Effective Framework of Corporate Governance

This is the most basic and initial step that companies should take. Board of directors and company officials should build a proper corporate governance structure and delegate duties and authorities to everyone till the last level of the hierarchy. Ensure that all the employees in the organization understand their duties and the amount of flexibility and decision-making power that has been allotted to them. This will make it easier to monitor employees and their progress as well as identify employees who are not fulfilling their responsibilities.

The Rights and Equitable Treatment of Shareholders

This implies that shareholders belonging to the same class will receive equal treatment. They will be given all the rights that they have been promised. Some of the fundamental rights of shareholders include voting in shareholder meetings, receiving information and feedback about necessary changes required for the firm, transferring shares, obtaining relevant business material regularly and election or exclusion of board members.

The Responsibility of Stakeholders

Stakeholders focus on the development of employees and keep an eye on the company with regard to their compliance of established regulations. They are responsible for reporting any unethical actions that take place in the firm or any concerns regarding it. Moreover, stakeholders alert creditors and shareholders of the company in case the company is at a risk of insolvency or if the firm is unable to pay their dues on time. This will ensure that the company is complying with all rules and regulations and is not indulging in unethical business practices. As a result of this, employee performance and productivity will also increase as employees will be aware of working in an ethical environment.

Transparency and Disclosure

To implement good corporate governance in the firm, it needs to adhere to the full disclosure principle which necessitates the company to disclose or publicly reveal all ownership and shareholder rights, company’s financial statements, the business objectives of the company and the amount of salary paid to the key executives of the company. The company is also obligated to reveal its corporate governance policies, accounting procedures and risk factors relevant to the company’s business activities. Mostly, such information is mentioned in the annual reports of firms.

Companies that are more transparent and follow the best practice principles of good corporate governance are usually liked by shareholders and customers. Customers prefer buying products or services of an ethical company as they are aware of its importance. Employees too, like working in such companies as they know that they will be given their appropriate rights and that their health and safety will be taken care of in the workplace environment.

This structure delegates all responsibilities and assigns every employee specific tasks. With the help of corporate governance, all employees are aware of their responsibilities and duties and perform them accordingly avoiding any sort of confusion.

A board of directors controls this framework and ensures the accountability and fairness of the system. Moreover, the board also ensures that the company has a transparent relationship with its stakeholders. The stakeholders of a company include customers, suppliers, employees, management, financier, the government and the society.

Corporate Governance comprises of two fundamental elements.

• A long term relationship – This part of the structure involves checks and balances that are necessary in a business, incentives or motivation for managers and proper and smooth communication between investors and company managers.
• A transactional relationship – This area of the structure involves managing aspects of authority and disclosure.

The framework of corporate governance includes:

• Contract, whether implicit or explicit between the firm and its stakeholders to responsibilities, rights and incentives or rewards.
• Procedures to reconcile the stakeholders’ interests according to their duties, roles and privileges.
• Procedures to allow proper control and supervision and a smooth flow of information to allow for regular checks and balances.

A detailed and all-embracing corporate governance structure that is enforced effectively by the company will benefit the entire business and its stakeholders by ensuring that the firm is aligned with and adheres to the established ethical standards and a set of best practices and formal laws. This is extremely essential for all organization, big or small, whether they are set up at national, regional or global level.

A well established structure of corporate governance promotes a trustworthy, moral and ethical corporate environment. It harmonizes the entire company and helps every individual to collectively focus on aligning their individual goals with the corporate goals.

Today, corporate governance has become vital due to the changing trends in business. As globalization is having an impact on the business world, firms need to be even more efficient and rule-compliant to fight and rise above the competition. Furthermore, they need to be ethically correct in their practices and strive to better their current system to win over more customers. This will, in turn, help them grow their revenues and profits.

The importance of corporate governance has increased in the past few years due to many firms being involved in high profile corporate scandals that involve corporate power abuse, corruption and alleged criminal acts undertaken by corporate officers.

Finally, corporate governance has an overall impact on the economy. It not only benefits the company or its stakeholders, but the economy as well. By reflecting a positive image, the company can attract foreign investors and benefit the economy of the country.

The Separation of Ownership and Management

Many managers strive to achieve goals that are not aligned with the organizational goals. This causes ‘agency problem’ and can harm the company in the long run. Even investors and other stakeholders having an interest in the company will face the negative impact of the agency problem. This is largely witnessed in organizations that publicly trade in stocks. The board of directors and officers responsible for the corporation’s assets face a conflict of interest when they try to gain personal benefits from the company’s success rather than working towards maximizing shareholder wealth.

Insider trading

‘Corporate insiders’ are company officials who have access to highly confidential and non-public company information. Some confidential information may have an impact on the value of the firm’s shares in the market. If company officials, abreast with such information, use it for their own benefit and sell their shares to a person unaware of that information, this is called insider trading.

Shareholders, who are not directly related to the company such as a government regulator, an external auditor or a relative of a corporate official, can also commit the illegal act of insider trading.

Misrepresentation of Information

There are many ways in which corporate officials can misrepresent financial information to avoid paying heavy taxes or to affect the value of company shares on the market. They can do this by forming a complicated network of cross-shareholdings and subsidiaries or by trading properties between the parent company and its subsidiaries to increase or decrease the amount of revenues or assets. This is also a drawback of corporate governance as misleading information can let companies get away with their corrupt acts.

Monitoring Costs

Due to extensive abuse of the power delegated to company officials under corporate governance, laws have been formulated to prevent such misuse and abuse of power. However, complying with these laws can be costly and stressful for many companies.

For instance, the 1933 Securities and Exchange Act requires corporations to get listed on a stock exchange and then make detailed disclosures to interested investors. Complying with this rule can cost a company hundreds or even thousands of dollars.

Moreover, the recent 2002 Sarbanes-Oxley Act requires companies to setup appropriate internal control systems to ensure that their financial statements are not misleading and are factually correct.

To help you conduct a good job interview, given below are a few important points to remember.

Make the Interviewee Comfortable

Things to Do: It is important to make the interviewee comfortable by taking care of small things, such as the environment. Many experts believe that asking the interviewer for a glass of water and such general things right at the start of an interview helps boost his or her morale.

Things Not to Do: It is important to be nice; however, make sure you do not come across ‘too friendly’ as it may put off some interviewees.

Prepare in Advance

Things to Do: It is very important for every interviewer to prepare in advance. The key points include going through the client’s profile and knowing the purpose of the interview.

Things Not to Do: It is important for an interviewer not to prepare the whole conversation, i.e.: “he will say that and then I will say that and then this will happen”. It is better for interviews to flow smoothly.

Ask Questions

Things to Do: It is very important to ask questions to know about the interviewee’s knowledge and background. Most experts suggest interviewers to have a standardized questions pattern so that all the candidates can be judged in the same light.

Things Not to Do: It is important to avoid irrelevant questions as they do not only result in time wastage, but they may also make the interviewee uncomfortable.

Have a Conversation

Things to Do: Best practices include having a small conversation with the interviewee, not only to make him or her comfortable, but also to know more about his or her background and personality.

Things Not to Do: It is important to keep the general conversation short and controversy free. Always try to stay away from topics such as politics and religion (until necessary) as they may lead to confrontation and other issues. Also, do not make any false commitments regarding anything during the interview.

Notice Everything

Things to Do: Many experts believe that what we say does not matter as much as how we say it. Tone and body language actually tell a lot about our behavior and how we are. It is very important for the interviewer to pay attention to these clues that are often sent unintentionally by the interviewee.

Things Not to Do: It is important that the interviewer does not lose the main goal while concentrating on body language and other such things. An interviewer must be able to multitask and concentrate on every point.

Take Notes

Things to Do: It is important to take notes of all the things. Best practices include have a standardized chart (such as marking bad to exceptional) on skills. It is done because the interviewer might not be able to recall back the whole thing at a later date. The notes will help in reference.

Things Not to Do: It is important that the interviewer does not get too lost in taking notes and pays attention to the interviewee.

This is why personnel decisions should be made with utmost care. Recruitment process is a tough job that involves several complex decisions. It is important that you follow the best practices to be able to hire the right people.

Advertise at the Right Time

Do not wait to start looking for an employee at the eleventh hour. It is important to have a succession plan in case any of your employees decided to jump ship. All the companies must keep a collection of CV to refer to in case such a situation arises.

Secondly, the HR manager must have an idea about the turnover ratio so that the company can advertise at the right time. Lastly, company must make sure that it advertises at the right platform, i.e.: advertising for a CEO on social networking websites is a no-no.

Set Standards Properly

Companies must have standards on hiring. Firstly, they should clearly set the JD right so that those who are competent can be actually chosen. Quite a few times, companies end up receiving thousands of applications that brings them a lot of trouble.

To avoid this problem, a company must have proper eligibility criteria that should be clearly described in the job advertisement so that only those who are eligible apply for the job.

Examine the Candidate

It is important for every company to examine a candidate’s ability. This can be done through tests and interviews that have to be taken carefully.

Test should always be prepared with care so that the candidate’s ability can be properly judged. There are many professional companies providing help in this regard. If needed, you can reach a company to prepare you a test that will help you judge potential employee’s caliber.

Secondly, interview should be conducted by those who are experienced in doing so. It is important that the interviewer only asks relevant questions so that time is saved and result is achieved.

Ask for Documents

It is important that you ask all the employees to bring support documents, which must be verified by you. Documents such as character certificate, degrees, etc. have to be provided on time.

On your part, it is important that you go through a procedure to verify all the documents. Do not blindly believe on everything you are told. Use external help to confirm everything.

Secondly, it is recommended that you also have a reference check so that you can be sure about the employee’s background.

Following were the main points you need to remember when hiring an employee. It is important that you choose a right employee, as by hiring a wrong employee you will not only let go of a right employee, but the business might also have to suffer a lot.

The answer is in being attentive and paying attention to all the important points so that the risk can be minimized.

Collective conformity deals with a business or organization following the rules set up by its superiors and the law to help ensure advancement of the company or organization. Not only does it determine the range of profits and losses but it also shows the extent of best practices applied in a business.

Regular Checks

Analyzing different departments of a company or organization on a regular pace is vital for its continual growth. These checks should be made on all assets of the organization, be it manpower or the software systems used within it.

Everybody working for the organization should be kept in account things like for work hours, transfer of data within the organization and payments being made to employees residing on all levels etc. This is considered crucial because it can help the organization avert the embarrassment brought about by unplanned inspections and audits by governmental agencies.

As policies of auditing and measuring compliance differ with every new change made in the employment or conformity acts, there’s no telling when an organization may lag behind in fulfilling them.

Development and Education

An organization can never be fully developed until its foundation is strong. This means that every individual working in the organization should have the right to express their initiatives in a proper manner.

Employees not happy about work hours or shifts or in between breaks will cease to be happy and unhappy employees will lead to disrupted production. Corporate compliance makes sure that even the little guy in the organization has his voice heard through social panels. Giving an employee the right to express himself will keep him motivated and positive yielding positive output for the company.

Shocking as it seems, but there are events of employer misconduct in almost every organization. This doesn’t mean that the organization as a whole is bad; it’s just a few miscreants who seek their own gain rather than thinking about the entire organization.

Hence for these miscreants, conformity within the framework becomes necessary.

Regular Personnel Evaluation

There are a number of ways conformity can be kept in check which include regular evaluation of institution personnel. Regular tests can help get a better overview of the personnel activity in the firm. Now these tests or audits should be conducted equally among all ranks of employees be it a laborer or a manager in a glass office.

Reviewing the work output and expenses will give you an idea of where your investment is heading and whether or not it’s being handled in the correct way. Though it doesn’t happen in all organizations, but there are personnel at some places who squeeze out unnecessary expenses through trivial actions like stocking on office stationery etc.

A constant evaluation of your organization’s personnel will help save you from purporting less loss.

Communication is Important

Manpower these days has grown more and more accustomed to sharing their views and reviews on social networks. Almost everyone discusses their work and personal life online and it’s a good way to connect with your employees.

It will help you discover what your employees and of course, your organization is all about. Establishing a page on any of the evolving social networks will give you a chance to communicate with your personnel in a closer context.

Creating a company page will also give your workers a chance to speak out their opinions and suggestions.

Once again we need to clarify what Best Practice means. It is simply the process of discovering and implementing new ideas and tactics to improve the business. These best practices can be ideas adopted from other large business enterprises. For example, there are best practices for medium businesses that can also be used by small businesses.

Advantages of Best Practices for Small Businesses

• Minimizes cost: Small businesses don’t have large financial reserves like large businesses. By comparing and getting new ideas from other companies, small businesses can save some money. They can save losses through trials and errors.

• Avoid Mistakes: Often, small businesses cannot afford taking risk. Therefore, as a risk management best practice, learning from others’ mistakes is the wiser approach.

• New Ideas: Research what the latest ideas are in business practices. Adopting the latest tactic and policies is an important requirement for success in business.

• Improve Performance: Business owners need to raise the bar of its performance. It is a recommended best practice that the owner sets high standards for better output and excellent services.

• Risk Management: The implementation of policies that mitigate risk at various levels. Risk management is the backbone of decision making in business. Therefore, managers must always keep risk management as the center of every decision and protocol.

Best Practices to Implement in Small Businesses

• Identify area where improvement is required.

• Measure the extent to which improvements are required.

• Identify competitor companies within and outside your industry.

• Gather information about the success and practices implemented by the other companies.

• Adjust and adopt new best practices to improve your business with minimal risk.

• Measure the improvement through compliance with the new practices within a time frame.

With these best practices, small businesses can become very successful within a short time. It is important for business owners to understand that risk management is the basis of successful implementation of business practices.

The guidelines below are a collection of recommended best practices to help implement consistency with the recruitment and selection framework. It makes picking out the best of applications easier and systematic without bias of any kind. These best practices have to be implemented in development of the selection criteria. This includes the following stages:

• Selection Criteria
• Advertising
• Short listing
• Application protocols
• Tests
• Interviews
• References
• Medical reports
• Decision making

The Selection Criteria

This requires compliance with the following best practices:

• Up-to-date job specification and consistent requirements that must be met by the applicant.
• Formulate specific education, skills and experience required for the vacancy.
• Publish complete and concise job description and expectation of the organization.
• Emphasize the “essential criteria” and “desired criteria” clearly.
• Mention the desired length of experience required for the position.
• Ascertain whether there is need for details like formal qualifications with relevance to the job description.
• Ensure that the experience, education and skills you have mentioned are in agreement with the law. They must not be stereotypical or subjective.
• Be specific of communication skills you need for the position. This best practice depends on the job description.
• If there is need for team work, mention this in the advertisement for the vacancy. This best practice is important because not all applicants may be willing to work in a team.
• Establish the criteria that will be used to assess the tests, interview, references and other processes involved in recruitment.

Advertising

• Advertise internally and externally. For best practice, use media and news papers along with advertising online.
• Reach out to communities, groups and forums related to the organization.
• Do not discriminate age, gender or race in the advertisement.
• Mention specific details to help narrow down the list of applicants.
• As a best practice, make sure the company’s contact address is mentioned in the advertisement.

Short Listing

• Pick out the best applications.
• If necessary ask for more information.
• Be consistent when making the decision.
• Make sure the reason for selection is free of all bias.
• Do not be judgemental while short listing.

Application Forms

• Make sure the experience and language is relevant to the job requirement
• Refrain from asking irrelevant information and questions.
• Be professional and ensure confidentiality of applicant’s information.

Testing

• Assess without any form of confusion or bias.
• Make sure the applicant fulfils the requirements and has sound knowledge.

Interviewing

• Assess what the applicant can offer for the organization.
• Prepare and ask questions strictly related to the job.
• There must be consistency and transparency while questioning the applicant.
• The applicant must have confidence and be presentable.
• Ask about any disabilities so that you can make adjustments accordingly.

These are the most important best practices for recruitment and selection.

Stakeholders are the ones that assign directors and auditors so as to ensure satisfaction through appropriate governance. This means there will be best practices with a defined governance structure throughout the company. Moreover, the board of directors will have to follow a set of guidelines in compliance with regulations and laws. Whatever decisions the board of directors come to, it must be in compliance with the interests of the stakeholders. This is why it is mandatory that stakeholders attend every general meeting that holds in the company.

The company can be public or private. When it is a public company there are certain circumstances that warrant listing shares and stock exchanges or investments made in the market. Corporate governance rules are applicable for both public and private companies. When a company is large and complex, more scrutiny and close monitoring of all processes is necessary. When a company is international or multinational, it requires corporate governance rules and regulations that extend across the border.

Aim of Corporate Governance

Corporate governance aims to protect the interest of the company’s shareholders. At the same time, its goal is to preserve the company’s reputation. It also ensures that action is taken against any fraudulent activities committed by officials and directors of the firm. Therefore, corporate governance means directors must take decisions without prejudice and ethically; keeping the company and shareholders’ interest in mind.

Advantages

• Company is well monitored
• Ensures mitigation of fraudulent activities in the company
• Established a proper system and order in the company

Disadvantages

• Corporate governance best practices gets more intense with size of the company
• More compliance challenges with implementation of corporate governance
• Excessive supervision restricts independence of directors to run the company with their own judgment

Requirements for Corporate Governance

• Directors must be well informed about corporate governance regulations and best practices.
• Directors must be ready to face risk management and auditing challenges throughout the company.

Corporate Governance Dos and Don’ts

DO Seek the advice of accountants and legal advisers to help establish a proper risk management and auditing system. There must be no breach of regulations and best practices.

DON’T ignore rules surrounding corporate governance. Consequences of failure of best practices with rules can lead to criminal activities. This will require accountability of directors.

DON’T ignore the importance of establishing a system that deals with breach of regulations.

These are recommended best practices corporate governance and responsibilities that directors must ensure compliance with.