Covenant Mission (CM) is a non-governmental organisation that provides charitable support to disadvantaged families.
It is currently involved in a number of community projects to assist in the provision of clean water supply to families in Liberia, Nigeria and the Gambia. In its home country, Ghana it focuses more on assisting clients in accessing state granted financial support as well as providing counselling and psychological support to less priviledged people.
The NGO has grown very rapidly in recent years as demand for its services have increased. In line with this rising demand, it has begun to slowly evolve from an enterprise primarily run by volunteers to an institution employing professional managers from the private sector. These changes are considered essential in supporting the sustainability of the charity.
The board of trustees at the NGO recognise the need to adopt a relevant code of ethics as part of necessary governance support structures. They are however concerned about recent criticism of such codes and wish to ensure that any code developed is effective throughout the organisation.
Required:
Explain FOUR benefits of good corporate governance to CM. (12 marks)
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Good corporate governance is important for any organisation. The benefits that derive for private sector structures easily transpose to those in the NGO sector.
- In as much as good governance leads to increased returns of profits for private organisations, the existence of controls, risk management and appropriate supervision ensure financial stability within the NGO. This finance related goal can be considered through the ability to continue to provide value for money, achieving entity goals and ensuring economic and efficient operations so as to meet needs both today and into the future.
- Risk reduction through governance regulation has a particular resonance when considering the risks inherent in operating in poorer regions around the world. These risks may be political or physical and may manifest themselves in negative publicity or unexpected costs.
- Good governance assists private organisations in attracting investment. This is equally true for NGOs. Those that wish to support such worthy causes such as governments or private individuals will feel more assured that their money is being put to good use if the organisation is well governed through appropriate structures for board operations and internal control.
- The scenario identifies the increased commercialisation of the venture. This would include the use of professional management teams who understand and support governance apparatus used in the private sector. This alignment to their management style provides a positive working environment for management, a known structure within which to operate effectively. It is also true that the use of such management will make the implementation or imposition of such a regime easier to deal with for an NGO going through such a transition.
- The existence of governance regimes includes the inherent need to adhere to the underlying governance concepts of integrity, justice, even handedness and probity amongst others. Since these will be fundamental ethical belief with the NGO, the implementation of additional levels of governance regulation is smoothed or made easier.
- Overall, the benefits of good governance are within the word itself. To govern is to command and implicit in this is the ability to command in a beneficial way. The requirement is to attempt to balance the level to which commercial governance regulation is necessary or sought. It is of benefit to the extent to which it does not compromise the ability to offer the service in the most effective way. Clearly to embrace the concept without regard to this qualification would be inappropriate.
Alternative solution - To ensure adherence to and satisfaction of the strategic objectives of the organization, thus aiding effective management.
- To minimize risk, especially financial, legal and reputational risks, by ensuring appropriate systems of financial control are in place, systems for monitoring risk, financial control and compliance with the law.
- To promote integrity, that is straightforward dealing and completeness.
- To fulfill responsibilities to all stakeholders and to minimize potential conflicts of interest between the owners, managers and wider stakeholder community.
- To establish clear accountability at senior levels within an organisation. However, one danger may be that boards become too closely involved with day-to-day issues and do not delegate responsibility to management.
- To maintain the independence of those who scrutinize the behaviour of the organisation and its senior executive managers. Independence is particularly important for non-executive directors, and internal and external auditors.
- To provide accurate and timely reporting of trustworthy/independent financial and operational data to both the management and owners/members of the organisation to see them a true and balanced picture of what is happening in the organisation.
- To encourage more proactive involvement of owners/members in the effective management of the organisation through recognising their responsibilities of oversight and input to decision making processes via voting or other mechanisms.