Governance is a word used today to describe a range of activities within the business and corporate sector.  It is a word that is used to mean a range of different outcomes based on the perspective of the individual using it.  This can cause a diminution of the power of the word and a fall in good management practice within the business community.  Simply put by using the word to give the impression of performance can lead to damaged credibility.  

 

There are some studies in the USA that look at the statements made by business and the outcomes achieved by the same businesses.  The outcomes of these research projects indicate a direct correlation between statements and performance, in other words the more a company promises the less likely it is that they will deliver on their promises or statements.

 

The more it is used without a detailed understanding of its actual meaning the more it runs the risk of becoming irrelevant to the management of organisations and can truly become a fad issue of the early part of the 21st century.  The term "Good Corporate Governance" carries with it a strong connotation of legal compliance; in fact it is a whole lot more.   Very simply put governance is "the way we do things around here" or a tangible expression of the ethics and culture of the organisation.

 

Standards Australia have produced several guides on governance and related issues, as follows

1. AS8000-2003 - Good Governance Principles.2. AS8001 - Fraud and corruption control3. AS8002 - Organisational codes of conduct4. AS8003 - Corporate social responsibility 5. AS8004 - Whistleblower protection programs for entities.

 

A glance at these documents as a whole demonstrate quite clearly that governance and its application is multi faceted and must be layered over an organisation by the application of corporate memory, culture and ethics.  It must be filtered by discipline to ensure correct outcomes within the corporate plan.

 

AS8000 lists some principles it believes gives indication of correct performance, these are:

 

1. The role, power and responsibilities of the board - boards have a responsibility to ensure independence from executive management and that the shareholders are protected to the maximum ability of the board both collectively and individually.2. Disclosure and transparency obligation - it is recommended that the system should ensure timely and accurate disclosure of all relevant information that is needed for correct decision making.3. Stakeholders and their role, the standard is quite clear in differentiating the stakeholder group from the shareholder group so that a positive impact can be made on good governance.

 

The standard refers to the papers on governance that have been issued by the OECD, again a wonderful source of information for all interested risk managers because the OECD publication represent a compromise position based on the member countries.

 

Risk management has numerous components, one being governance.  Good corporate governance is a fundamental building block of integrated risk management.  They need each other and indeed it is hard to say who is first - "the chicken or the egg".  At the end of the day does it really matter as long as it is embedded?