Governance provides structures and sets policies, procedures, processes, and standards on how an organization operates to ensure accountability, transparency, responsiveness, the rule of law, stability, equity, and inclusiveness of the various stakeholders (Davis, 2005). As such, governance sets the norms, strategic vision, and direction of an organization as it outlines the values and rules by which the business operates, thereby setting high-level goals and policies of the organization (Unesco, 2022).
What is Organizational Governance?
Every business organization needs to establish strategic goals and objectives and the policies and practices that must be followed to flourish and effectively compete in the market. Thus, for any organization to succeed in the competitive market environment in the short and long term, it must have a good governance structure. Organizational governance, sometimes referred to as corporate governance, is the responsible, efficient, and entrepreneurial management of an organization to achieve long-term organizational goals (Wolverhampton, 2022). Organizational governance encompasses a set of rules, policies, practices, and procedures that guarantee accountable decision-making and transparency (Davis, 2005).
Safeguarding the interests of all stakeholders in today’s market-oriented economy is critical. As such, organizational governance is essential for establishing the organization’s standards, strategic vision, and direction, along with the fundamental principles and regulations that guide its operations. In protecting the interests of all stakeholders, organizational governance establishes high-level objectives and policies that are transparent and appropriate and facilitate accountability (Unesco, 2022). In a nutshell, organizational governance is a system that affects how a company sets and achieves its goals, monitors and evaluates its risks, and maximizes internal performance. Corporate governance is critical to the very existence and success of any business organization because it creates a culture of accountability, openness, and trust. These characteristics encourage investments, stability, and ethical business practices.
Why is it Important that Organizations Have a Strong Governance System?
A company’s ability to deliver long-term organizational success and economic growth with transparency and accountability is aided by a solid organizational governance structure. As a result, management is subject to checks and balances, and decision-making considers all stakeholders’ interests (Ferris, 2001). In addition, given that organizational governance is an effective method of fostering confidence and trust among shareholders, potential shareholders, clients, and suppliers, it may result in more investments in the future as potential stakeholders view the business environment as thriving, well-managed, and profitable. Therefore, a company’s competitive edge in today’s uncertain market environment may be traced back to its commitment to sound organizational governance practices.
Compliance with corporate governance principles is just as crucial to an organization’s bottom line as focusing on efficiency, innovation, and quality management (Goel, 2018). To succeed in today’s highly competitive business climate, companies must implement effective governance practices to strengthen their brands, increase their financial stability, and increase their resistance to failure. Robust organizational governance is manifested in the rules, policies, processes, and procedures (Cantrick-Brooks, 2021). Thus, corporate governance serves as a guide for business owners and executives on managing business operations to advance the company’s goals while protecting its customers, employees, suppliers, and other stakeholders.
Organizational governance that is both strong and effective is crucial in creating an environment where employees and management feel safe sharing their ideas and contributing to the firm’s success. One of the objectives of organizational governance is to protect stakeholders’ interests while ensuring integrity, transparency, and accountability are maintained. Companies with solid corporate governance demonstrate to investors and other stakeholders worldwide that the company is well-run and that its management care about the interests of all of its constituents. Therefore, a significant competitive advantage may be achieved through the production of value for the company as a direct outcome of a robust organizational governance system(Goel, 2018). On the contrary, the efficiency of corporate governance mechanisms is diminished by a lack of openness and inadequate disclosure.
Organizations must have a robust governance system to develop a strong brand reputation and be more financially viable and resilient within the competitive business environment. Governance concerns how things are done in an organization, as expressed in rules, policies, processes, and procedures (Cantrick-Brooks, 2021). As such, it serves as a guide to business owners and managers on managing business operations that align with the organization’s goals and protect all stakeholders’ interests.
Corporate, Regulatory and Global Governance
Corporate governance involves a system of rules, policies, procedures, practices, and processes that ensure transparent decision-making processes and proper accountability are put in place to protect the interest of all stakeholders (Davis, 2005). On the other hand, regulatory governance involves using policies, laws, formal and informal orders, tools, and processes by governments, non-governmental organizations, or self-regulatory bodies to set regulatory requirements (Ferris, 2001). Global governance represents the use of formal and informal institutions, mechanisms, relationships, and processes amongst different countries, states, markets, citizens, and organizations to articulate and establish structures and processes, rights, and obligations that foster the collective interest of the institutions and nations (Bandyopadhyay, 2020).
Bandyopadhyay, K. (2020). The Impact of Global Labour Standards on Export Performance. In A. Negi, J. A. Pérez-Pineda, & J. Blankenbach (Eds.), Sustainability Standards and Global Governance: Experiences of Emerging Economies (pp. 113-129). Springer Singapore. https://doi.org/10.1007/978-981-15-3473-7_7
Cantrick-Brooks, D. (2021). Governance and corporate culture: What really matters? [Article]. Governance Directions, 73(2), 64-68.
Davis, G. F. (2005). New directions in corporate governance. Annual Review of Sociology, 31, 143-162. http://www.jstor.org/stable/29737715
Ferris, T. (2001). Devolving and delegating power to and controlling more autonomous public bodies: The governance of public agencies and authorities. Oragnization for Economic Co-oporation and Development ( OCDE). https://www.oecd.org/gov/budgeting/2730657.pdf
Goel, P. (2018). Implications of corporate governance on financial performance: an analytical review of governance and social reporting reforms in India. Asian Journal of Sustainability and Social Responsibility, 3(1). https://doi.org/https://doi.org/10.1186/s41180-018-0020-4
Unesco. (2022). Concept of Governance. International Bureau of Education. http://www.ibe.unesco.org/en/geqaf/technical-notes/concept-governance