Key principles to ensure you’re a successful Director.
Whether you are the Director of a Company or someone charged with governing an organisation, the principles of effective risk management and governance are highly relevant to the success of your role.
What is Corporate Governance?
Every organisation has goals and strategic business objectives. The Company’s Board must ensure that the Company works towards these goals while complying with legislation and regulatory requirements, and minimising risk exposure.
In other words, Corporate Governance influences how a Company runs by connecting the following groups of people:
These people all have a vested interest in ensuring that the company operates smoothly.
Who do the rules apply to?
Corporate governance applies to directors and those charged with governing an organisation (“TCWG”).
These individuals or groups have a responsibility for ensuring that decisions are made in the organisation’s best interests, and the interests of stakeholders.
What the law says
In Australia, there are broadly three sources that influence Corporate Governance:
- Binding law and legislation, including the Corporations Act 2001
- The listing rules of the Australian Securities Exchange Limited (ASX)
- ASX guidelines and principles
- Other industry and sector specific regulatory bodies e.g. the Australian Charities and Not-for-profits Commission
Businesses must understand the principles of risk and governance enshrined by these rules because well-run businesses naturally perform better than poorly-managed companies.
Corporate Governance responsibilities
Those responsible for Corporate Governance must:
- Act in a transparent way
- Make decisions that best serve the Company and improve its performance
- Act ethically and responsibly
- Choose and supervise the Company’s management
- Set the Company’s goals and direction
- Oversee and monitor the Company’s risk management strategies
Significantly, Directors and TCWG can’t delegate Corporate Governance responsibilities to management or other members of an organisation.
Detailed information on director responsibilities can be found here.
The importance of risk management strategies
Identifying business risks and managing these risks, forms an important part of the responsibilities of Directors and TCWG. Directors and TCWG ought to develop a risk management strategy.
- Identifying potential business risks
- Ranking and prioritising these risks
- Assessing the risks identified and how they may affect the business
- Communicating the risks to other members, if appropriate
- Regularly monitoring and managing the risks
- Following compliance rules, including rules affecting data and cyber security
- Ensuring familiarity with risk registers
The potential risks that affect your business change frequently. As such, the risk management strategy needs to be dynamic to respond to changing risks resulting from evolving forces impacting your business. This ensures that you are best prepared for the problems which are most likely to affect your business, and the associated costs involved.