Corporate governance is the system by which companies are directed and controlled. Shareholders’ role in governance is the appointment of directors and auditors and to ensure an appropriate governance structure exists. The board of directors are operationally responsible for their company’s governance.They should pay specific attention to opportunities when planning strategically, they should consider what constitutes excessive risk taking and set the level of risk appetite and tolerance and oversee the adequacy and effectiveness of risk and opportunity management, and they should focus on the company’s resilience to withstand vulnerabilities including recovery plans.
The benefits of sound corporate governance lead to healthy organisations and is all about ethical and effective leadership. Leaders need to define strategy (with formal board approval and the board’s oversight over resultant policies and plans to action strategy), provide direction and establish the ethics and values that will influence and guide practices and behaviour with an eye towards ensuring the sustainability of the company. Another benefit is that good governance enhances performance across the various forms of capital, as realised by King IV, (i.e. financial, manufacture, intellectual, social and human capital) and the need to ensure that these are properly addressed.
When evaluating a company’s sustainability prospects, corporate governance is one of three key pillars that is examined – along with social and environmental management practices. Nature, society, and business are interconnected in complex ways that need to be understood by decision makers. Innovation, fairness, and collaboration are key aspects of any transition to sustainability. Innovation provides new ways of doing things, including profitable responses to sustainability. Fairness is vital because social injustice is unsustainable and collaboration is often a prerequisite for large-scale change.
With respect to corprate (triple bottom line) reporting, there have been significant global developments since King III was introduced, notably the release of the Integrated Reporting Framework by the International Integrated Reporting Council (IIRC).