Corporate Governance
The term "corporate governance" is something most often heard in relation to large, publicly owned companies. In fact, companies whose shares trade on major stock exchanges, are required to disclose their policies in the area of corporate governance. We refer corporate governance to the set of internal policies, rules, and procedures that a company follows on a regular basis to ensure that it operates in a fair, equitable, and appropriate manner for the benefit of the company, its management and its shareholders.
Appropriate governance requires a set of checks and balances to ensure that any particular individual cannot manipulate, either intentionally or accidentally, the operations of the company. Concept of corporate governance normally does not relate to small businesses that don't have investors breathing down their necks demanding accountability however we rate it as important for small and medium sized companies as it is for large companies for the following reasons:
- Firstly and foremost it is small companies that become big corporations!
- Small corporations that institute formalized policies and procedures early in the company's life cycle tend to make the transition to large corporations more easily.
- Time: As the company grows, the board tends to get even busier. It can be all too easy to let it slide once we start dealing with day-to-day pressures of small business management.
- We don't have the same external pressure to straighten up and fly right that large companies do.
- We are a growing company hiring employees very frequently. It is more effective to have them learn our already established policies and procedures, which will help us serve our customers professionally.
- We place utmost importance to our financial reporting process. A consistent financial reporting process enable us to attract strategic business partners, investors and gain customer confidence.
- Most importantly, formalising operating procedures makes our company run better.
Board procedures and responsibilities
The board of directors is responsible for the administration of the company and for the appropriate management of its business. The board guides and supervises the company’s operations and its managing director, it appoints and dismisses the managing director, it determines the company’s goals and objectives and its risk management principles. The board ensures the appropriate functioning of the company’s management system and is furthermore responsible for the supervision of the company’s accounts and the administration of its finances. The duty of the board members is to promote the company’s and all its shareholders’ interests, irrespective of who has proposed their candidature for board membership.
The Board meets regularly, including away days, to review the strategy of the Group. The schedule of matters specifically reserved to it for decision include: determining the strategy and control of the Group; amendments to the structure and capital of the Group; approval of financial reporting and controls; oversight of the Group’s internal controls; approval of capital and revenue expenditure of a significant size; acquisitions, disposals and share dealings; Board membership and appointments; approval of remuneration of Directors and certain senior management; corporate governance matters; and approval of Group policies and risk management strategies.
The division of responsibilities between the Chairman and other Directors are clearly established and has been agreed by the Board. Being a medium sized company, the Directors are responsible for ensuring Board procedures are followed including the formal minuting of any unresolved concerns that Directors may have in connection with the operation of the Company.
Directors conflicts of interests
The Company has established formal procedures for the disclosure and review of any conflicts, or potential conflicts, of interest which the Directors may have and for the authorisation of such conflict matters by the Board. The authorisation of any conflict matter, and the terms of authorisation, may be reviewed at any time and will be reviewed formally by the Board on an annual basis.
Audit Committee
Owing to the size of the Company, the Board undertakes the responsibilities of an audit committee. The Committee’s duties and responsibilities include:
- Monitoring the integrity of the financial statements of the Company and reviewing the significant financial reporting judgements contained in them.
- Reviewing the Company’s internal financial controls and the Company’s internal control and risk management systems.
- The consideration of the appointment, re-appointment and removal of the external auditors and the approval of their remuneration and terms of their engagement.
- Auditor independence and objectivity are safeguarded by the Audit Committee monitoring and approving, where appropriate, the nature of the work and the level of fees paid for non-audit services as a proportion of the total audit fees paid.
Internal control and risk
The Board has overall responsibility for the Group’s system of internal control and for reviewing its effectiveness, while the role of management is to implement Board policies on risk and control. The system of internal control is designed to manage and mitigate rather than eliminate the risk of failure to achieve business objectives. In pursuing these objectives, internal controls – which include financial, operational and compliance controls – and risk management can only provide reasonable, and not absolute, assurance against material misstatement or loss.
The responsibilities of the members of the Board of Directors as described in the company bylaws include the following:
- Ensure that the company’s performance is in line with market conditions.
- Ensure the effectiveness of its information disclosure mechanisms.
- Devote sufficient time to the performance of their duties as Board members.
- Ensure implementation of the good corporate governance policies adopted by the company.
- Meet at least once in two weeks.
- Brief new Board members on decisions taken prior to the date of their appointment, on the company’s financial standing and on rules and standards of corporate governance.
- Work with key executives in the framing of a business strategy, approve the strategy and monitor and oversee its implementation, which strategy is to include the following elements: (i) the company’s mission and vision; (ii) management objectives and indicators; (iii) a financial plan; (iv) a risk management plan; (v) a plan for protecting the company’s image; (vi) a marketing plan; (vii) staff policies; (viii) policies for handling conflicts of interest; (ix) policies for settling internal and outside disputes; (x) business shutdown policies; (xi) a training plan for reassigning some of the duties of the CEO.
- Establish policies for the selection, appointment, performance evaluation and dismissal of key company executives.
- Establish compensation systems for key executives. The Board of Directors is to establish fair fixed or variable compensation systems in line with company needs. Likewise, it is to make provisions for unique circumstances under which key executives may receive special bonuses.
- The Board of Directors will establish criteria for defining and distinguishing business and non-business expenses.
- Request reports from key executives on the company’s standing as deemed necessary.
- The Board of Directors and/or Board committees on auditing, corporate governance and/or compensation and hiring are to solicit any and all necessary information from key company executives to enable them to discharge their duties.
- Confirm that accounting procedures meet legal requirements and reflect the company’s true financial position.
- Ensure the soundness of statutory or other audits.
- Authorize the company to engage in business transactions with partners/shareholders and/or related parties.
