The terms ‘governance framework’ and ‘governance structure’ are interchangeable. They both describe the system of an organization’s governance, particularly the rules, procedures and roles of responsibility that influence the organization.
These frameworks or structures most often govern people in positions of authority, such as executives and the board of directors. They dictate how they will complete the activities that drive the organization forward.
Good corporate governance structures can make organizations more competitive. With good governance, organizations ensure all their activities are consistent and up to regulatory standards, assuring the board that their rules and systems improve the business.
Examples of strong governance structures include:
A strong corporate governance framework organizes operational, risk management, reporting and financial processes to ensure the board is continually updated. Rules and systems create a robust framework for governance, and the framework provides the structure that drives the strategic plan. A strong governance structure can:
A sound governance framework can have a far-reaching impact. Though governance is most commonly a topic in the boardroom, it has a ripple effect internally and externally. Organizations that successfully execute a governance framework can expect:
Corporate governance structures are essential in today’s progressive and aggressive business environment. Corporate governance allows companies to put their positive traits firmly on display. With these intentions visible to all, companies are more likely to be held accountable for their behavior and actions — and thus more willing to distance themselves from duplicity.
Businesses today are held to incredibly high standards by investors and customers alike; honesty and openness about processes and operations count for a great deal. Both shareholders and consumers want to see companies operating with integrity and transparency.
Business advisory firm PwC calls corporate governance “a performance issue” as it provides a framework for how the company operates, stating that corporate governance frameworks should encompass the following:
This list provides a bird’s-eye view of corporate governance in action and conveys how it can influence business. To help organizations navigate corporate governance, Deloitte offers a governance framework that outlines the board’s objectives and responsibilities and how they relate to the corporate governance infrastructure.
Governance frameworks exist to ensure that a company remains in compliance and operates within legal boundaries, meaning that any governance structure must consider the local regulations wherever the organization has entities. The governance framework then dictates the governance operating model appropriate to the organization's aims.
To start building your own governance framework, aim to answer these questions:
A robust governance framework guides an organization in achieving accountability, authority and sound decision-making. By contrast, a weak corporate governance framework will cause a breakdown in the stages of the investment process and affect overall economic growth. For portfolio companies, a governance structure should ensure that all shareholders can vote on governance matters. All shareholders should have a voice and foundational rights.
Portfolio companies should conduct business concerning both the shareholders’ interests and the capital entrusted to them. A portfolio company’s governance structure should take the following into account and demonstrate:
A portfolio company’s governance structure should ensure adherence to the above commitments as the organization carries out its responsibilities as a market participant.
It’s natural for corporations to seek to establish new entities to fuel business growth and deal with increasingly complex regulations — but with each new entity comes a heightened need for entity management and robust subsidiary governance.
Globalization raises legal and corporate governance issues at the subsidiary level that need constant attention. To deal with this, many company secretaries and legal operations professionals turn to a subsidiary governance framework template to help get things under control.
Corporate governance framework templates provide guidelines and ideas to ensure both downstream and upstream corporate governance flows are robust and compliance-proof.
A subsidiary governance framework template can help to align processes while allowing wriggle room for local action. It provides the framework to allow those responsible for subsidiary governance and entity management the space to figure out what works best for them and their needs while ensuring the policies and practices generally conform to what the parent company expects.
This means that the parent company can focus on group-level requirements and issues, work to grow the business further and devise long-term strategies. At the same time, the subsidiaries can work out the part they need to play and how that works at a jurisdictional level.
It’s not practical to assume the parent will take care of every subsidiary’s regulatory and compliance needs; any subsidiary governance framework template must lay out the roles and responsibilities of both the parent and each subsidiary. The Chartered Governance Institute (CGI) has developed an “at a glance” subsidiary governance framework template checklist to help corporations operating across multiple jurisdictions and business areas.
Once an organization decides to list and go public, its compliance and governance burden increases significantly. Now, it’s no longer just a company’s stakeholders and potentially the local authorities keeping an eye on how the organization is running; once it is listed, that organization becomes public property. It’s opened itself up to intense scrutiny.
Market fluctuations will impact its share price, but scrutiny can also impact price. The movements and decisions of the board will be publicly available for access by anyone with a genuine interest, and investors will have the opportunity to ask questions and express concern about business operations. This is why public entities need robust and sound governance practices.
Strong governance structures can help mitigate some of those risks, ensuring that everyone in the business — as well as the market and investors — knows the organization’s steps. It means transparency around compliance and operations is supported by clear communications, and a paper trail can lead back to the reasons for any decisions and the ultimate consequences.
A public entity must report to the market regularly. A schedule of reporting on board meetings and accounts, management changes, security breaches, and more will be expected, as will a detailed annual report. If they don’t get filed with the exchange, then the public entity, and potentially its parent, will face sanctions and fines.
As public entities develop and monitor their governance structures, they are, in essence:
And, of course, any corporate governance framework should be subject to regular audits to ensure it’s still fit for purpose, providing the proper checks and balances.
Entity management software supports the governance framework by bringing stakeholder information and entity data to a central repository that’s easily accessed from anywhere in the world. This is critical because more board members, executives and employees work remotely, meaning that they need to be able to follow the governance structure no matter where they’re logging on from. Boards not only require ways to digitize their governance systems, but they also need software that can turn their governance structure into a competitive advantage.
Diligent’s Entity Management software, part of the Diligent One Platform, allows boards to keep up with today’s fast-paced climate, facilitating the swift, data-based decisions that modern business requires. Request a demo to see how software can future-proof your governance framework.