Question

It has been said that good corporate governance is an important ingredient in corporate success and that regulators should encourage good corporate governance.

Required

Discuss how good corporate governance is encouraged in Australia.

Answer 1

Importance of Corporate Governance in the corporate success:

Corporate governence is a management system in which the organization is directed and controlled by those charged with governance. Genarally the board members are those who are charged with governance. Stake holders shall appoint these directors to manage the affairs of the organizations and they also appoint the auditors to ensure everything is being run as per the policy. It improves the transperancy in the system and everybody shall be held accountable for the work that they do.

Some of the best practices followed in countries like Australia are as follows:

Build a strong board of directors and management in order to evaluate performance.

The core composition of the board of directors shall be composed of qualified professionals who have wide range of knowledge in the field in which they are given charge. Director cannot act as mere rubber stamp, he should be able to take an active part in the decision making process of the company.

Defining responsibilities and roles:

Board of directors, CEF, CFO, chairman etc should have a proper mandate which defines their roles and responsibilities and the area where they work. This ensures that the responsibility shall be attached to the work that they perform. Various committies should be formed such as nomination and remuneration committee, audit committee etc.

Evaluation of performance:

Mere deligation of responsibity shall not solve the issue, their performance shall be evaluated on periodic basis if the targets are met and necessary improvements are carried out to ensure that the budgeted targets are achieved. Adequate compensation shall be awarded for the profits that they bring to the organization.