Best Corporate Governance Practice - The Five Golden Rules

Best Corporate Governance Practice

In this section we present our Five Golden Rules of best corporate governance
practice - key concepts in embracing good corporate governance and best
practices in business. Embracing these principles will mean the companys culture
and therefore public image will shine out as an example of an open, well and
fairly run organisation.

Home
About Us

Search this site:

Contact Us

Features & Articles

Blog
Leadership Blog
Governance Africa

The public image of a corporation will quite accurately reflect the culture of that
body. It follows, then, that good corporate governance has to be in the bones and
bloodstream of the organisation since this in turn will be reflected in the culture.
To carry the analogy further, in the same way that healthy blood and bones are
reflected in the naturally healthy look of a person, so an organisation whose
internal functions are healthy will naturally look so from an external perspective.
Our Golden Rules of best corporate governance practice are like a health manual
for your organisation and come with a practical diagnosis and treatment
programme which we set out in our new Corporate Governance Course, a series of
ebooks delivered over 6 days by email. The first ebook, an introduction to
corporate governance and the ACG methodology, is available free of charge simply subscribe to this site to receive your copy (see the form at the top right of
the page).

Corporate cultures and vision

When Bill Hewlett and I put together the initial plans for our business enterprise
in 1937 ... (we decided) that we wanted to direct our efforts towards making
important technical contributions to the advancement of science, industry and
human welfare.
The above quotation expresses the early aspirations of two entrepreneurs when
they started their business. The principles these two men espoused at the
beginning became part of the ethos of the business they founded and persist to
this day.
Similarly, Ernest Butten shortly after he founded the management consultancy
Personnel Administration in 1943, issued a document which he called the P.A.
Charter. The clear vision behind this document shines through, and was to drive
the business forward through his sale of the business into trust for its staff and
well through his retirement twenty five years later. "EB's" presence permeated the
company and guided its behaviour for a generation.
This intention and ability to create a vision and turn it into a way of life for the
company may be regarded as nothing unusual until one compares a supposed
entrepreneur and builder of multinational corporations, Robert Maxwell, whose
empire collapsed after he died, with another entrepreneur and business builder,
Thomas J Watson, whose creation, International Business Machines, is still a global
force to be reckoned with over eighty years after he founded it.

Principles of good corporate governance

http://www.applied-corporate-governance.com/best-corporate-governance-practice.html[12/27/2014 9:43:29 PM]

Subscribe and receive a

free ebook!

* indicates required
Email Address

Business Ethics
Strategic Management

First/Given Name

Definitions
Corporate Governance

Last Name

Business Ethics
Strategic Management
Leadership
Accountability
Stewardship
Whistleblowing

Implementation
Importance of Corporate
governance
Best Practice
Governance and Research

The Leadership Zone

Home
What is leadership?
Leadership and learning
Conscious leadership
Quotes & Jokes

Training
Corporate Governance
Training
The ACG eBook Manual
[?]Subscribe To This Site

Don't worry, your email is totally

secure - we promise only to use
it to send you updates from
Applied Corporate Governance.

Subscribe

Best Corporate Governance Practice - The Five Golden Rules

From the above examples, we can draw some conclusions and formulate a short
set of rules regarding best corporate governance practice. All the goodies, to a
great degree, abided by these rules. All the baddies to a large extent ignored
them. The principles underlying these rules are:
ethical approach - culture, society; organisational paradigm
balanced objectives - congruence of goals of all interested parties
each party plays his part - roles of key players: owners/directors/staff
decision-making process in place - reflecting the first three principles and
giving due weight to all stakeholders
5. equal concern for all stakeholders - albeit some have greater weight than
others
6. accountability and transparency - to all stakeholders
1.
2.
3.
4.

Hence, with due respect to Milton Friedman who is quoted as believing that the
social responsibility of business begins and ends with increasing profit, we
contend that running the business successfully is not simply about market
domination and shareholder value.
And best corporate governance practice is not simply about a battle between
distant, disloyal institutional shareholders and greedy directors but about the
ethos of the organisation and fulfilling its clearly agreed goals.
These goals may be set by the entrepreneur who starts the business, but they are
accepted by all parties as being high-minded and in everyones interests. This is
notwithstanding the fact that some parties have bigger stakes and some benefit
more than others. And, of course, different parties want different things from the
company. There has to be, therefore, a process of identifying the different needs
and, as much as possible, harmonising them. This is the starting point for the
smooth running of the business. Once dissonance in the common goal creeps in the
danger of the standard of corporate governance deteriorating rises steadily.
Clearly external regulation can only play a limited part in ensuring that such a
deep-seated and beneficial culture as that described above exists. Equally clearly,
however, the task of ensuring this desirable state and adhering to best corporate
governance practice belongs to the various stakeholders, who can and should,
through their proper participation, bring this about.

Five Golden Rules

As we have iterated, this section of the website lays out and explains our view of
best corporate governance practice and the holistic approach by which we believe
an organisation can ensure that a state of good corporate governance exists, or is
brought into being if its existence is uncertain. It takes the view that there is an
over-riding moral dimension to running a business and that the standard of
governance will depend on the moral complexion of the operation. Hence the
approach developed is based on the belief that:
the business morality or ethic must permeate the entire operation from top to
bottom and embrace all stakeholders best corporate governance practice is an
integral part of good management practice also permeating the entire operation,
and not an esoteric specialism addressed by lawyers, auditors and sociologists
The principles of this approach are therefore framed in relation to the
conventional way of looking at how a business should be properly run.
Our Five Golden Rules of best corporate governance practice are:
1. Ethics: a clearly ethical basis to the business
2. Align Business Goals: appropriate goals, arrived at through the creation of
a suitable stakeholder decision making model
3. Strategic management: an effective strategy process which incorporates
stakeholder value
4. Organisation: an organisation suitably structured to effect good corporate
governance
5. Reporting: reporting systems structured to provide transparency and
accountability
This approach recognises that the interests of different stakeholders carry
different weight, but it does not, by any means, suggest that those with a major
interest matter and the rest dont. On the contrary, best corporate governance
practice dictates that all stakeholders should be treated with equal concern and
respect.
For obvious reasons, although the methodology we will propose involves taking
major stakeholders into greater account when formulating strategy, it is designed
to generate all round support because of the fact that every stakeholder, no

http://www.applied-corporate-governance.com/best-corporate-governance-practice.html[12/27/2014 9:43:29 PM]

Best Corporate Governance Practice - The Five Golden Rules

matter how small, is given the opportunity to express a view, through the
continuous monitoring of stakeholder perceptions. It is key to the approach that
organisations truly respect the minority interests. Like the spirit of the US
constitution, the approach can be said to embrace liberty, equality and
community, but like the US economy, it aspires to produce the most powerful and
effective result in the world.

Best corporate governance practice = best management practice

The regulatory approach to the subject would regard governance as something on
its own, to do with ensuring a balance between the various interested parties in a
companys affairs, or more particularly a way of making sure that the chairman or
chief executive is under control, producing transparency in reporting or curbing
over-generous remuneration packages. This indeed is what the Cadbury
recommendations and the subsequent reports and code are all about. However, as
we express in the rest of this website, we regard this as much too limited a view
of governance, and hence of best corporate governance practice.
The essence of success in business is:
having a clear and achievable goal
having a feasible strategy to achieve it
creating an organisation appropriate to deliver
having in place a reporting system to guide progress.
There are very many websites and publications advising on how to do this, and of
course, this is what is described as good management.
Best corporate governance practice is about achieving the stakeholders goal, and
delivering success in an ethical way. Hence it follows that it must entail a holistic
application of good management.
To demonstrate the totality, and the need for a holistic approach, we present
below an illustration showing the pressures on a large organisation.

Pressures on a Company
It is important that a wide perspective is taken when considering corporate
governance because we cannot emphasise too strongly our belief that good
management practices, as described in the rest of this section of the website, will
deliver good corporate governance. Compliance with checklists of regulations and
codes, in the setting of bad management or a lack of commitment to good
management, will NOT deliver good corporate governance. The longer term
consequences of this externally-applied regulatory approach will be a progressive
introduction of more and more rules which are held in less and less regard, and
which produce less and less effect.
The result benefits neither business nor its customers, and has only served to
spawn a growing industry of specialist advisers in corporate governance and lobby

http://www.applied-corporate-governance.com/best-corporate-governance-practice.html[12/27/2014 9:43:29 PM]

Best Corporate Governance Practice - The Five Golden Rules

groups. It has also failed to prevent more and bigger corporate failures. So while
the most of the provisions of the various Codes of Conduct could certainly be
considered best corporate governance practice - or at least good corporate
governance, if they are imposed externally and not truly bought into by every part
of the company and its stakeholders, and monitored effectively, there will always
be those who try - and succeed - in hiding from or bending the rules.
As Professor Sir George Bain once said to us, the big advantage of the shareholder
model over the stakeholder model in management terms is the simple goal it
presents: maximise shareholder value. No such simple target attaches to the
stakeholder approach, and yet without a clear goal, management faces an
impossible task in trying to do its job properly - what exactly is its job?
In our experience of working with and observing management over the past thirty
years in all kinds of situations, from the leaders of some of the largest companies
in the world to the owner/managers of small entrepreneurial businesses, a general
rule stands out. The governance, the goals and the strategy of a business must be
compatible, and there must be congruence between the expectations of the
various interested parties. Clearly, in defining best corporate governance
practice, this means that:
there is a common view as to the ethic by which the business is conducted
the views of all interested parties are taken into account when deciding the
goal
an appropriate weighting is given to those views to arrive at a conclusion as
to how to achieve the greatest good
a strategy is formulated to attain the chosen goal which takes account of
the likely behaviour of the various interest groups
an implementation programme is drawn up which makes the necessary
organisational arrangements to fulfil the strategy and to protect the
interests of the various stakeholders
the implementation programme includes reporting systems which ensure
transparency and regular feedback on matters which affect them to the
various stakeholders
Much of this website is therefore devoted to the process whereby a board, and the
main stakeholders, can ensure that the company complies with the Five Golden
Rules of best corporate governance practice.
Now read about the Golden Rules in detail:
Rule 1:
Rule 2:
Rule 3:
Rule 4:
Rule 5:

The Importance of Business Ethics

Towards a Common Goal - Align Business Goals
The Importance of Strategic Management
Organisational Effectiveness for Good Corporate Governance
The Importance of Corporate Communication

Return from Best Corporate Governance Practice to the Applied Corporate

Governance homepage
Read about our Corporate Governance Course - a comprehensive guide to
implementing good corporate governance
Our corporate governance seminar series and small group workshops are a great
way of learning our unique methodology and how to apply it to your own
organisation. This methodology is also explained in ourcorporate governance
course, a series of ebooks delivered direct to your inbox over 6 days.
We also have plans for an eLearning platform to deliver personalised corporate
governance training to a wider audience at your convenience. If you would like to
talk to us about implementing a corporate governance programme in your
company please fill in thecontact form.
Share this page:

2009-14 Applied-Corporate-Governance.com. All Rights Reserved

http://www.applied-corporate-governance.com/best-corporate-governance-practice.html[12/27/2014 9:43:29 PM]

Best Corporate Governance Practice - The Five Golden Rules

SBI!

http://www.applied-corporate-governance.com/best-corporate-governance-practice.html[12/27/2014 9:43:29 PM]