Corporate Governance

The benefits of good governance

B2B Editor1 January 2013

I wrote in a column in 2012 about the benefits that advisory boards can offer to smaller businesses.

In this first column of 2013, I am revisiting this theme but on a broader scale, by looking at the importance of good governance for any type of organisation, including Not For Profit, Private and Public Sector organisations.
There has long been recognition that better governance should lead to better performance, however it has also been somewhat difficult to quantify. In recent years there have been many articles written on quantifying this link. A recent article I read listed a number of tangible benefits including better operational results, lower cost of capital and better share performance. What was also apparent was the impact of better governance during the turbulent times of the Global Financial Crisis.
While good governance assists across all sectors, it is important to recognise that there are differences as well. The governance structure for a small business or a small NFP will be different to a large publicly listed company or a large NFP.
What is consistent however is the need to have the right people on boards and committees of the organisation. The board or committee must have the appropriate mixture of skills and experience to assist in setting strategy and making decisions. And as an organisation evolves and matures, it needs to recognise that the skill requirements of directors will also evolve.
A functioning, competent board can provide enormous advantages to an organisation’s performance. The independent and objective advice that a board brings to the decision making process is critically important. The ability to “look outside the square” and ensure that appropriate risk mitigation processes are in place can assist in making the right choices, but also assist in lessening the bad decisions.
Most importantly, a board can assist an organisation prosper in the long term. The Australian Institute of Company Directors remains committed to improving the quality of governance across all sectors of Australian society and has a program of events and courses in 2013 to assist in this goal.
Phil Butler