Analyzing Your Corporate Governance System

By definition, corporate governance refers to the mechanisms, processes and relations by which corporations are controlled and directed. It deals with the distribution of rights and responsibilities among different actors (decision-makers, experts, consultants, stakeholders, etc.) in the corporation (board of directors, managers, shareholders, employees).

In other words, corporate governance is all about rules and procedures for making decisions in a business entity (or any other organization, for that matter).

Optimizing your corporate governance system (CGS) is important, because maximization of financial and aggregate value created by your company (the primary objective of business management) critically depends on quality of corporate decisions (especially at the very top).

Therefore, the absolutely vital CGS component is your corporate decision-making process. Which obviously must be highly efficient (in fact, requires the maximum efficiency). As optimal decisions require optimum knowledge, probably the most important component of this process is the highly efficient decision support system (DSS). DSS refers to a corresponding category of information and knowledge management systems.

Another important CGS component is an optimal system of corporate decision support structures, where decisions are prepared, discussed, evaluated and ultimately made. These structures include various committees, workgroups, sometimes functional units (typically collectively referred to as ‘bureaucracy’), and the like. Corporate Board of Directors is one of these structures.  

Every such structure must have an optimal composition of actors, which must include both voting members (actual decision-makers) and non-voting members (consultants, advisors, experts and stakeholders in a specific category of corporate decision).

Obviously, the decision-making process must make sure that all those impacted by this decision have an opportunity to make their input (express their opinion) which is heard and taken into account in making the decision in question.    

No less obviously, your corporate governance system must match your DCI, your corporate vision, your corporate culture and corporate code of conduct.