A Basic Primer on Organizational Governance

Abstract

There has been a sea change in the attitude to corporate governance in the past decade. Perhaps it has been less of a revolution and more of a realization that the old back-scratching order of long lunches, rubber stamps, and incestuous intra/inter board relationships are not robust enough to fulfill the stewardship mandate that rests with boards of directors. This has been thrown up due to a number of grievous corporate failures over the past couple of decades which have spawned a number of reports including the Dey (1994), Cadbury (1992), and King (1994) reports. This is more a realization rather than a revolution because the basics have always been there but have been forgotten over the years. It took a number of dramatic corporate failures for the business community to remember the basics, and it is to these that this essay will turn. These failures of corporate governance and their aftermath are not restricted to large operations but occur at all levels of organizational endeavour. Hence an understanding of good corporate governance is germane to all organizations, big and small, as the author has discovered to his chagrin. Robert Tricker (2009) noted that “if management is about running the business, governance is about seeing that it is run properly” or it is “the system by which organizations are directed and controlled” as Adrian Cabury (1992) noted. This suggests an oversight or stewardship role which is exactly at the heart of the governance function. Before elaborating further on the governance function itself, it might be useful to examine exactly where a board of directors fits in the broader arrangement of a corporate organization. To develop this understanding we will look to the agency theory of corporate organization.