All organizations have some practices, rules, and regulations. We show what the three main components of corporate governance are, and why they matter.
We all have some practices, rules, and regulations within our companies. Basically, that is what constitutes corporate governance. The three main components of corporate governance are transparency, accountability, and security.
Since organizations must comply with regulations, observe ethical standards, and partake in social responsibility, corporate governance has been thrown into the spotlight in the last few years, prompting companies to prioritize the same.
And to help companies cultivate and maintain good governance, OnBoard developed a Governance, Risk, and Compliance (GRC) portal, a centralized platform with definitive solutions and capabilities for organizations to achieve sound governance and govern more effectively.
In this guide, we break down the 3 corporate governance pillars and why they matter. We will also cover corporate governance objectives and what you stand to gain when you realize them.
Corporate Governance Objectives
The central purpose of corporate governance is to find a balance between the interests of various stakeholders within an organization, including the board of directors, managers, employees, shareholders, customers, and the government, among others. The following are the objectives of corporate governance:
- To safeguard stakeholders’ interests while aiming to strike a fair balance between their interests.
- To protect the companies’ resources from the dangers of mismanagement, including fraudulent activities and misuse of funds.
- To protect and improve the bottom line by achieving the elements of corporate governance.
- Impose stringent measures, policies, and statutory rules for companies to follow in line with corporate governance and the public’s interest.
- To ensure business practices and frameworks align with legal requirements and statutes such as human rights, anti-corruption reforms, and environmental responsibility.
- To create a line between ownership and power by creating different entities such as the board of directors, shareholders, and management.
Good Governance Benefits
The components of corporate governance present organizations with a lot of benefits. Here are some advantages of ensuring the pillars of good governance:
- Avoiding lawsuits through compliance with government policies and regulations
- Preventing and mitigating against possible risks, whether internal or external
- Bettering your image and brand reputation for public and investor trust
- Enhancing business growth and overall success
- Safeguarding against mismanagement and theft
- Observing ethical standards while aligning strategic goals with stakeholders’ interests
Now that you know the objectives and benefits of good governance, let’s dig into the three pillars of corporate governance.
Pillar No. 1: Transparency
Transparency, one of the key pillars of good governance, simply means not concealing or having nothing to hide. An entity is said to be transparent when all relevant information and detail is usually presented to the people who need it.
In other words, the people who will make decisions based on the information have to be presented with that information. And as a rule, the information should be presented in simple terms that the users can easily understand.
Transparency in corporate governance is highly critical as it ensures an external party or examiner can check and verify the organization’s actions and dealings at any given time. This not only helps to detect and prevent the dangers of fraud and mismanagement but also bolsters the brand image and reputation.
For example, a company should disclose all the necessary information to its shareholders, board directors, auditors, and the general public. Such information may include the financial position and statement of the company, minutes and outcomes of board meetings, changes to normal operations, and resignations and replacement of key managerial staff and board members.
Eventually, when shareholders, creditors, and other stakeholders can see that a company has transparency, they are more willing to invest in it, hence accelerating its growth and success.
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Pillar No. 2: Accountability
The second pillar of corporate governance is accountability. Generally, accountability means the willingness and readiness to take the blame or shoulder the ramifications of your actions. This pillar ensures the governing body (usually the board of directors) is accountable to shareholders as well as external stakeholders like the government.
When accountability is practiced throughout the company, everyone from the top brass to the employees will take due care since they’re responsible for their actions. In other words, the company will own up to its actions whether the results are good or bad.
As one of the major pillars of good governance, accountability aims to ensure that no one in the company, including the managers, can use the company’s resources for personal gain or to their own benefit, but instead, for the benefit of the company and its stakeholders. When shareholders and other stakeholders know that someone will be held liable or accountable for any mishaps, it increases their confidence and desire to invest in your company.
Pillar No. 3: Security
One of the reasons why corporate governance is important in a company is to protect against risks, whether internal or external. Think of how much confidential data there is at the hands of those who run the company, especially the leadership. While a company may have transparency and accountability in its operations, there is no compromise in maintaining high-security standards.
From corporate data to trade secrets and clients’ information, every company should look into protecting its essentials from the menace of security breach. Without standard measures for security, you risk security breaches, which have serious repercussions. For instance, if a third party hacks a client’s information, it will not only affect your stock market performance, but you will also lose the public/shareholder trust.
Develop stringent security measures and standards that everyone in the organization must observe. Also, make sure there is no unauthorized access to the company’s processes and activities, such as board meetings. Ensure your systems are also not vulnerable.
Transparency, Accountability, and Security Equals Integrity
When we combine transparency, accountability, and security, we realize integrity in the company. A company’s integrity is an all-encompassing element comprising ethical standards, work ethics, government stipulations, and other measures. Generally, integrity means acting in line with the requirements of the article of association or memorandum of association of the company.
While achieving all these may seem like a daunting task, we have the solution for you. You can ask for a free trial of OnBoard and see how we can help make your processes more transparent, document every activity for accountability, and incorporate additional levels of security into your meeting files and documents. For example, we will offer quick but authorized access to your documents and files and allow you to update them at any time, from anywhere.
The Bottom Line on the 3 Pillars of Corporate Governance
Good governance isn’t complicated. All you need to do is practice the 3 pillars of corporate governance; transparency, accountability, and security. In the long run, you will achieve integrity, and your company will be considered credible. And more investors and creditors will be willing to partner with your business, ultimately helping you generate capital and step up your growth.
If you need any help to streamline your processes or optimize your board meetings, you can get in touch with our team of experts for more decisive insights.
About The Author
- Adam Wire is a Content Marketing Manager at OnBoard who joined the company in 2021. A Ball State University graduate, Adam worked in various content marketing roles at Angi, USA Football, and Adult & Child Health following a 12-year career in newspapers. His favorite part of the job is problem-solving and helping teammates achieve their goals. He lives in Indianapolis with his wife and two dogs. He’s an avid sports fan and foodie who also enjoys lawn and yard work and running.
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