Seven Characteristics of Good Corporate Governance

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In 1992, the King Committee of Corporate Governance was formed in South Africa with the intent of laying down recommendations for highest standards in corporate governance with a South African perspective. The Committee published its first report in 1994 which established recommended standards for the board of directors of certain listed companies. In 2002, the second King’s report was published which updated the Code of Corporate Practices and Conduct. The second King’s report also listed seven characteristics of good corporate governance.

Discipline

Discipline in corporate governance means that the senior management should be aware of and committed to adhere to behavior that is universally recognized as correct and proper.

Transparency

Transparency is the measure of how easy it is for outsiders to find out and analyze a company’s financial and non-financial fundamentals. Companies should make this information available in timely and accurate press releases to give outsiders a true picture of what is happening within the company.

Independence

For good corporate governance, it is important that all decisions are made objectively with the best interest of the enterprise in mind and without any undue influence from large shareholders or an overbearing chief executive officer. This requires putting in place mechanisms such as having a diversified board of directors and external auditors to avoid any potential conflict of interest.

Accountability

People who make decisions in a company must be held accountable for their decisions and mechanisms must exist to allow effective accountability. In public companies, investors hold individuals running the company accountable for their actions by carrying out routine inquiries to assess the actions of the board.

Responsibility

In a corporation, managerial responsibility means that the management be responsible for their behavior and have means for penalizing the mismanagement. It also means putting in place a system that puts the company on the right path when things go wrong.

Fairness

The company must be fair and balanced and take into the account the interest of all of the company’s stakeholders. In this sense, the rights of each of the groups of stakeholders must be recognized and respected.

Social Responsibility

A well-managed company must also be ethical and be responsible with regard to environmental and human rights issues. As such, a socially responsible company would be non-exploitative and non-discriminatory.

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