What is governance?

Governance encompasses the system by which an organisation is controlled and operates, and the mechanisms by which it, and its people, are held to account. Ethics, risk management, compliance and administration are all elements of governance.

Other useful definitions of governance are provided below.

Organisation for Economic Co-operation and Development (OECD)

Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.

The ASX Corporate Governance Council 

Corporate governance is ‘the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled in corporations’. It encompasses the mechanisms by which companies, and those in control, are held to account.
(The quote comes from Justice Owen in HIH Royal Commission, The Failure of HIH Insurance Volume 1: A Corporate Collapse and Its Lessons, Commonwealth of Australia, April 2003 at page xxxiii and Justice Owen, Corporate Governance — Level upon Layer, Speech to the 13th Commonwealth Law Conference 2003, Melbourne 13-17 April 2003 at page 2.)

More thoughts on governance

As noted in all three definitions above, governance means the method by which an organisation is run or governed, over and above its basic legal obligations. It can be argued to have four essential elements:

• transparency — being clear and unambiguous about the company’s structure, operations and performance, both externally and internally, and maintaining a genuine dialogue with, and providing insight to, legitimate stakeholders and the market generally
• corporate accountability — ensuring that there is clarity of decision-making within the company, with processes in place to ensure that the right people have the right authority for the company to make effective and efficient decisions, with appropriate consequences delivered for failures to follow those processes
• stewardship — developing and maintaining a company-wide recognition that the company is managed for the benefit of its members, taking reasonable account of the interests of other legitimate stakeholders
• integrity — developing and maintaining a corporate culture committed to ethical behaviour and compliance with the law.

So, as noted in the CSA definition, 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.

For companies in Australia, the principal reliance for corporate governance rests in the statutory provisions of the Corporations Act 2001 and the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations. Although the latter were developed for listed companies, they have become the model for other organisations, such as government agencies and not-for-profits, when considering corporate governance frameworks. The result is that arrangements for corporate governance in Australia reflect an amalgam of primary legislation, prescriptive rules, ‘if not, why not’ codes of best practice, custom and market incentive.

CSA has training programs, Governance Essentials, Legal Framework of Governance and Applied Corporate Governance that provide knowledge of governance frameworks, key roles, how to apply the principles and the tools required to do so.