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LEGAL VIEW By Rob Kelly


IN ASSOCIATION WITH:


WHY GOOD GOVERNANCE COUNTS


It is described as essential. It is the ‘G’ in ESG. But what is ‘good governance’ and why is it so important to businesses whatever their size?


Experts stress that when it comes to running a business, good governance can be the key to unlocking a brighter future for both its workforce and its supply chain.


Corporate governance is the system of rules, practices and processes by which a company is directed and controlled.


Put simply, it refers to the way in which companies are governed and to what purpose. It identifies who has power and accountability, and who makes decisions.


And it is described by The Chartered Governance Institute as “a toolkit that enables management and the board to deal more effectively with the challenges of running a company”.


Lila Thomas, restructuring advisory partner at consultancy FRP, based in Preston, explains that having good governance in place is essential for the “sound running” of any business.


She says: “It provides the fundamental systems and values by which companies operate, without which firms open themselves up to operational, reputational and even legal risks.


“Great governance will always deliver two things: control and accountability.


“Control enables the board of directors to clearly establish the values and principles by which the company runs at every level of the organisation and to oversee that these are being applied and followed.


“This helps the company deliver against its fundamental purpose, and manage risk, preventing any nasty surprises.


“Accountability means board members are diligent in reporting and, if necessary, explaining progress against these principles, whether that’s to internal or external stakeholders.


“This is critical to fostering all-important trust in the business, which itself can underpin the value that stakeholders place in them.”


Ian McCullough, Preston based partner at advisory firm Opus Restructuring and Insolvency, describes good governance as being


He adds: “The trick is finding an approach which fits the culture of the business. What works in a large insurance company would be a disaster in a rapidly expanding tech start up.


“The bigger the company, the more bureaucracy the governance regime will tend to generate, so that certainly needs to be curbed. Principles are more important than paperwork.”


Sue Hutchinson is audit partner with Blackburn headquartered accountants and business advisors Beever and Struthers.


She says that for businesses transparency is “paramount” in order to explain “their


These codes emphasise greater board accountability, transparency, sustainability,


diversity, stakeholder engagement and focus on long-term success over short-term gains


like ‘the brakes on a car’.


He explains: “It isn’t there to stop the business, but to let it go faster but safely.


“Bad management is the primary or underlying cause of more business failures than any other single cause, mostly because of poor commercial judgement.


“Good governance is there to improve that judgement. It can become an obsession and a barrier to the progress of a business if it is too rigid and too formulaic, but it is an essential ingredient of success.”


progress and achievements against their strategic objectives”.


She says: “Doing this in a balanced way, including the negative as well as positive outcomes, helps demonstrate a board’s accountability to customers and stakeholders and creates public trust in society.


“Many organisations are not only reporting on their financial performance, but also on their Environmental, Social and Governance (ESG) organisational impact on society.


“To do this effectively, those same


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