What is Corporate Governance in organisations and how should it be reported?
Jan 3, 2023
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Governance and Reporting
The concept of governance can be and is usually defined differently from one organization to another and within industries. The Organisation for Economic Co-operation and Development (OECD) defines it as follows:
Corporate governance involves a set of relationships between a company’s management, its board, its shareholders, and other stakeholders. Corporate governance also provides the structure through which the objectives are set, and the means of attaining those objectives and monitoring performances are determined.
Why is there a need for Corporate Governance?
Most countries went through phases where new laws and amendments were introduced to ensure strict adherence to regulations by corporations operating in the country. From the 1990s onwards, multiple cases of fraud amongst companies drove the need for higher levels of corporate governance amongst organizations.
In the United States, the first phase of greater regulations came in the form of the Sarbanes-Oxley Act (2002) which established new auditing and financial regulations for companies. The second was the Dodd-Frank Wall Street Reform and Consumer Protection Act which brought in regulations for the financial industry in 2010, as a response to the acts of greed that led to the 2008 global financial crisis.
Similarly, in India, the Securities and Exchange Board of India (SEBI) led the amendments brought into the listing agreements in 2014 that ensured stricter disclosures and protection for investors’ rights. These amendments brought equitable treatment for minority and foreign shareholders. It also required companies to get shareholder approvals for certain transactions in addition to establishing whistleblower policies, and disclosure policies on pay packages, and required companies to have at least one female director on the board. These amendments were aligned with India’s Companies Act (2013) which is the law of the land.
Basics of Corporate Governance
Essentially, corporate governance is the processes, policies, structures, and relationships that help ensure that companies are controlled and directed, therefore making the entity and its management liable for their actions. Governance is about ensuring transparency and accountability within an organization which includes rules and procedures that corporations depend on to make good decisions.
Corporate governance structures and principles assign rights and responsibilities to different individuals or groups. These may include:
It is pertinent to note that the complexity of these processes and procedures of governance within an organization can be high. Additionally, nowadays governance would include more than merely financial transparency and accountability. i.e. Corporations may have structures in place to enhance transparency and oversight into matters such as environmental or social activities of the company and the impact of its operations on them.
A further note would be that corporate governance, anywhere in the world, has a strong link with legal compliance. i.e. Companies and their directors have a fiduciary duty and this requires constant care, skill, and diligence to ensure nothing untoward happens under their watch.
Impact of Good Governance
The impact of good governance is massive on a company’s ability to generate wealth over the short, medium and long term. However, it is significant to keep in mind that while having structures in place with necessary oversight to ensure transparency and accountability, it is just as important to communicate these to all stakeholders and the larger public.
This aspect of “reporting” on a corporate’s governance is done through corporate reports such as integrated reports, annual reports, corporate governance reports, ESG reports, impact reports, etc.
To ensure the appropriate disclosure of governance standards is made, the board of directors of the reporting company should have oversight of these corporate reports. Some of the disclosures would be on social and ethics, remuneration and sustainability. Additionally, corporations will have different committees formed (remuneration committee, audit committee, etc.) that are independent and have oversight of their specific remits that on the whole, constitutes good governance.
Reporting on Governance
For the sake of this blog, we will take integrated reports as the primary example since that form of reporting is gaining popularity with thousands of companies across the world. Integrated reports generally have an entire section or multiple pages dedicated to the disclosure of the governance performance of the reporting entity.
An integrated report provides a comprehensive and holistic view of the reporting company’s financial and non-financial performance. Additionally, this is done in a manner that is easy to understand for the reader and in an ‘integrated’ manner. There may be links to additional reports from the company such as sustainability reports or governance disclosure.
The intention is to showcase the company’s integrity, transparency, and accountability to readers who would include potential future investors and current stakeholders. In short, a strong corporate governance foundation and a cohesive approach to reporting measures taken can have dramatic impacts on the company’s ability to maintain competitiveness, enhance value, and generate wealth for shareholders.
Reporting Made Easier
Many companies adopt technologies to help them keep track of the data and their performance thereby ensuring that their corporate reports or disclosures keep getting better year after year. However, reporting can be complex and most companies reach out to design agencies that specialize in the conceptualization and creation of corporate reports.
These agencies (like Report Yak) have experienced design teams and expert content teams that are dedicated to ensuring that international reporting standards are met while also maintaining the readability, accessibility, and comparability of your corporate reports which may include integrated reports, sustainability reports, ESG reports, impact reports or annual reports.
If you reach out to us, we would love to have a chance to discuss strategy on your next report and help your organization improve its corporate reporting standards. You can check out some of our award-winning reports through the link!