Corporate governance: Demystifying its misconceptions

By Enoch K. AKUFFU-DJOBI

In Ghana’s complex business – financial and non-financial – landscape, corporate governance has become a critical focal point for investors, regulators and stakeholders alike due to its ability to prevent organisational failure.

Despite its importance, misconceptions about corporate governance frequently obscure its purpose and function. To fully understand corporate governance, it is necessary to dispel these myths and recognise its role in promoting accountability, transparency and ethical behaviour within organisations.

What is corporate governance?

Corporate governance (CG) is defined as the systems, principles and processes that guide and control a company. It describes the relationships between the company’s management, board of directors, shareholders and other stakeholders. Good corporate governance ensures that a company’s operations are accountable, transparent and in line with the interests of its stakeholders.

The Securities and Exchange Commission (SEC) is at the forefront of Ghana’s governance framework, with responsibility for regulating and promoting the integrity and efficiency of the country’s corporate landscape. The SEC’s governance principles represent a comprehensive framework designed to guide Ghanaian firms toward best practices in transparency, accountability and ethical conduct, which not only aim to safeguard investor interests but also aspire to foster an environment conducive to economic growth and stability of Ghana’s corporate entities (SEC, 2020).

Common Misconceptions about Corporate governance

Corporate governance is only for large corporations. One common misconception is that corporate governance only applies to large corporations or publicly traded companies like those listed on the Ghana Stock Exchange. In reality, corporate governance principles apply to businesses of all sizes. Small and medium-sized enterprises (SMEs) can also benefit from good governance practices, which can help them build credibility, attract investors and improve operational efficiency.  

Governance is just about compliance. While regulatory compliance is an important aspect of corporate governance, it does not cover all of it. Good governance involves more than just following the rules and regulations. It entails cultivating a culture of integrity, ensuring effective oversight, and aligning corporate practices with the long-term interests of all stakeholders. It is about fostering an environment in which ethical decision-making is the norm.

Corporate governance is solely the responsibility of the board of directors. Although the board of directors is important in corporate governance, effective governance requires participation at all levels of an organisation. Management, employees, customers, the community and shareholders all play important roles (Stakeholder theory). For example, management is in charge of enforcing governance policies, whereas employees are expected to follow ethical standards and report any issues.

Corporate governance is an expense rather than an investment. There are those who consider corporate governance to be an unnecessary expense rather than an investment in strategic planning. Nevertheless, robust governance frameworks have the potential to result in long-term benefits, such as a decreased risk of fraud, increased investor confidence, and an improved reputation for the company themselves.

The value that governance practices bring in terms of stability and growth frequently outweighs the costs that are associated with putting them into practice.

Good corporate governance guarantees success. Although effective corporate governance is essential, it does not guarantee that a company will be successful. Governance structures and practices have the potential to significantly reduce risks and improve decision-making processes; however, they are unable to eliminate uncertainties or guarantee positive outcomes.

The success of an endeavour is contingent on a number of factors, such as the conditions of the market, the strategic decisions made, and the operational execution. On the other hand, the adoption and implementation of anti-corruptible policies and practices to prevent unethical behaviour, bribery, and conflicts of interest in the corporate landscape is what makes the difference. It is essential to note that corporate governance is not a pre-condition for the financial success of organisations.

The benefits of strong corporate governance

Enhanced accountability: Within an organisation, a culture of accountability can be fostered through the implementation of strong corporate governance. In order to ensure that actions are in line with the objectives of the company and the interests of its stakeholders, it is important to have clear roles, responsibilities and reporting structures. Building trust and reducing the likelihood of potential conflicts of interest are both facilitated by this transparency.

Increased investor confidence: It is more likely that investors will put their money into businesses that have strong governance practices because these businesses are seen as having a lower risk profile and a greater likelihood of providing returns that are sustainable. An organisation’s commitment to ethical practices and strategic oversight can be communicated more effectively with the help of effective governance. 

Improved risk management: The ability of a company to recognise, evaluate and act on risks is improved by a governance framework that has been thoughtfully designed. Through the implementation of comprehensive risk management processes, businesses are able to more effectively navigate uncertainties and steer clear of potential pitfalls.

Long-term sustainability: Governance of corporations places an emphasis on sustainable practices and thinking about the long term. Companies are able to construct a resilient and sustainable business model that is beneficial not only to shareholders, but also to society as a whole if they place an emphasis on ethical behaviour and social responsibility

Conclusion

Any organisation that has the goal of achieving long-term success and sustainability must make it a priority to recognise the importance of effective corporate governance and to put it into practice. In order to make it abundantly clear that corporate governance is not merely a regulatory requirement but rather a strategic asset that encourages accountability, transparency and ethical behaviour, it is necessary to dispel the common misconceptions that exist regarding this topic.

When it comes to establishing trust, mitigating risks and achieving long-term success, the adoption of sound governance practices will be critically important for businesses as they continue to navigate a world that is both dynamic and interconnected.

Enoch is a PhD candidate. Email: [email protected] Contact: 233244201383.

The post Corporate governance: Demystifying its misconceptions appeared first on The Business & Financial Times.

Read Full Story