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principles of good corporate governance
1. SCHOOL OF BUSINESS AND ENTREPRENEURSHIP
NAME : GETRUDE MUCHECHETERWA
REG NUMBER : C16127728H
PROGRAME : BSSCM
LEVEL : 2.1
MODULE : RISK MANAGEMENT
DUE DATE : 08 MAY 2017
ASSIGNMENT QUESTION
Justify any 8 principles of good corporategovernance that can be employed in risk
management [25]
2. INTRODUCTION
Corporate governance is viewed worldwide in the business arena as, in part, incorporating
Transparency, fairness, independence, accountability, responsibility, integrity and social
responsibility, among other things. These characteristics of corporate governance form the basis
of corporate discipline of “Best practices” (Strenger, 2004) of any organization. Corporate
governance has found its place in both developed and less developed economies as well as
emerging economies (Liu, 2006; Leech and Manjon, 2002). Most countries that implement
corporate governance start by preparing a code that epitomises “Best Practices” (Cromme, 2005;
Strenger, 2004; Fernandez-Rodriguez, et al., 2004; Akkermans, et al., 2007 and Dedman,2002)
and an adherence to code was then measured using various models such as scorecard and market-
based models, among others (Liu, 2006). Zimbabwe adopted its Zimcode in (2014) in an effort to
follow the band-wagon of corporate governance best practices. Corporate governance and its
implementation are expected to curtail or deal with company failures.
DEFINITION OF TERMS
Principles - are fundamental norms, rules or values that represent what is desirable and positive
for a person, group, organization, or community, and help it in determining the rightfulness or
wrongfulness of its actions. [Business Dictionary]
Corporate governance - Set of rules that define the relationship between stakeholders,
management, and board of directors of a company and influence how that company is operating.
[OECD]
Risk management - Risk management is the process of evaluating the chance of loss or harm and
then taking steps to combat the potential risk. An example of risk management is when a bank
employee reviews a potential loan to determine what the chances are that the buyer won't pay it
back in order to decide how to proceed with granting the loan and how much to charge in interest.
FAIRNESS
Fairness refers to equal treatment (Changati, R1998), for example, all shareholders should receive
equal consideration for whatever shareholdings they hold. In the UK this is protected by the
Companies Act 2006 (CA 06). However, some companies prefer to have a shareholder agreement,
3. which can include more extensive and effective minority protection. In addition to shareholders,
there should also be fairness in the treatment of all stakeholders including employees, communities
and public officials. The fairer the entity appears to stakeholders, the more likely it is that it can
survive the pressure of interested parties.
ACCOUNTABILITY
Corporate accountability refers to the obligation and responsibility to give an explanation or reason
for the company’s actions and conduct. (Davies, A 1999) In brief, the board should present a
balanced and understandable assessment of the company’s position and prospects. The board is
responsible for determining the nature and extent of the significant risks it is willing to take. The
board should maintain sound risk management and internal control systems. The board should
establish formal and transparent arrangements for corporate reporting and risk management and
for maintaining an appropriate relationship with the company’s auditor, and the board should
communicate with stakeholders at regular intervals, a fair, balanced and understandable
assessment of how the company is achieving its business purpose.
RESPONSIBILITY
The Board of Directors are given authority to act on behalf of the company. They should therefore
accept full responsibility for the powers that it is given and the authority that it exercises. The
Board of Directors are responsible for overseeing the management of the business, affairs of the
company, appointing the chief executive and monitoring the performance of the company. In doing
so, it is required to act in the best interests of the company. Accountability goes hand in hand with
responsibility. The Board of Directors should be made accountable to the shareholders for the way
in which the company has carried out its responsibilities. (Francis R, 2000)
TRANSPARENCY
A principle of good governance is that stakeholders should be informed about the company’s
activities, what it plans to do in the future and any risks involved in its business strategies.
Transparency means openness, a willingness by the company to provide clear information to
shareholders and other stakeholders. For example, transparency refers to the openness and
willingness to disclose financial performance figures which are truthful and accurate. Disclosure
of material matters concerning the organization’s performance and activities should be timely and
4. accurate to ensure that all investors have access to clear, factual information which accurately
reflects the financial, social and environmental position of the organization. Organizations should
clarify and make publicly known the roles and responsibilities of the board and management to
provide shareholders with a level of accountability. Transparency ensures that stakeholders can
have confidence in the decision-making and management processes of a company. In Zimbabwe,
Transparency International (Zimbabwe) is the national chapter of a global network or
organizations dedicated to promoting transparency and ending corruption. This body fights
corruption in the national arena in a number of ways. They bring together relevant players from
government, civil society, business and the media to promote transparency in elections, in public
administration, in procurement and in business. TI’s global network of chapters and contacts also
use advocacy campaigns to lobby governments to implement anti-corruption reforms.
INDEPENDENCE
An independent director should not have any relationships that may impair, or appear to impair,
the director’s ability to exercise independent judgment. Many boards have developed their own
standards for assessing independence under stock market definitions, in addition to considering
the views of institutional investors and other relevant groups. Director independence is critical to
effective corporate governance, and providing objective independent judgment that represents the
interests of all shareholders is at the core of the board’s oversight function. Accordingly, a
substantial majority of the board’s directors should be independent, according to applicable rules
and regulations and as determined by the board. When evaluating a director’s independence, the
board should consider all relevant facts and circumstances, focusing on whether the director has
any relationships, either direct or indirect, with the company, senior management or other directors
that could affect actual or perceived independence. This includes relationships with other
companies that have significant business relationships with the company or with not-for-profit
organizations that receive substantial support from the company.
SOCIAL RESPONSIBILITY
It is a corporation’s initiatives to assess and take responsibility for the company's effects on
environmental and social wellbeing. (K Jay, 1995)The term generally applies to efforts that go
5. beyond what may be required by regulators or environmental protection groups. The Zimbabwe
Revenue Authority’s corporate social responsibility programme is driven by real altruism,
selflessness and the realisation that there are some less fortunate members of society who cannot
afford a decent meal a day or a roof over their heads. Although ZIMRA collects revenue on behalf
of the State, it cannot use the funds so collected for charity causes since all funds are deposited
into the Consolidated Revenue Fund. The unwavering quest to support the disadvantaged in the
community and the realisation that society has always given to ZIMRA through revenue collection
and should also benefit through the little that could be raised, resulted in the need for other
initiatives to raise funds for the less fortunate to be found.
POTRAZ is committed to being a responsible and contributing corporate citizen. Being a socially
responsible organisation means demonstrating an enduring commitment to improve the lives of
people in different communities. POTRAZ focuses on actively contributing to the social and
economic development of communities in which it operates. In so doing build a better, sustainable
way of life for the marginalised sections of the Zimbabwean society. Quality of life for
marginalised communities is the aim of this programme. Social responsibility leads to satisfied
employees and customers. Customers will become loyal while employees will be less likely to
change their jobs. A company can reduce its costs by more efficient staff hire and retention,
implementing energy savings programs, managing potential risks and liabilities more effectively
and less investment in traditional advertising.
INTEGRITY
The Urban Dictionary defines integrity as doing the right thing, even when no one is looking.
Businesses with integrity value their reputation in risk management, they strive to present
themselves in a way that puts their best foot forward. However, they will never put their reputation
above honesty and trust, even if that means they might temporarily have to look bad, in order to
ultimately look good. Customers and clients value honesty and trust every bit as much in their
business relationships as they do in their personal ones. Companies that operate with integrity are
often emerging as leaders within their industry, while others strive to catch up. Institute of directors
located in Graniteside is a good example of a company which believes that corporate governance
is a prerequisite for a vibrant economy. In conducting its business it upholds the principles and
values of integrity. The company does not make promises they cannot keep.
6. MONITORING
It refers to supervising activities in progress to ensure they are on-course and on-schedule in
meeting the objectives and performance targets. Continuous monitoring by the risk manager and
the department ensures that new and changing risks are detected and managed and that risk
response actions are implemented and effective. Monitoring determines whether Risk management
policies and procedures are being followed. Minerals Marketing Corporation of Zimbabwe has a
monitoring department which was established in 2010 to ensure the effective accounting of
national mineral resources, reduction of losses and protection of both human and financial assets,
through sound inspectorate, monitoring and security strategies in line with the corporation’s
policies and control systems. The department focuses on the maintenance of records relating to
production, storage, movement, and sale of minerals, the systems and procedures that relate to
prevention of leakages, the systems and procedures that relate to prevention of corrupt practices
and the prevention of collusion by officers in the system.
CONCLUSION
Corporate governance is a process which is concerned about how corporations are managed, how
managers are governed, what questions face by boards of directors and the accountability a
corporation has to shareholders. Strong corporate governance maintains investor s confidence,
whose support can help to finance further growth. Companies that implement the good corporate
governance into working environment life ensure corporate success and economic growth. They
are the basis in which companies grow.
7. LIST OF REFERENCES
Chaganti, R., & Sherman, H. (1998). Corporate Governance and the Timeliness of Change:
Reorientation in 100 American Firms. Westport, CT: Quorum Books.
Davies, A. (1999). A strategic approach to corporate governance. London: Gower Publishing
Limited.
Francis, R. (2000). Ethics and Corporate Governance: An Australian Handbook. Sydney, N.S.W.:
University of New South Wales Press.
Kay, J. (1995). Foundations of Corporate Success: How Business Strategies Add Value. Oxford:
Oxford University Press.
Monks, R.A.G. and Minow, N. (2001). Corporate governance. 2nd ed. Oxford: Blackwell
Publishes Ltd.
Stapledon, G. (1996). Institutional Shareholders and Corporate Governance. Oxford: Clarendon
Press.
Sternberg, E. (1998). Corporate governance: accountability in the marketplace. London: The
Institute of Economic Affairs.