Ever wonder why your business is making a profit but never has any cash? It’s a question we as accountants...
Organisations with “good” governance should avoid all manner of disasters and perform better on a whole range of metrics including financial as well as employee and customer satisfaction.
Poorly governed organisations are more likely to be those that fall into insolvency, put their people and others at risk, fail to address key business risks and underinvest in stakeholder management so that when a crisis happens, it seriously harms the business.
This really is not about law. It’s about good business. However, when a business fails, a person is injured (or worse, dies), a customer’s information is compromised, or some other business crisis arises – the law can come into play. Business and directors can be found to have breached all manner of laws, have regulators crawling all over them and be faced with multiple law suits.
There are free quality governance resources available to any business that wants to understand what good governance practices are. The Financial Markets Authority has information on their website including a handbook (www.fma.govt.nz). MinterEllisonRuddWatts’ White Paper on Corporate Governance can be found on www.minterellison.co.nz. The ASX and others also provide quality information that can be readily accessed. The Institute of Directors also provides quality information to its members.
At its heart, ‘good governance’ is about culture. It’s about a culture that cares about its people, its customers and its community. Quite simply it’s about doing the “right” thing. It’s mostly plain old fashioned common sense. For example, why on earth wouldn’t any business regularly assess the risks to its business, how to mitigate them and what to do should a risk actually crystallise? Failure to do so may well breach many laws – it certainly breaches good business sense, yet alone common sense.
Companies listed on the NZ Stock Exchange (NZX) are required to comply with certain corporate governance rules of NZX and to explain their approach to certain others. The FMA also encourages issuers of securities to comply with their Principles and Guidelines for corporate governance. Proposed changes to NZX Rules will require issuers to comply with the FMA’s guidance or explain why they are not.
Directors of companies are required to act in the company’s best interests. Under health and safety legislation directors are required to exercise due diligence in respect of health and safety. Failure to do so exposes directors to personal liability, as well as personal reputational damage, let alone damage to the business they govern.
Smart businesses will embrace the principles of “good” governance as a means of enhancing their business for the long term. They do so because it’s good business not simply to comply with various laws.
DISCLAIMER No liability is assumed by Baker Tilly Staples Rodway for any losses suffered by any person relying directly or indirectly upon any article within this document. It is recommended that you consult your advisor before acting on this information.