This record looks at the factors and qualities that generate good corporate governance and its best practices. For this article, we shall address the area of Board of Directors, since they are the driving force of every organization. Therefore, a strong governance framework needs to be established, and should serve the following objectives:Clarify the roles, responsibilities and accountabilities of the board members and management team; Enable the board to provide strategic advice and effective oversight of the management; and Ensure that no one single individual has too much power or affect on the organization.Further to the above, the board's main role is to protect the interests of the shareholders and other relevant stakeholders. At the same time, they have to ensure that the company is able to compete in the market. The directors are also anticipated to be able to have a firm grip on the company's internal controls processes, to ensure operational and financial risks are identified, addressed and managed.
In a normal context, the effectiveness of a board within an organization depends on a few factors, namely, size and composition, competencies, activeness and leadership qualities. These factors are non-exhaustive and non-conclusive whereby every organization should include relevant gauge wherever necessary.
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Size and Composition
There is no such thing as the optimal size for the board, but the clubs Act 1965, Malaysia determines the minimum estimate of directors and the Articles of relationship ordinarily specifies the maximum. However, instead of arriving at the absolute number, an organization should look into positive factors to gauge the optimum size of the board. Some of these factors include:-Size of the organization, scope of company and geographical diversity;
There should be a balance between executive and non-executive directors as well as the independent elements of those non-executive directors. This is mainly to accomplish the check and balance whereby no single individual has the greatest control over the board;
whether the board has representation diversity in terms of pro experience, race, gender and technical know-how of the industry.Competency
There should be a mixture of core competencies among the directors in the board to cover most aspects of the organization. positive directors need to have relevant commerce exact knowledge and caress whereas others are professionals having focused expertise in areas such as finance, accounting, risk management etc.
Activeness
The board is required to play an active role in directing the organization. Although they may not be playing an active role in the daily operational issues, the board is anticipated to be vigilant in ensuring the management is implementing the direction of the board.
In addition to playing the strategic role within the organization, the board is also anticipated to monitor the management's decisions and actions, and if there are inconsistencies found, they should inquire the management based on factual knowledge. Furthermore, the board is also anticipated to ensure that the management conducts their tasks ethically and comply to all financial reporting and regulatory requirements.
Leadership Qualities
Being the driver of the organization, the board must should leadership qualities such as having capability to inspire talents and provide strategic direction and vision of the organization. They have to be able to evaluate strategic decisions, conceptualizing ideas and innovation to continually pressing for growth and address time to come challenges.
Whilst the board of directors plays a very big part in corporate governance, positive other factors like risk management, internal and external audits too affect the framework of corporate governance.
Corporate Governance - The Board structure
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