Develop a Corporate Governance Framework
It is often said that absolute power corrupts absolutely. Therefore, every institution that will last must establish a system that will serve as a check against absolute power.
This is the rationale for corporate governance; to create a system of checks and balances between the different power holders in the company.
In my last article, I spoke about selecting a good board as the first step in implementing corporate governance. After a well constituted Board, the next important ingredient is having a written document that contains your governance structure — a corporate governance framework. In larger organizations, the corporate governance framework will contain the Board Charter, Board Committee charters and other governance policies like Code of Ethics, Conflict of Interest Policy, Delegation of Authority Matrix etc. Often times, for larger companies, this framework may be lengthy, due to complexity of operations, compliance with legal requirements for listed companies, and the need to provide a comprehensive guide for the Board, the Management and the shareholders. However, as an owner of a small organization, you may not need such an elaborately drafted governance framework as in the case of large organizations. You can opt to prepare something simpler using the following headings:
The Company’s Governance Philosophy– In one of my earlier articles, I mentioned that corporate governance is not just a box-ticking exercise; it is the ethos, the software or the philosophy that should guide your company. As an entrepreneur, having set the vision for your company, your governance philosophy will be one of the tools that will help you sustainably achieve the vision. The governance philosophy can state the principles that should guide your Board, Management and Shareholders in carrying out their respective responsibilities. Examples of such principles may include accountability, transparency, fairness and respect. A clear statement of these principles will help set the tone for good governance in your organization.
Composition of the Board (size, number of non-executive directors, qualifications required for directorship) — In preparing this part of the document, you may need to consider the following:
· How many Directors do you intend to have?
· How many Non Executive Directors do you want to have?
· What type of skills do you need represented on your Board?
· What type of qualities would you be looking out for in a Director?
All these questions help to ensure that you select directors that will make relevant and significant contribution to your Board.
Role of the Board, individual directors and company secretary– A lot of times, Directors have a vague idea of their powers and responsibilities in a Company. They know that they are expected to act in the best interests of the Company but may not be able to clearly outline all the other duties expected of them. A corporate governance framework is an opportunity to set out the expectations you have of your directors. A few of which could be: the duty to give sufficient time to Board meeting attendance and other company commitments; duty to maintain confidentiality of company information; duty to keep company documents safe; and duty to avoid or disclose conflict of interest situations, among others. It is also an opportunity to let directors know what they should expect from the company including access to timely and relevant information, remuneration etc.
Board Committees — Board committees are set up by the Board to ensure effectiveness and efficiency. The Nigerian Code of Corporate Governance requires the Board to delegate to committees for efficiency and effectiveness. The rationale for this is that certain issues require more time for deliberation and specialized professional experience. Depending on the circumstances on ground, the Board can either choose to set up a standing committee to meet regularly or an adhoc committee to meet for a certain period. For example, if the Company is going through the capital raise process and the Board wants to decide on proposals, the Board can delegate the matter to an adhoc Finance Committee to discuss and make recommendations. However, as the Company’s operations grow with more complex issues to discuss, the Board may decide to set up a standing finance committee to review the financial statements and make decisions on investments or other issues too complex or numerous to be handled by the entire Board.
Authority Limits for Management and the Board– One of the key foundations of corporate governance is setting and maintaining authority limits for the Board and Management. This can define what decisions Management can take without the approval of the Board and what decisions the Board is required to approve? This helps with maintaining a system of internal controls and checks, guarding Management from taking decisions that could have huge negative impact on the Company without consulting with the Board.
Conclusion
Documentation of the values and systems that will ensure a sound corporate governance structure for your organization is very important. This is why as the owner of a growing business you must ensure that you create your governance framework in line with the basic requirements listed above. Once you have duly documented your corporate governance framework, there is one more step I believe you need to take This will be discussed in my next article.
REFERENCES
1. https://seepnetwork.org/files/galleries/Tips_for_Setting_Up_A_Board_Committee.pdf
2. The Nigerian Code of Corporate Governance https://www.financialreportingcouncil.gov.ng/the-nigerian-code-of-corporate-governance-2018-nccg-2018-unveiled/ accessed 22nd April, 2021
