Governance has been defined by various institutions using different perspectives. The general definition, however, focuses on the rules and policies implemented by corporations. Hence, governance is the corporation’s approach towards implementing its rules and ensuring compliance with its policies.
On the other hand, good governance has an in-depth meaning of how the corporation manages its affairs. It is the government system that ensures that every member of a corporation has a sense of accountability. Groups and individuals under a corporation balance power and its assertions if they want to ensure good governance. This principle of corporate governance leads corporations to achieve their goals. Good governance also helps organizations set reputable images in their line of operation.
The Principle of good governance
However, the principle of good governance does not limit itself only to accountability, as other essential principles need to be in place before any organization can practice good governance. These additional characteristics are numerous and adopted differently by different corporations. The most effective way to practice good governance is to ensure that the corporation always uses all of these practices.
The 9 Major Characteristics of Good Governance
Corporations implement many characteristics of good governance. But nine of them are the most important and widely accepted universally, and they include:
To begin, accountability is one of the essential practices of good governance, and it entails the responsible discharge of duties by the board of directors. These directors ensure that the decision-making process does not affect individuals, groups, shareholders, stakeholders, employees, or the general public. Additionally, practicing accountability increases shareholder confidence and helps organizations manage risks.
2. Consensus Orientation
Next, for a corporation to practice good governance, there needs to be a consensus among the members. The boardroom is mainly used for this purpose, and in-depth debates are essential recommendations in this room, as it allows for a diversity of the organization’s thoughts and actions.
Transparency is a principle built on the free flow of resources and information. Access to information and important issues need to be available to all corporation members at the right time. Moreover, the necessary information is also provided in enough quantity to understand and monitor them.
Corporations that practice good governance always adopt better communication practices between shareholders and stakeholders. This is done in due time to enable the provision of honest answers to the organization’s direction.
A standard corporation is recognizable with the effective communication practices by the members. This means that the members communicate effectively because they can participate collectively to achieve the corporations’ goals. Participation as a characteristic of good governance entails the proper assortment of skills, talents, abilities, experiences, and perspectives to the organization’s activities.
6. Effectiveness and Efficiency
It is equally essential that the corporation adopts measures that encourage increased efficiency in all departments. Increased efficiency can include introducing modern and advanced technology in order to increase the output of the organization’s activities. Additionally, some organizations also consider the environment when performing their duties and responsibilities.
Each board director and employee has equal rights in the corporation. Therefore, each individual should have the free will to express their opinions, philosophies, and experiences. No one should feel left out or feel that their views have less importance to those of others.
8. Rule of Law
The rule of law in good governance means that the board should be just in its decision-making process. Hence, there should be zero tolerance for injustice or partiality on the board. There might be circumstances whereby the board needs to seek professional counsel, guidance, or expertise when making their decisions.
9. Strategic Vision
Finally, corporations should have a board of directors with abilities to perform strategic thinking. Having a clearly defined strategic vision leads to the board developing a coordinated and systematic plan to achieve the company’s goals.