What is Governance? Governance is a system by which business organisations are directed and controlled.
In its widest sense, “governance” refers to the way in which any organisation, entity or nation is run. It includes all the processes, systems, and controls that are used to safeguard and grow assets. When applied to commercial organisations, it is often termed "corporate governance" and has been described by the World Bank as "promoting fairness, transparency and accountability" and by the OECD as "a system by which business organisations are directed and controlled".
This diagram illustrates the dynamics involved in corporate governance. The Board of Directors, who are accountable to the organisation’s owners, shareholders and stakeholders, must oversee and direct the activities of the organisation’s CEO and Management.
The qualities of a knowledgeable director* are as follows:
- They bear risk on behalf of the shareholders
- They bear all the legal risk in the Companies Act 1993
- They bear risk from the Resource Management Act 1991 and many other statutes.
Directors are responsible for:
- Helping to ensure that the shareholders are shielded from risk
- Ensuring that the chief executive manages risk
- Providing the strategic direction for the organization
- Effecting change in the chief executive and/or strategy when needed to ensure that the shareholders’ investment is not diminished
- Making a profit for their shareholders.
* Although written in the terms of a company, board members of a range of organizations have comparable challenges and responsibilities.