The purpose of good corporate governance is to ensure that the company is managed in an efficient, effective and entrepreneurial manner for the benefit of all shareholders over the longer term. Features of good corporate governance that help to achieve this include:
Efficient management
- The governing body must not be so large as to prevent efficient operation;
- The mechanisms by which important decisions are taken should be transparent;
- It should be clear where responsibility lies for the management of the company and for the achievement of key tasks;
- Procedures should be in place to protect significant tangible and intangible assets and these need to be regularly reviewed and updated.
Effective management
- The governing body must have all appropriate skills available to it in order to make they key decisions expected of it;
- Decision makers should be provided with the best possible information (accurate, sufficient, timely and clear) on which to constructively challenge recommendations made to them before making their decisions;
- The collective responsibility of the board requires all directors be to involved in the process of arriving at significant decisions;
- Ineffective directors (executive and non-executive) must be identified and either helped to become effective or replaced.
Entrepreneurial management
- There should be a vision of what the company is trying to achieve, over what period, and an understanding of what is required to achieve this ambition.
Benefit of shareholders over the long term
- Vested interests should not be able to act in a manner contrary to the common good of all shareholders; transactions with management, major shareholders and other related parties should be reported in a transparent manner;
- A dialogue should exist between shareholders and board so that the board understands shareholders’ objectives;
- A communication mechanism should exist between board and shareholders so that shareholders understand the constraints on the company.
This guidance has been extracted (with kind permission) from guidelines provided by the Quoted Companies Alliance, based on that in the Combined Code. The Combined Code states that ICSA has agreed to produce updated guidance on its website www.icsa.org.uk in the future.
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