Organizational Governance

Introduction

Organizational governance has been an interesting topic in recent years, with the increasing number of corporate scandals that surfaced in the late 90s and are still occurring. Corporate scandals such as the Enron scandal have opened up an interest in a topic that not so long ago was of any interest. In this paper, we aim to define what Organisational governance means and its impact on the entities of the world. We will also touch the topic of organizational governance maturity as well as on the role of internal auditors in assessing the maturity of Organisational Governance. Various areas of corporate governance will be dealt with mildly with a lot of attention being given to the role of the internal audit function in corporate governance maturity and the assessment thereof.

Literature review

1. Organizational governance is a set of processes, controls, and structures generally performed within the organization by, or on behalf of, stakeholders to ensure that their interests are protected and their goals are achieved. (Norman; 2007:31). Corporate governance is the system by which business corporations are directed and controlled (Smerdon, 1998:1).The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. The board of directors to whom the responsibility of corporate governance lies runs this system. There are two main functions in corporate governance, which the board of directors is responsible for: Determining the strategic direction of the company, which ultimately determines the overall performance of the latter and secondly, the control of the company, which is also known as the conformance responsibility. This entails supervising management to make sure that they carry out the strategic decisions of the board and being accountable to stakeholders for the manner in which the company is governed. The principal-agent problem that is basically a way of better aligning the interests of agents with those of their principals is a central concern of what today is called 'corporate governance'.

Corporate governance has ten key principles that enable it to be effective, these principals are interrelated and cannot function, as they should if one of them is not correctly implemented or is not in place. Each principle addresses a particular area of corporate governance that relates to board committees, the conduct of board members, the environment, the role of directors, and the responsibilities of investors in influencing corporate governance. Good corporate governance is set at the top of the organizational hierarchy, which enables the top executives to set the tone and be an example for the rest of the organisation. Corporate governance cannot be effective without the partnership of other stakeholders in the company. Corporate governance requires that there be cohesion between the board, shareholders and managements as well as interface with lower order stakeholders such as employees, the media creditors, suppliers as well as the community in which the company runs.

These principals will not be discussed any further in detail except for the Audit Committee principle as this would require an in depth study of each principal of corporate governance and that is not what this paper is about however the principals will be stated below.

The principals are as follows: performance orientation, nomination and compensation committees, disclosure, audit committee, code of conduct, conflicts of interest, environmental and social commitment, conduct of the Board of Directors, responsibilities of investors and the role of directors in turnaround situations. These principals are also similar to the chapters in the King iii code.

2. Over the years corporate governance has matured and this has triggered a lot of changes in the governance of a lot of companies, for example if we look at the issue of audit committees then we will notice how before the year 1992 audit committees existed in only a number of large firms. However, they are now a regular feature in a majority of the world's major economies, including Australia, Canada, Hong Kong, Singapore, Germany and South Africa. This has drastically changed due to the increased number of corporate scandals that occurred in the late 90s to present such as WorldCom, Enron, Tyco, Conseco and Adelphia in the USA, to name a few ,Europe had Skandia, Parmalat and Swissair, while Japan had scandals at Mitsubishi Motors and Seibu Railway. In the early 1990s, the UK had BCCI, Guinness, Polly Peck and Maxwell, as