his or her own objectives. Within a department of a business, there are departmental objectives. If achieving these various objectives also leads to the achievement of the objectives of the organization as a whole, there is said to be ____________.
Goal Congruence
The extent that individuals and groups perceive their own goals as being satisfied by the accomplishment of organizational goals is the degree of integration of goals. When organizational goals are shared by all, the term goal congruence can be used.
Integration of goals and effectiveness when team building
In this instance, the goals of management are somewhat compatible with the goals of the organization but are not exactly the same. On the other hand, the goals of the subordinates are almost at odds with those of the organization.
The result of the interaction between the goals of management and the goals of subordinates is a compromise, and actual performance is a combination of both. It is at this approximate point that the degree of attainment of the goals of the organization can be pictured.
This situation can be much worse when there is a little accomplishment of organizational goals
Moderate organizational accomplishment
In this situation, there seems to be a general disregard for the welfare of the organization. Both managers and workers see their own goals conflicting with those of the organization.
Consequently, both morale and performance will tend to be low and organizational accomplishment will be negligible.
Little Organizational Accomplishment
In some cases, the organizational goals can be so opposed that no positive progress is obtained.
The result often is substantial losses, or the draining off of assets. In fact, organizations are going out of business every day for these very reasons.
No Positive Organizational Accomplishment
The hope in an organization is to create a climate in which one of two things occurs. The individuals in the organization (both managers and subordinates) either perceive their goals as being the same as the goals of the organization or, although different, see their own goals being satisfied as a direct result of working for the goals of the organization.
Consequently, the closer we can get the individual’s goals and objectives to the organization’s goals, the greater will be the organizational performance
Successful Goal Congruence
One of the ways in which effective leaders bridge the gap between the individual’s and the organization’s goals is by creating loyalty to themselves among their followers. They do this by being an influential spokesperson for followers with higher management. These leaders have no difficulty in communicating organizational goals to followers and these people do not find it difficult to associate the acceptance of these goals with the accomplishment of their own need satisfaction
To achieve Goal Congruence
importance of aligning organizational, team, and employee goals
— Goals set the tone for your organizational strategy.
— Aligned goals connect employees and teams.
— Priorities are clarified.
Organizational goals communicate what’s important, and employees plan and execute their work based on those benchmarks. Organizational goals take the company’s overall strategy and break it down into manageable chunks, providing checkpoints along the way to reach the overall strategic mark.
Goals set the tone for your organizational strategy.
Employees have many tasks on their agenda each day, and they’re trusted to choose which should be accomplished first to propel the organization forward. When they understand how each task affects the team and organizational goals, it’s easier for them to choose the job that needs their attention first.
Priorities are clarified.
