This article has been written by Brijesh Sharma pursuing a Personal Branding Program for Corporate Leaders course from Skill Arbitrage and edited by Shashwat Kaushik.

This article has been published by Shashwat Kaushik.

What is a corporate governance framework

Corporate governance framework is a set of systems, processes and principles that guide the overall functioning of the corporation. It offers an oversight governance framework that aims to govern the company in a responsible, transparent and ethical mannerfor the long-term benefit of all stakeholders.

Sustainable Interests- A good framework makes sure that interests of all parties at stake (e.g., stockholders, employees, customers, suppliers, and the greater community) are considered, weighed, and are pursued in a sustainable fashion. And it is a guarantee against any one group dominating the decision-making to their benefit, and ensuring that benefits are distributed fairly.

Establishing Accountability- A clear allocation of roles and responsibilities as per the corporate governance structure leads to accountability at all levels of hierarchy. This includes not just the board of directors, but management and individual employees as well. It also promotes visibility, since stakeholders can now determine how well the company is doing as a business.

Attracting investment- Good governance practice fosters the confidence of investors, as it demonstrates the commitment to noble management in responsible and ethical manner– High reputation would make the company a household name to the local investors and even the investors from abroad would like to invest in the company

Performance- Several studies show a relationship between good corporate governance leading to good financial performance. Businesses with good governance are more effective, innovative and resilient, which means better profitability and sustainable growth.

Risk management- A robust governance framework includes a comprehensive approach to risk mitigation. The organisation can reduce the probability (likelihood) and impact (if it does happen) that the adverse event may occur through the timely and effective detection and treatment of risk. This is to protect the company’s assets and goodwill.

Building goodwill- Companies acting in an ethical way and doing good governance, also improve their goodwill and brand. This, in turn, strengthens customer loyalty, motivates employee engagement, and builds trust with our stakeholders as a whole. A good reputation also gives you a competitive edge in the marketplace.

With the complexity and speed of the current business world, sound corporate governance are pre-requisites for sustainable success. A good framework can deliver tremendous value to the company and its stakeholders by: of aligning all stakeholders’ interests, through accountability and transparency, the ingredients for investment, performance, take out risk and build reputation.

Make no mistake, corporate governance is not a one size fits all But the central principles of accountability, transparency, fairness and responsibility are just as relevant wherever medical science goes.

What are the components of the corporate governance framework

Corporate governance framework includes and is not limited to:

• Company board: Corporate governance provides a skeleton of how the company board should be and how many directors and non-executive directors should be included depending upon the scale of the business. It also confirms the roles and responsibilities specific to the board.
• Roles & responsibilities: Corporate Governance describes roles and actions for all levels of management. This includes the responsibilities of board members, stakeholders, suppliers and vendors. Presenting the right actions is the key to avoiding conflicts and enables smooth working of the organisation.
• Risk management process: Corporate governance covers risk management, which has several aspects like identifying, evaluating, and managing potential risks that could deeply affect the business. As any new business includes selling products or services over various channels, hence risk management is important to handle the challenges of the business.
• Ethics of business: Corporate Governance empowers business guidelines via code of conduct for all employees, inclusive of board members and promotes ethical decisions compliant with both legal and corporate standards. This can also be said as business and organisational etiquette.
• Aids in audits: Corporate governance specifies audits process to ensure financial and legal accuracy is maintained both internal and external to the organisation and the organisation is abiding by the government policies.
• Stakeholder management: Corporate governance defines involving stakeholders, vendors, supplies and even sometimes consumers in important business-level updates (e.g., product names will be changed) and business decision-making processes so that they are transparent to the community.

10 tools useful for implementing corporate governance

• Archer by Archer Technologies LLC, with the following extensive features: security and operations management, regulatory & corporate compliance, business resiliency, public sector solutions, third-party governance, ESG management, and operational resilience.
• LogicManager is an ERM tool that helps with data analytics with the following features: enterprise risk management, IT governance management, third-party risk management, audit management, policy management, business continuity planning, and financial reporting compliance.
• Riskonnect has good integration with Salesforce CRM. It features internal auditing and alerting via a risk management information system, claims administration, internal auditing, accounts management, and compliance management.
• SAP GRC is used for real-time visibility & control over business risk and opportunities via process control, CRM management, business integrity screening, regulation management, enterprise threat detection, privacy governance, global trade management, and HANA implementation.
• SAI360 is an employee training, monitoring and third-party access software with the following features: compliance education & management, internal control, environment, health, and safety (EHS) management, and dependency management.
• MetricStream is used for flexibility & customisation with the help of policy management, regulatory & change management, case & survey management, and third-party management.
• Enablon GRC aids continuous assessment for organisations via compliance management, audit management, inspection management, document control, internal control management, internal audit management, insurance & claims management, and continuous assessment.
• ServiceNow is one of the leading tools for IT automation and integration, application and services management, business continuity management, people information management, IT inventory management, continuous authorisation & monitoring, change management, performance analytics, problem management, and incident management.
• Standard Fusion promotes usability & user experience via knowledge informatics, survey management, UI/UX management, policy management, and incident management.
• Fusion Framework System is visualisation software and helps manage the following: organisational team management, third-party management, business continuity management, and IT disaster recovery management.

11 challenges usually faced by Startups and emerging companies

1. Financial management: Procuring capital, managing operating funds, managing debts, profits, dividends to investors and rewards to company employees.
2. Time management: As employees work towards their goals, which then combine towards organisational goals, effectively managing work time, break time, attendance and leaves for the employees is important.
3. Project planning: Before developing and launching a product/service to the targeted market and then supporting the customers with the issues faced, the entire project must be planned, and the scope of work must be understood and distributed among the organisational hierarchy.
4. Marketing: Making the public aware of the new product or service and thereby influencing them to become potential customers with positive sales towards the company is the role of marketing.
5. Building the team and collaboration: Creating a team of employees who work on common goal and help on project deliverables and collaborating real-time among the team members is also challenging without proper communication channels
6. IT and other security: Physical security for production and manufacturing plants and IT security for data-driven software companies is vital. It’s a challenge to keep the security updated with the latest changes in the company policies.
7. Lack of infrastructure: Starting a new company or a startup always requires infrastructure like shops, land, buildings, machinery and servers. Connecting all these places together with a purpose-driven model is a challenge.
8. Up-scaling and growth: Up-scaling and growth are important for emerging companies so that their products and services reach a wider audience and help increase profit, market capitalisation and net worth. Tracking sales and revenue is another challenge.
9. Legal regulations and litigations: To make sure the emerging company abides by all the laws and regulations and complies with the government at various levels is important. Also, various litigation needs to be solved in a rational way with the agencies.
10. Effective leadership: Good leadership is crucial for the new companies, as they not only give direction to the employees but also inspire and motivate the employees in challenging times.
11. Knowledge management: This challenge is also one of the most important ones as it provides documents, SOPs, and guides for the employees on how things are done and how targets can be achieved. Maintaining a document repository is, hence, crucial to organisation success.

How does corporate governance help

As discussed, corporate governance is a set of rules, practices and processes; hence, it helps handle almost all the challenges faced by startup and emerging companies in the following ways:

• It increases board accountability and helps protect stakeholder values by holding the organisation accountable. The board can take proactive steps to demonstrate their commitment and accountability.
• Implementing IT governance via tools that already follow a set of best practices helps an organisation manage information relating to its employees, issues faced, changes done, and the inventory in place.
• With the use of SAP and other tools that already follow governance principles, it helps manage systems applications and data by modelling and effectively connecting the data flow between various systems involved in delivering products to the customer.
• Corporate governance provides guidelines on how physical security should be kept depending upon the type of product and services the company would sell and what the best practices are to help protect data and IT infrastructure. Thus, use of security checkpoints, anti-virus and anti-malware software and firewalls to help safeguard the organisation.
• Business sustainability and effective control: Corporate governance enables people and time control at various levels of management. It also aims at providing business sustainability as the right decisions are taken while running the business, thus ensuring business continuity.
• Legal regulations: Corporate governance obviously comes with the process that is designed considering the legal laws and legislatures of the government. Thus, it helps regulate legal regulation.
• Balancing short-term and long-term goals can be achieved when we have governance in place for the organisation. Teams can be aligned to the goals, and they can be split into smaller, achievable goals.
• Enhancing data security and compliance: With corporate governance, multiple layers of security can be incorporated to help protect data. Data is the key for the growth of companies in the modern world. Also, compliance can be achieved with the right level of security in place for the right audience.
• Ensuring smooth transition among the organisational hierarchy in the event of employees leaving the organisation and new employees joining the organisation in place of them.

Importance of corporate governance

Although corporate governance has often been seen as compliance mechanism, corporate governance is actually a strategic lever in the organization. The best corporate governance is well-designed, well-managed, and well-regulated; it lays the foundation for sustainable development and value creation. A well-defined list of principles that guarantee the company performs actions needed to satisfy its moral and legal obligations and forms the basis for meeting its upper-level aims.

Starting the journey of building trust and transparency:

Good corporate governance builds trust with all stakeholders, including investors, employees, customers and the community. There needs to be a culture of trust within organisations where clarity is given over lines of responsibility; transparency is provided over decision-making processes; and behaviour should be ethical, and will, if placed at the heart of a company, strengthen relationships with stakeholders. Greater trust in you can translate into more confident investors, happier employees, and a positive brand.

Clarity of long-term vision and strategy:

Good corporate governance is also a framework that produces strategic clarity and long-term vision. Defining roles & responsibilities along with the metrics & measurements for performance will align the organisation. In addition, a strong governance framework encourages long-term thinking, enabling organisations to focus on their long-term success rather than short-term demands.

Financial and operational performance

Companies with strong corporate governance are considered lower risk investments by many investors. This perception can bring access to more and better capital, as investors tend to be more relaxed to finance with companies who have clear and accountable management structures. Moreover, research shows that companies with good governance outperform financially in the long run.

Risk management and mitigation:

Effective corporate governance is the very foundation of risk management. These systems consist of systems for related identification, assessment and mitigation, all of which help organizations prevent any sort of potential risk to either its operations or financial health before it ever happens. Such forward-looking risk management enables organizations to minimize their losses, protect their reputation, and enhance resilience across the board.

Conclusion

Thus, we have learnt that if the startup and other emerging companies incorporate the corporate governance framework, then it not only helps them align with the environment and people around them but also empowers them to attain growth & sustenance to the organisation and the employees of the organisation. Effective growth and management of the organisation thus results in an improved society by contributing to the financial chain at every level. Hence, it is imperative that new companies start their first day with corporate governance and later they can add to the governance policies as needed.

References

• https://www.thecorporategovernanceinstitute.com/insights/lexicon/what-is-a-corporate-governance-framework/ 
• https://www.investopedia.com/terms/c/corporategovernance.asp 
• https://www.geeksforgeeks.org/top-10-best-governance-risk-and-compliance-grc-tools/#i-archer-best-grc-for-extensive-features 
• https://governanceatwork.io/blog/corporate-governance-issues/