Why sustainable business is critical.
The previous edition traced the origins of "sustainable business" back to corporate governance, and this week's composition will serve as the concluding section, appropriately setting the tone for later explanations of concepts, models, industrial positions, and most items sustainability and sustainable business required for change and growth.
As stated in the preceding article, corporate governance is necessary for a variety of reasons and serves as a benchmark to ensure that well-managed businesses operate at peak efficiency, and some of the key features of are repeated in this write up for a better composition and flow of reading of this two-part article.
Features
• It aids in ensuring that a company's controls are adequate and suitable.
• It prevents single individual dominance
• It streamlines interactions between management, the board of directors, shareholders, and stakeholders.
• It ensures that the company is managed in the best interests of its shareholders.
• It promotes fairness, openness, and accountability in order to improve company performance and management.
Internal Regulation
The features are concerned with a company’s internal regulatory system, which includes suitable controls to ensure that transactions are completed appropriately and assets are not misused.
For example, as part of its internal controls, a business may undertake an annual audit to guarantee that it is working efficiently.
Again, the theory is that a firm with strong corporate governance practises has a better chance of obtaining new investments, especially in countries such as Ghana, where good corporate governance may assist secure foreign direct investment (FDI).
Due to the massive growth of implementation, both developed and developing countries have enacted a number of significant corporate governance codes or norms that must be followed, so companies like the Ghana Securities and Exchange Commission (SEC) has a corporate governance code for listed companies levelled at “ensuring investor protection” which must be abided by, but the question is who is classified as an investor under the circumstances?
And, as of August 2022, the National Corporate Governance Code for Ghana was in the exposure draft stage, which means that the very codes or guidelines that are required to warrant accountability, board arrangement and structure, internal controls, transparency, and routine-related executive remuneration, among others, may not be ready, putting a question mark on the state's agenda towards corporate governance and business sustainability.
On a broader scale, the concept encompasses the relationship between stakeholder groups, which are defined as the relationships between management, the board of directors, shareholders, and investors who must certify accountability, fair practises, social responsibility, participatory management style, and transparency towards external stakeholder groups.
External Elements
According to Ísmail Ìyigun “when the qualities of governance components are evaluated, economic, legal, ethical, and contractual internal governance; volunteering, environmental, justice, transparency, and network dimensions are associated to external governance,” and this necessitates the development, application, and evaluation of elements such as financial accountability, ethical, legal and environmental responsibility, voluntariness, transparency, fairness, and equality to avoid organisational flaws, risks associated with powerful individuals or business activities, a lack of ethical behaviour, risks associated with dishonest individuals or involvement of key executives, auditors, bankers, or dishonest executives and politicians.
The about explanation defines corporate governance functions.
Functions
Initially, the shareholder was the only consideration in corporate decision making; however, the stakeholder concept involves a wider group constituents made up of employees, customers, suppliers, government, and the local community, so many companies are striving to increase shareholder value while also taking the comforts of the larger stakeholder group into account using corporate governance functions.
The efficacy of corporate governance functions such as those listed and outlined below determines its practicality and usefulness.
• Supervision
• Decision-making
• Compliance
• Internal Audit
• Advisory
• External Audit
• Monitoring
Supervision
The board of directors (BOD) of a company is responsible for overseeing managerial functions in the best interests of the company's stakeholders. The supervisory function could work if the BOD has expertise, neutrality, authority, resources, credentials, and court accountability to make strategic decisions such as developing corporate culture towards sustainable business. The BOD may also challenge management's decisions.
The BOD can make efforts to recruit a competent and ethical CEO, design a remuneration structure, remove an executive, or follow corporate reporting but the most important of all is effective representation and protection of interest of all stakeholder.
Ideally, the BOD should have a sustainability strategy in terms of company performance and international potential.
Decision-making
The management team, selected by the BOD’s and managed by the CEO, is in charge of corporate governance management.
The chief financial officer (CFO), controller, treasurer, and other top executives help to manage the company for the benefit of its stakeholders.
The alignment of management's interests with those of shareholders and other stakeholders determines its effectiveness. Management’s key obligation is to accomplish all five of economic, governance, social economic, environmental (EGSEE) aspects of sustainability implementation.
Compliance
Corporate governance compliance functions are made up of a set of laws, regulations, rules, standards, and best practises designed with the intention of creating a compliance agenda for corporations to operate within and achieve their goals of sustainable goals.
Protocols should offer a structure within which businesses can achieve long-term performance while adhering to regulations and cultivating a culture of honesty, integrity, and responsibility.
Internal Audit
Internal auditors provide the corporate governance function by providing assurance and advisory services to the organisation in the areas of operational competence, risk management, internal controls, financial reporting, and governance processes.
Internal auditors are well-trained and well-positioned to deliver a wide range of assurance services, but most require extra EGSEE and sustainability training to function effectively in a control capacity.
Advisory
Professional advisers, internal legal counsel, financial analysts, and investment bankers perform the legal and financial advising functions of corporate governance.
These specialists typically assist businesses in examining the legal and financial implications of business transactions.
External Audit
Outside auditors provide the corporate governance role of external auditing by expressing an opinion on the presentation of financial statements in accordance with widely accepted accounting principles. External auditors are trained to provide warrant on all five EGSEE sustainability performance aspects.
Monitoring
The monitoring function of corporate governance is the responsibility of investors and other patrons, and it can be accomplished by direct investor engagement in firms' business and financial activities.