Conformance and Performance

Principles of corporate governance indicate the existence of two dimensions:

1. Conformance; and
2. Performance.
Conformance focuses on meeting the expectations of external scrutiny through compliance with
various laws and following acceptable and defensible governance standards. Focuses on
accountability and responsibility to demonstrate due diligence under the law
Performance, on the other hand, provides expectations about the achievement of corporate
objectives. It is associated with strategic activities and seeks to maximise the benefits flowing to
shareholders/stakeholders. Has a leadership role linked to the execution of business activities and,
therefore, has more of a business orientation
The conformance dimension is about value-protecting and follows the principles of disclosure and
transparency (OECD 2004), accountability (UK Financial Reporting Council 2010), financial reporting
and audit (US Business Roundtable 2010) and managed risk (Australian Stock Exchange Corporate
Governance Council 2010).
Performance governance, on the other hand, is about value-creating, reflected in principles such as
developing structures that enable the board to add value to the organisation (Australian Stock
Exchange Corporate Governance Council 2010), leadership (UK Financial Reporting Council 2010)
and those more specific expectations of the US Business Roundtable (2010), namely to produce long-
term value for shareholders and to develop and implement the corporation's strategic plans. Both
dimensions of governance feed into one another, as shown in Figure 3.1:

Figure 3.1 Corporate governance framework

Checklist: Compliance with Corporate Governance Principles

• Is the term 'governance' clearly understood?

• Is there an acceptance to act in the best interests of shareholders and stakeholders?
• Are the principles of corporate governance applied?
• Is an effort made to interpret them in the context of the organisation?
 • Are corporate governance principles developed in a transparent manner and
disclosed?
• Does the composition of the board satisfy the 'effectiveness' criteria?
• Is there a clear distinction between board responsibilities and those of the executive
to run the company's business?
• Are shareholders' rights protected?
• Is there a dialogue with shareholders to achieve a mutual understanding of the
organisation's objectives?
• Do all classes of shareholders have equal rights?
• Does the organisation work with stakeholders to sustain financial viability?
• Does the board provide strategic leadership?
• Does the board monitor the performance of organisational management?
• Is the board accountable for its performance to the organisation and its shareholders?
• Is the composition of the board adequate to complete its responsibilities?
• Are board members elected in a transparent and open manner?
• Are board members inducted and undergo refresher courses?
• Are board members' remuneration packages disclosed and independently approved?
• Is remuneration linked with board and individual performance?
• Is the board accountable for achieving the organisation's objectives?
• Does the board accept its responsibilities for assessing and managing enterprise
risks?
• Has the board the expertise to implement enterprise-wide risk management?
• Do board members act as responsible corporate citizens?
• Does the board distinguish between its risk conformance and performance
responsibilities?