ACCA's Corporate Governance and risk management principles

The principles set our below are matters that ACCA believes are fundamental to all systems of corporate governance that aspire to being the benchmark of good practice.

They are intended to be relevant to all sectors globally and to any organization having significant degree of separation between ownership and control.

Many of these principles are also relevant to organizations where ownership and control lie with the same people.

Boards, shareholders and stakeholders share a common understanding of the purpose and scope of corporate governance:- There should be a clear understanding of what corporate governance is. ACCA's view is that there are three contemporary main purposes of corporate governance.

* To ensure the board as representatives of the organization's owners, protects resources and allocates them to make planned progress towards the organizations defined purpose.

* To ensure those governing and managing an organizations account appropriately to its stakeholders.

* To ensure shareholders and where appropriate other stakeholders can and do hold boards to account.

Boards lead by Example

Boards should set the right tone and behave accordingly paying particular attention to ensuring the continuing ethical health of their organizations. Directors should regard one of their responsibilities as being guardians of the corporate conscience:non executive directors should have a particular role in this respect. Boards should ensure they have appropriate procedures for monitoring their organizations 'ethical health'.

Boards appropriately empower executive management and committees:-

Boards should set clear goals, accountabilities, appropriate structures and committees, delegated authorities and policies. They should provide sufficient resources to enable executive management of day-to-day operations and monitor management's progress towards the achievement of these goals.

Boards ensure their strategy actively considers both risk and reward over time:-

All organizations face risk; success in achieving their strategic objectives will usually require understanding, accepting managing and taking risks. Consideration of risk should therefore be a key part of strategy formulation.

Risk management should be imbedded within organizations so that risk is considered as part of decision making as all levels in the organization.

Boards need to understand the risks faced by the organization, satisfy themselves that the level of risk is acceptable and challenge executive management when appropriate.

Boards are balanced

Boards should include both outside non-executive and executive members in the governance of organizations. Outside members should challenge the executives but in a supportive way. No single individual should be able to dominate decision making.It follows that the board should work as a team with outside members contributing to strategy rather than simply having a monitoring or policing role. Boards need to compromise of members who possesses skills and experience appropriate for the organization.

All board members should endeavour to acquire a level of understanding of financial matters that will enable them to participate in decisions regarding the financial direction of the organization.

Executive remuneration promotes organizational performance and is transparent

Remuneration arrangements should be aligned with individual performance in such a way as to promote organizational performance.

Inappropriate arrangements however can promote perverse incentives that do not properly serve the organizations shareholders or other principle stakeholders.

Disclosure of director or senior executives pay must be sufficiently transparent to enable shareholders or other principle stakeholders to be assured that arrangements are appropriate.

The organizations risk management and control is objectively challenged, independently in line of management

Internal and external audit are potentially important sources of objective assessment and assurance. Internal and external audit should be able to operate independently and objectively, free from management influence.

Neither internal or external auditors should subordinate their judgment on professional matters to that of anyone else.

A key part if internal and external auditors scope should be assessment of the control environment including such aspects as culture and ethics.

Internal audit should be able to report directly to the board and should be properly resourced with staff of suitable calibre to work effectively at all levels of the organization including the board.

Boards account to shareholders and where appropriate, other stakeholders for their stewardship

In acting as good stewards boards should work for the organizations success. Boards should appropriately prioritize and balance the interests of the organizations different stakeholders.

In a shareholder owned company shareholders interest are paramount but their long term interests will be best served by considering the wider interests of society, the environment, the employees and other shareholders as well.

To be continued