Governance - or corporate governance to be more specific - is fundamentally a set of rules, structures, processes and guidelines that define an organization and translate into so-called good corporate governance. The aim is to strengthen an organization's competitiveness in the long term by making all the parts of governance visible and integrating them from top to bottom.
Below, we take a look at why it is so important for organisations in both the public and private sectors to incorporate corporate governance principles and practices into their daily business activities.
What is governance?
There is no real definition of governance, but if an attempt is to be made, it should be something along these lines:
Governance is a system of processes, rules and guidelines by which an organization is controlled and operates. Ethics, risk management, compliance and administration are all elements of governance.
It is primarily about the structure and processes for decision-making, accountability, control and behaviour. It is also about ensuring that everyone in the organization follows appropriate and transparent processes and that the interests of all stakeholders are represented/protected.
Governance can also be seen as a set of relationships between different stakeholders (management, board, shareholders, employees, etc.), and good governance sets clear roles and responsibilities within the organization. For example, what can you do as an IT employee and what should you do as a board member.
Governance influences, among other things:
- How the organization's goals are set and achieved
- How risks are monitored and managed
- How performance is optimized
It is also important that governance is seen as a system and an ongoing process - not a single activity. A successful governance strategy therefore requires a systematic approach to the rules, practices and processes by which the organization is governed, ensuring that the mechanisms that drive the organization are well-built and can continuously adapt and change as different opportunities and/or challenges arise.
Why is governance important?
The purpose of governance is to support value-creating and responsible leadership to strengthen the organization's competitiveness in the long term.
Broadly speaking, governance encompasses all the practices, processes, and policies that help guide the organization in the right direction. It's the "big picture" of the organization - a sort of helicopter view - that ensures finances are stable, risk management is under control, and long-term strategies are in place.
More specifically, a successful governance strategy can:
- Improve organizational performance
- Help the organization become more stable
- Unlock new opportunities
- Reduce risks
- Build trust
With the above in mind, governance can be seen as an agent for business sustainability and profitability. It is a contributing factor in building a reputable image and a healthy culture within the organization - not to mention achieving the organization's goals.
