For a company to run successfully, it needs a practical corporate governance framework. Essentially, corporate governance is the set of rules, practices, and processes by which a company is run.
It epitomizes the principles of responsibility, accountability, transparency, and fairness. In order to implement your corporate governance framework, you need to identify who is responsible for corporate governance and to whom this responsibility belongs.
Providing adequate corporate governance practices within a company is the responsibility of both shareholders and directors.
The role of shareholders in corporate governance
Shareholders are the ultimate controllers of a company and have the responsibility for regulating all actions and transactions of the organization as a whole.
The Companies Act requires certain transactions to be approved by shareholders before they can be implemented by the board of directors.
In addition, shareholders have the authority and responsibility to remove a director if they determine that he/she is not performing his/her duties adequately and in the best interest of the company.
Corporate governance: The Role of Directors
As the controlling members of a company, the board of directors has a number of powers and functions. A company’s powers and functions are governed by its Memorandum of Incorporation or the Companies Act.
As a board of directors, you should ensure that you have considered every possibility, including the financial position of the company and undertaking the proper due diligence. Section 77 of the Companies Act does, however, impose statutory liability on directors. A director who breaches his/her fiduciary duties and/or the duties in the Act may be declared delinquent by a court on any ground as contemplated in section 162 of the Act by an interested party.
It is therefore imperative that a director act within the scope of his/her mandate, and that a corporate governance framework is in place to identify any errant conduct.
In Conclusion
A system of policy and rules is implemented as part of corporate governance to ensure that an organization remains cohesive. It is designed to help companies stay on top of financial, legal, and ethical pitfalls. It is abundantly clear that implementing a good corporate governance framework results in direct benefits
(This article is provided for informational purposes only and not to provide legal advice. For more information on the topic, please contact our offices.)
