The importance of corporate governance policies

The business management is a complex task. The management of a business organization has to take several challenging decisions for the business growth and need to balance the interest of various stakeholders. In the contemporary times, most of the organization’s decisions are quite challenging as management has to take care of the interest of all the stakeholders. The primary stakeholders of the organization are management, customers, employees, environment and the government. It is important to understand that the actions of the organization should not impact in any negative manner on the environment or the society. Yet, business managers, in their pursuit of profits take several decisions which has a negative outcome for other stakeholders.  

In this regard, the governments of different nations develop corporate governance rules which can assist the organization in strategic decisions making. Another aim of the corporate governance policies is to assure that the business organizations are abiding by the ethical principles and does not breach the interest of different stakeholders. It is important to understand that unethical decisions not only impact other stakeholders, but it also tarnish the image of the business organization in the long run. In South Africa, the King Committee of the Corporate Governance has issued several reports and guidelines regarding government structures and operations in the business organizations located in South Africa. These reports are focused on promoting ethical and just behaviour among the business organizations. The government has made several policies so that it can be ensured that the rights of a specific party are not breached.  In regard to the Corporate Governance, four reports have been issued, namely, King 1, King 2 and King 3 and King Four (Deloitte, 2017).

The new report on the corporate governance has introduced several changes in the corporate governance policy in alignment with the changes in the current business environment. The primary focus of the report is creating transparency and encouraging the business organizations to follow the corporate governance policies. The King third report of the corporate governance called the companies to apply and explain. It means that the business organizations have to implement the corporate governance policies or provide the reason why they are not implementing these policies. However, this core is changed to apply and explain which means that the organization needs to apply all the codes of the corporate governance and they should be explained. Therefore, it has become mandatory for the business organizations to implement all the principles of the corporate governance and explain how they are implemented within the organization (PWC, 2017).

Moreover, this report is principle and outcome focused. It means rather than forcing the companies to abide by certain rules and regulations, it forces the companies to be result oriented and implement different strategies for the better outcomes. Corporate governance is focused with the ethical leadership, attitude and ethical behaviour. It encourages the companies to become more transparent and share most of the details with different stakeholders. However, it is also concerned with the intellectual property of the business organization. It acknowledges that the information is a strategic asset to the organization and needs to be secured.

Changes in South Africa’s corporate governance policy

The focus of the new rule book is to develop ethical business organizations within the South African region. Ethical business organizations can be created by encouraging ethical management within the organization. In the present time, there is a huge focus on the ethical leadership. It denotes the ability of an organization to abide by the ethical principles. In business decision-making, the business organizations have to take several decisions which can breach the interest of other stakeholders. However, the organization should assure that no negative or harmful effect occurs with their decisions (KPMG, 2016). The business organizations are a significant and an important part of the society. Therefore, their operations and decisions impact severely on the society. The operations of the business organizations may have a negative impact on the society, environment, customers or the employees. In the pursuit of profit, the business organizations may take decisions which can breach the interest of these stakeholders. For instance, a business organization may neglect the health and the safety workplace ethics which may cause workplace hazards. Another example where the organization may face ethical issues is environmental impact of the manufacturing process. The manufacturing process of the organizations may cause negative environmental impact on the environment. It is possible that the currently there are no rules, regulations or legislations which cannot prevent the organizations from such actions. However, in this regard, it is important that the organization take self-restraining actions for positive behaviour. The leadership of the organization plays a critical role in the ethical decision making. If the management makes policies that they will not take any actions which breach the interest of any stakeholder or party, then the organization can easily follow correct and moral behaviour. It can be critiqued that following ethical behaviour is important for the organization as it builds the trust of different stakeholders and enhance the brand image of the organization (Langlois, 2011).

For instance, if the organization indulges in illegal or unethical behaviour it will result in legal cases which will cost the organization financially. In addition, the organization will also have to face the criticism of the government and other stakeholders. The customers of the company will become reluctant to buy the product from the company. As a result, the company will face significant financial losses.

The leadership plays a critical role in the implementation of the corporate governance policies. A great leader who is capable of implementing the ethical leadership policy should be strong, empathetic and ethical. In his leadership style, morality and just behaviour should take precedence. All the decisions should be judged according to ethical policies and legal frameworks. It should be ensured that the decisions of the organization should not impact any stakeholder negatively.

A leader capable of implementing the corporate governance policies must be able to influence other employees regarding to follow ethical behaviour and abide by the government’s policy. Motivation is an important quality of a great leader since it is necessary to motivate the employees of organization. A business organization cannot follow ethical behaviour and follow the corporate governance policy if all the employees do not follow them. Therefore, it is important that a good leader has motivation capability (Leigh, 2013).

A leader can motivate others only when he has charisma and follows ethical behaviour himself. According to transformational leadership style, a great leader is one who is focussed on the growth and progress of his employees. He motivates others by setting an example himself. In addition to it, the leader should also be able to create captivate his audience and motivate them to follow same behaviour. A great leader creates a positive and ethical organization culture such that the employees are motivated to preserve the values and the ethics of the organization.

 The great leadership denotes a leadership style which is directed by the ethical beliefs and the value for dignity and the right of others. The ethical principles refer to the trust, honesty and fairness for all the stakeholders. Ethical leadership is important in all the management of ethical organizations. These leaders are capable of establishing an ethical organization culture and motivating the employees to follow ethical behaviour (Mendonca & Kanungo, 2006). These leaders also become aware regarding the changes in the corporate governance policies and changes in the government legislations. They should be proactive in creating a positive organization culture and implementing any changes in the corporate policies.

Conclusion

It can be concluded that the corporate governance policies are essential in guiding the organizations to follow ethical behaviour. These policies guide the organization in their decisions and business operations. In addition to it, the corporate governance policies and laws should also be able to control the ethical behaviour in the organization. The government should be able to evaluate the compliance to these policies and punish the organizations if they are non-compliant. The king’s report discusses corporate governance framework in South Africa. These policies are essential in ensuring the organization is complaint to the laws and legislations. The behaviour and the principles of the leader also play a crucial role in ensuring that the organization is behaving in an ethical condition. The good leader should demonstrate motivation, charisma and ethical behaviour.

References

Mendonca, M., & Kanungo, R. (2006). Work and organizational psychology. McGraw-Hill Education (UK).

Leigh, A. (2013). Ethical Leadership: Creating and Sustaining an Ethical Business Culture. Kogan Page Publishers.

Langlois, L. (2011). The Anatomy of Ethical Leadership: To Lead Our Organizations in a Conscientious and Authentic Manner. Athabasca University Press.

Deloitte. (2017). King IV. Bolder than Ever. Retrieved on 20 July 2017 from https://www2.deloitte.com/za/en/pages/africa-centre-for-corporate-governance/articles/kingiv-report-on-corporate-governance.html 

PWC. (2017). King IV – Steering point. Retrieved on 20 July 2017 from https://www2.deloitte.com/za/en/pages/africa-centre-for-corporate-governance/articles/kingiv-report-on-corporate-governance.html 

KPMG. (2016). King IV™ Summary Guide. Retrieved on 20 July 2017 from https://home.kpmg.com/za/en/home/insights/2016/10/king-iv-summary-guide.html