What Do We Mean by Governance?

The ultimate objective of governance is to create and optimize sustainable organizational success and stakeholder value, balancing the interests of the various stakeholders. It comprises arrangements put in place to ensure that organizations define and achieve intended outcomes.

Why is Governance Important?

Organizations strive to be competitive and sustainable over the long term; core elements of this are creating and optimizing organizational success and stakeholder value, effective resource utilization, and accountability. Governance should, therefore, be more than a compliance exercise designed with the sole purpose of satisfying regulatory requirements—it should involve both compliance and performance.

Governance encourages better organizational decision making and accountability for the efficient stewardship of resources. It is also characterized by robust scrutiny, which provides important pressure for improving organizational performance.

Effective governance affects the entire organizational cycle: strategic planning, resource utilization, value creation, accountability, and assurance. Such a holistic approach ensures that governance is not “bolt on” but “built in”—integrated into all aspects of an organization.

Successful organizations benchmark governance procedures and practices against their peers. They regularly evaluate results to ensure the continuing effectiveness of their governance practices, and adapt and improve them for future opportunities and threats as the organizations and their environments change.

Global Perspectives on Governance

The recent financial and economic crises exposed many corporate governance weaknesses—most clearly in the financial services industry—as causal factors, or at least aggravating factors.

A positive effect of these crises is that they create momentum for change. Indeed, after each new crisis there is much debate about governance actions needed for organizations to move on and avoid future social, environmental, and economic crises. This momentum for change can also be leveraged to transition from costly compliance-focused systems to more value-creating ways of governance, leading to more sustainable performance.

Currently, a large number of stakeholders—including governments, regulators, oversight bodies, standard setters, and professional bodies, as well as international agencies and organizations, such as the International Organization of Securities Commissions, Organisation for Economic Co-operation and Development, United Nations Conference on Trade and Development, and World Bank—are debating governance challenges and solutions. Together, these organizations will have a significant impact on determining the necessary and feasible changes for organizations and economies.

The accountancy profession—including professional accountants, professional accountancy organizations, and IFAC—is also urging that organizations around the globe evaluate and improve their governance arrangements in order to achieve more sustainable social, environmental, and economic performance.

The Role of Accountants and the Accountancy Profession

Professional accountants in business are typically involved in planning, implementing, executing, evaluating, and improving governance in their organizations. Similarly, many organizations seek advice from their accounting firm on how to improve their governance. In addition, many professional accountants in business have a responsibility to provide objective and accurate information and analyses to support these activities, as well as overall responsibility in governance areas, such as external business reporting. These factors put professional accountants in an excellent position to ensure that governance is integrated throughout an organization—into its very DNA. 

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