Corporate Governance and Sustainability and Business Continuity of an Organization

In modern corporate world every organization responsible to follow rules guideline while achieving their targets. Increasing profits, motivate employees and make sure staff’s outcome is effective and efficient against the organization profits. An organization is not a standalone unit in society. It can’t exist without its stakeholders. All organizations have two major stakeholders.

Internal Stakeholders  - Owners, Shareholders,  Directors, Managers,  Staff,  Creditors,   Suppliers

External Stakeholders - Social,  Environment, Government etc

Organizations have its responsibilities to each party mentioned above to fulfill. This post is about to discuss how organizations directed and control according to its own process and procedures to accomplish responsibilities.

 

figure 1 : (A. Shleifer, R. V., 1997. A Survey of Corporate Governance.)

Corporate Governance

The relationship between organization and shareholders can be simply defined as “Corporate Governance”, But broadly it’s included how the organization relationship with its stakeholders mainly shareholders and owners according to processes, practises, procedures, policies and organization constitution by the Board when decision making (Tricker, 2012)

It means corporate governance is significantly affecting to the business performance of the organization. It’s should be a mechanism with assuring the return of investment of the investors. The Organisation for Economic Co-operation and Development aka OCED claims corporate governance is one key element of improvement of growth, economic efficiency and increase confidence of investors (A. Shleifer, 1997). 

Corporate governance is expanding in mainly four areas. people, purpose, process and performance.

People – every organization exist with people, founders, owners, stakeholders, shareholder, the board, staff and consumers. They are the actors who define a purpose to achieve, define a process to accomplish it and evaluate.

Purpose – every organization is with its own purpose, to achieve in future. The vision and mission of an organization guide its incorrect path.

Process – processes are constantly being refined over time to achieve their goals, and it is always wise to keep a critical eye on organization control processes.

Performance - One of the primary functions of the control process is the ability to look at the results of a process and determine whether it is successful (or sufficiently successful), and then apply those findings to others in the organization.

Importance of Corporate Governance

The importance of corporate governance is not only for the internal of an organization but to all other areas in the society including interest and non-interested parties. They are expecting an organization to accompany high responsibilities, higher standards and good performance in the industry. It’s one of the most important attractive factors for investors who are finding investment opportunities. Even all organizations looking to maintaining enough working capital to continuity of the organization and resource, Only the organizations that conform to the globally accepted standards along with good governance are able to find that capital. (Kavalíř, 2005)

Corporate governance is seen as a key component of the quest to achieve economic efficiency and justifies increasing investor confidence. It covers a wide range of issues arising out of relationships between corporate management, administrative authorities, shareholders and other stakeholders. (Klírová, 2001)

Good governance is a combination of clarity, accountability and transparency. And it's the core of good governance. Clarity of the organisation’s purpose, and the values & principles that drive it; Accountability for all the organisation’s stakeholders, not just the financial stakeholders; and transparency in understanding and demonstrating how the organisation lives up to the purpose, values and principles that drive it.

Figure 2 Conceptual model linking governance, sustainability and performance. Source (Paul & Amr, 2013)

Corporate governance improves the image and promotes its ethical behaviour. It’s said about the company’s interest to follow the best practices and good business ethics.

Stakeholders associated with the corporate governance of the company are critical to creating a successful and well-intentioned risk management program. They have the final statement on security procedures and protocols that apply to all employees in their company.

The board and stakeholders going along with the corporate governance to drive the organization to the path of success. It helps to accomplish the organization vision and mission.

It’s about maintaining the integrity of the business and take away the conflicts of interest.

Corporate Governance and Sustainability

Organizations consider sustainable development as well as profits. Because it gives recognition to the organization among the other competitors.

Sustainability is a collection of main three dimensions.

1.       Economic growth

2.       Social responsibility

3.       Environmental responsibility

Profits and development of an organization, increase job opportunities, it helps to reduce unemployment in society and develop the state of living of people by providing jobs, services and products.

In 2008 International Federation of Accounts (IFAC) commentate that sustainability is about:

–  Promoting and follow ethics and sound corporate governance practices

– Providing a safe working environment in which the health of employees is protected and their opportunities for self-development are enhanced

– Promoting cultural diversity and equity in the workplace

– Minimising adverse environmental impacts

– Providing opportunities for social and economic development within the communities we operate (IFAC, 2008)

Figure 3 Drivers of Sustainable Organizational Success (IFAC, 2011)

Sustainability in corporate is a good approach of company productivity, creating a social value for the company and its shareholders, build up the social image as it adheres to social economic and environmental ethics also to refrain from harming them.

It’s effecting the relationship to the owners and financial providers, employees of the organization, organization’s suppliers, consumers and customers, communities finally environment.

As we discussed relationship of owners / financial providers (shareholders) is focusing on the performance and profits of the organization. They are expecting updated reports, the true picture of the organization performance. Integrity, accountability and responsibility increase the trust of shareholders. They are expecting the decisions of the board and managers will increase their profits and follow the correct and right processes to govern the organization.

Employees are expecting, good payment, effective reward system, work-life balance, good work environment, the safety of a job, health care and well-being, needful training to work. Simply it’s a good human resource policy in the organization. When an organization and its management create a great place to work, employees increase performance and motivation, reduce human errors mistakes also increase loyalty to the organization. It’s directly affecting the increased performance of the organization.

Same as good financial policies increase the trust of suppliers that their payment will get timely. Handling consumers, with timely collections and managing efficiently working capital ensures the existence of the organization even in a crisis period. Correct vision, good understanding, confidence and agility (VUCA 2.0) make sure the strength of finance.

Also proving quality product or service to customers are stable market demand of the organization, following standards of production, ensure the outcome’s quality. Making quality standards ensure product or service meets the standards, entrust customers that they are spending on a good product. Its adding value to the product.

Also, when it comes to the communities and environment, as a part of society organizations are responding to their social accountability with CSR (Corporate Social Responsibility) projects.

Environmental Projects such as tree planting programs, cleaning projects, sponsoring to environmental protection programs, join with reputed organizations such as World-Wide Fund (WWF). Organizations donate part of their profit for educational programs, WFP - world food program by the United Nations, Humanitarian activities happening in underdeveloped countries. Funding COVID-19 health care projects.

However even these programs help to build up the organization reputation, some organizations not willing to contribute to CSR parts as their social responsibility.

Creating job opportunities pay tax and contribution to GNP (Gross National Product) of the country are can be defined as government expectation from an organization. The government is establishing policies and bills to monitor the organization behaviours. Income tax, quality standards, employment policies and laws to control misbehaviours of organizations.

 

How failures of corporate governance effects?

Not following governance practices may occur issue to the firm, socially and also legally. The result of the cause is not an instant; it takes some time to appear and affect the core of the business. When the issue occurs, the organization is late to correct the bad practise and policy.

Unfollowing good practices caused to collapse of giants in the corporate world.

In 2020 Wells Fargo fake account scandal made a $3 billion fine to settle a civil lawsuit and resolve a criminal prosecution filed by the Justice Department. To meet sales quotas, bank employees opened millions of savings and checking accounts in the names of actual customers, without their knowledge or consent. (Williams, 2020)

However internal and external audits help to overcome this problem. It’s the responsibility of management to place audits timely and ensure the organization is following its own rules and regulations.

  

Conclusion

Corporate governance is identified as an important element to gain the trust of investors, enhance growth, productivity and performance of the organization. Act ethically and ensure transparency and accountability also recognize and manage risk assets are key things on good governance.

Corporate governance is helping organizations to maintain their activities while following adhering to the policies procedures and complaints to the law.

Adhering to it is a key responsibility of all interested parties including managers, stakeholders, staff and governing bodies. It builds up the social image of the organization and its founders.  Implementing sustainability will ensure corporate social responsibilities to the internal and external parties. It builds up the motivation of employees, social respect against the organization. It is important to have relevant goals, in the organization by creating process and procedures also implement measurements to measure the status of outcome in good governance practice.

Integrate sustainability and implement corporate governance into the vision of the leadership of the organization and giving understanding to all employees and to the board of the organization is entrusted the future existence and growth of the organization.

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