All of us agree that governance is the basic pillar for the success of an organisation. It is the basic architectural design on which an organisational edifice's soundness rests upon.

One may take corporate governance as a cumbersome additional three-four pages added to the annual financial statements of listed companies often mistaken as a burden of compliance to meet with a regulatory requirement when everybody appears to be busy with yearend closing and number crunching. One may also take it positively and appreciate that corporate governance in the right spirit is something more than just a regulatory compliance.

We may genuinely want the reader of financial statements first to know if adequate governance was in place before diving into financial numbers and struggling with the endless notes which may have technically correct disclosures - so technical at times that even experts will have to burn the midnight oil to understand if they were 'disclosures' or 'closures'.

Let us also bear in mind that all entities whether listed or not corporate or otherwise need to be 'governed' with the utmost transparency. Therefore governance is everybody's cup of tea or green tea for that matter!

Have you set the right tone at the top?

Governance flows from the top. The behaviour of those 'charged with governance' at the top sets the tone for overall organisational conduct. If the tone at the top is not set right things may fall apart. We may have to start with the election of directors the composition and collective competence of the board committees of the board and their ability to take informed decisions.

The composition and documented 'terms of reference' for the committees will show if the start-up was destined to succeed or designed to fail. Segregation of duties is not only a need at the executive management level but also basic requirement at the board level as well. Common directors/chairman at the executive committee and the audit committee may skip our attention even when they go on diluting the governance from its very beginning.

The new code of corporate governance has addressed this by stipulating that the chairman of the AC cannot be the member in any other committee of the board.

Objectivity and independence is a state of mind. Independence should not only exist it must also be demonstrated to exist. Composition of management committees too warrants a careful attention. An internal tender committee having head of procurement and contracts as the chairman with two or three of his/her deputies as committee members may not be a good governance practice. The boss is always a boss wherever whenever you sit with him/her including at a committee. He/she will always be 'right'. Committees should be composed of 'equals' so that each committee member has an opportunity and capability to form and express an independent opinion without fear or favour. They should always not disagree to agree but agree to disagree as well.

Delegated but not regulated?

Authority flows from the board to its committees then to the management. Policies and procedures are supposed to adequately 'regulate' the exercise of the authorities so delegated. We may want to be 'flexible' craving to have a dynamic and innovative organisation without any 'operational bottlenecks'. We may end up having a one page crispy sweet and simple delegation of authorities (DOA) which is flexible enough to make things happen fastest and not faster. This is a double edge sword which cuts the 'neck' that was on the 'bottle' and later on cuts the bottle itself.

If authorities have been delegated without first setting the rules of the game then such authorities will be exercised without accountability allowing the players to play 'freestyle'. We often find that DOA is 'crowned' at the desktop whereas policies and procedures may have been 'dumped' in the 'D drive'. DOA will be in a nicely bound 'colourful' booklet whereas 'black and white' policies and procedures find a better place in locked cupboard which was last opened when the auditors or regulator knocked the door.

Are the players setting the rules of the game?

This is also important to watch if those who are supposed to follow the rules are setting the rules. One may argue that if the management is capable enough to devise the rules then why to depend upon an outsider to set those rules? One may argue not to create 'bottlenecks'. Internal control sounds good and also looks good in the regulatory filings but who wants to be 'unnecessarily controlled'. At the end of the day 'operational flexibility' may prevail.

English or for that matter any other language can be written in such a way that a rule which looks like a rule may in effect not be rule per se. The word 'may' will replace 'shall' in the rule book then forgotten. This resurfaces when someone is wondering about transactions which should have been approved by the board but were in fact approved by someone else as the vulnerable 'may' fell victim to the interpretation expertise of intelligent minds in absence of a powerful 'shall'.

The accumulated learning of the independent control consultants from past experience of dealing with the smart drafting of DOA or policies and procedures may help the board before they had approved such smartly written rules.

White is white? Black is black? Or they love it grey?

Internal auditors may have to smile 'without a reason to smile' when faced with a question if he or she was going overboard by stating that the DOA or the policies and procedures were insufficient. The first weapon in the argument arsenal will be that the internal auditor was challenging the board's authority by daring to suggest an amendment to the existing policies 'approved' by the board.

Internal auditors! Please relax! The IIA standards would come to your rescue when you say that you are not just auditors but advisors too.

It does not matter 'who' thinks 'what' but the auditor has to say what he is supposed to say. White has to be white and black has to be presented as black. The emergence of the colour grey is not only a cause of worry in the head but in the rule book as well.

Related but not escalated?

One may be tempted to insist 'the only basic minimum required disclosure' that keeps the regulators satisfied. Let us bear in mind that corporate governance expects us to walk an extra step if not a mile. We may want to declare only first degree relatives keeping the second most powerful person in your life 'the brother in law' behind the veil. The 'form' will overshadow the 'substance' but ethics may ask you to walk that extra step. Over compliance is not an excuse when corporate transparency is the need of the hour. Code of ethics and clearly defined unacceptable (unethical) behaviour should be strictly laid down so that people who ignore 'substance' of the governance do not hide behind the 'form' of the related party transactions.

Is the sound of a whistle better than the music of denial?

Complacency of having achieved accolades can switch us into 'all well' mode and even push us into 'static denial' mode. However keeping our ears and eyes open can help us save the life if we are willing to listen to those who are blowing the whistle if not the deafening sound. Let us take that extra step and implement an anti-fraud whistle blowing mechanism. The cause of governance is more appealing than the justifications for complacency.

Conclusion

The dynamic environment and recent events surrounding us mandate that we take governance more seriously than ever before. We should appreciate that we are passing through the turbulent business environment where irrespective of their official role in the organisation Governance should be top priority because historically governance failure has always caused failures of the organisation sooner or later.