CORPORATE GOVERNANCE

 

 

So what is corporate governance? There are many definitions of corporate governance but here is one that attempts to encapsulate the spirit of corporate governance:

 

...the process by which organisations are directed and controlled. It is generally understood to encompass authority, accountability, stewardship, leadership, direction and control.

 

Implementation and maintenance of good governance facilitates robust decision making and improves strategy, performance, compliance and accountability, and is characterised by ongoing monitoring and evaluation. Effective corporate governance helps an organisation to achieve its objectives and desired outcomes and fulfil its obligations through sound strategic and business planning, risk management, financial management and reporting, human resource planning and control, and compliance and accountability systems.

 

Good governance also helps provide a framework for establishing responsibility to the people served by the organisation - its employees, customers and other stakeholders including investors. It is argued that this framework has four essential elements, which are transparency, accountability, stewardship and integrity.

 

So, good governance encompasses not only the system by which organisations are controlled but the mechanisms by which organisations, and those who comprise them, are held to account. Governance is an aid to making the right decisions. Faced with a decision, all officers in an organisation must ask themselves: what would ordinary, right-thinking members of the community, knowing all relevant facts, believe to be an appropriate exercise of stewardship in these circumstances? It is here that we see the link between governance and trust, as decision-making within this context will encourage the trust of all stakeholders.

 

Here we provide you with several presentations to better understand how important good governance is to your organisation and how it may be best applied.

FINANCIAL MANAGEMENT

 

 

What do we understand, in an organisational context, by the term financial management? For many it represents all those functions within the organisation that manage the money. While that may be fundamentally true, there are two distinct streams that should be discussed separately. These are accountancy and financial management but the presentations we shall provide here are primarily concerned with the latter.

 

Financial management is perhaps the most important function within an organisation. All organisations are dependent on astute financial management for their continuing survival and, as such, having an understanding of the intricacies of the discipline is essential for managers at every level throughout the organisation and for those aspiring to managerial positions.

 

Financial management is important, interesting and challenging. It is important because today’s investment decisions may determine the strength and structure of an organisation in 10, 20 or more years later. It is interesting because financial decisions, particularly in relation to large investment projects or acquisitions, often involve sums of money measured in billions of pounds. It is challenging because decisions of a financial nature are rarely cut and dried and the financial markets in which organisations operate are changing rapidly.

 

Good managers are well able to cope with routine problems but only the best managers respond positively to change. When confronted with new problems, managers need more than a basic understanding of the rules of the game. From a financial management perspective, they need to understand why organisations and financial markets behave the way they do and when common practice may not be best practice.

 

Whatever the focus of financial management, its exponents face the task of meeting goals using the (usually) limited resources available to them. All organisations are engaged in deploying real resources to optimal effect and also in augmenting those resources. In financial management the key resource is cash. Hence financial managers want to utilise cash to maximum effect. This hinges on three key decision areas:

 

The investment decision – in what assets should the organisation invest money in order to add value? This involves identifying the activities that generate cash inflows.

 

The financing decision – having decided what to invest in, how best can the organisation pay for it? This, of course, involves cash outflows…the smaller the better.

 

The payout or dividend decision – having successfully managed the financial resources at their disposal, how best can managers return value to owners? Should they pay a dividend, and if so how much, and thus how much should they retain in the organisation?

 

Each and all of the decisions made should be aimed at a coherent objective and judged according to how well it meets that aim. Financial decisions should be judged according to whether they create value, and how much. It is important to realise that for value to be created not only do the many strands of an organisation need to work together, but each strand needs to understand how that value is created when they work together. This applies at all levels in the organisation from first line supervisory managers through to directors in the Boardroom. They all have to understand and work with financial information. Similarly, those involved in the financial management profession must be aware of the needs of their clients…the users of financial information in the business…and understand how they are able to add value to the business they work for.

 

RISK MANAGEMENT

 

 

Organisations of all sizes are exposed to risks all the time. Such risks may directly affect day-to-day operations, decrease revenue, or increase expenses. Their impact may be serious enough for the organisation to fail. Most managers know instinctively, or are compelled by law or lenders, that they should have insurance to cover risks to life and property yet there are many other risks that all organisations face, some of which are overlooked or simply ignored.

 

Every organisation is subject to possible losses from unmanaged risks. Sound risk management should reduce the chance that a particular event will take place and, if it does take place, sound risk management should reduce its impact. Sound risk management also protects the wealth of the organisation.

 

Risk management starts by identifying possible threats and then implements processes to minimise or negate them producing benefits such as lower insurance premiums, reduced chance of being the subject of legal action, reduces cash or inventory losses, and less unproductive time.

 

Undesirable events, the probability of them occurring, and their possible impact vary considerably from industry to industry and from organisation to organisation. Our presentations will look at how an organisation may identify and manage risk more generally as well as identifying some specific risks, how they may emerge and provide some strategies to manage them.