In our continued coverage of the recent release of King IV, we take a look at the benefits of adhering to it. To adhere to King IV is to adhere to the principles of sound corporate governance. Let’s take a look then of the benefits of adhering to corporate governance
Organisations that regard corporate governance as a matter of grudge compliance do so at their peril
Difficult economic conditions, depressed business and a potential ratings agency downgrade are just some of the challenges facing business leaders today. Business leadership has become as much about responding to external factors, as it is about a focus on the organisation itself. Good corporate governance is indispensable, particularly the way that it is understood in the King tradition as going beyond structures, processes and procedures to encompass leadership in the context of the economy, society and the environment.
Good corporate governance ensures that the necessary arrangements are in place so those responsible for good governance can capture new opportunities and are more resilient to face risks in an ever-increasing complex and unpredictable environment. Corporate governance is not a barrier to enterprise but the way to successful enterprise.
4 benefits of corporate governance
If you’re not a legal expert, you might be surprised by how many rules, regulations and laws you might break when operating your business without even knowing it. One way to avoid running afoul of the law is to determine your obligations and then put rules and regulations in place that your employees and contractors must follow to keep you compliant. Adding corporate governance procedures will help you stay out of hot water while you focus on your business concerns.
Unlike simple policies and procedures, such as a dress code or expense reimbursement procedure, corporate governance rules focus on creating better management and fewer ethical or legal problems. Examples of corporate governance include:
- setting rules for using business funds for personal use
- serving on a board of directors
- hiring family members
- conflicts of interest, and
- notifying owners, investors and partners of key meetings and decisions.
Here are four advantages to sound corporate governance:
1. Improved reputation
A corporate governance programme can boost your company's reputation. If you publicise your corporate governance policies and detail how they work, more stakeholders will be willing to work with you. This can include:
- lenders who see you have strong fiscal policies and internal controls
- charities you might partner with to promote your business,
- government agencies
- the media
- vendors, and
The practice of sharing internal information with key stakeholders is known as transparency, which allows people to feel more confident you have little or nothing to hide.
2. Fewer fines, penalties, lawsuits
Corporate governance includes instituting policies that will require your company to take specific steps to stay compliant with regulations and laws. For example, as part of corporate governance, an executive management team or board of directors might conduct a review of the company’s hiring practices. You might require your accounting department to undergo an external audit by an independent auditor every quarter or year.
3. Decreased conflicts and fraud
Corporate governance limits the potential for bad behaviour of employees by instituting rules to reduce potential fraud and conflict of interest. For example, your company might draft a conflict of interest statement that top executives must sign, requiring them to disclose and avoid potential conflicts, such as awarding contracts to family members or contracts in which an executive has an ownership interest. The company might forbid loans to officers and family members or the hiring of family members. External audits or requiring checks over a certain amount to be approved and signed by two people help reduce errors and fraud.
4. King IV allows for situations where it does not deal with a specific situation
This allowance then gives your organisation the ability to not conclude a tick box exercise, but to have the Report find practical application to your organisation’s practical circumstances.