According to Rothstein (2012), Good governance is built through establishing an institutional system based on oversight and direction. This system defines the board of directors' responsibilities to implement transparency, accountability, and integrity in the institution.
In this paper, I will discuss best organizational governance practices and then present a realistic example of the institution concerned with the study, "Bechtel."
"organ" ze"ional"G"governance" Best Practices:
According to (Edelman, 1990), Governance practices lie in following a set of rules and standards agreed upon by the members of the Board of Directors to protect the interests of the company and carry out its responsibilities to the fullest; some of these practices can be summarized as follows:
1. Appointment of members of the Board of Directors: the selection of persons qualified to join the membership of the Board of Directors according to specific qualification conditions; these conditions guarantee their loyalty to the company and work to achieve the maximum benefit for stakeholders and prevent conflict of interests between them and the organization, also determining an appropriate plan for the replacement of members in line with the interests of the organization (Price, 2019).
2. Board Members Evaluation: Setting a specific and measurable basis for evaluating the performance of the Board of Directors annually by sub-committees, these committees shall have realistic and enforceable powers and shall be characterized by impartiality and objectivity.
3. Preparing guidance and supervision standards: Formulating a comprehensive guide to good governance that operates according to the country’s regulations and standards and defines the board of directors' responsibilities, subcommittees, and executive management. They also update these standards and monitor their implementation with the executive management and the relevant committees (Hermanson & Rittenberg, 2003).
4. Establish a comprehensive accountability system: The mechanism of action and preparation of reports must be defined, as must how they are submitted and to whom they are submitted, how they are evaluated, the recommendations resulting from these reports, and how to implement them.
5. Establishing a risk department: This department is concerned with developing risk plans and how to deal with them. In this department, short—and long-term plans are drawn up, and the responsibilities must be assumed due to these risks.
6. Establishing a remuneration system: A system of rewards must be defined for the board of directors and the CEO. This system is based on the company's profitacompany'sd the compensation that the company must pay to these members in risk cases (Yermack, 2017).
A real example in the Bechtel Corporation:
According to the 2022 Bechtel Governance Handbook (Bechtel, 2022), Good governance practices are the responsibility of the CEO and the Board of Directors, each separately; Bechtel identified four areas of governance that need to be focused on, as follows:
Commitment to accountability: Each member of the senior management is subject to accountability according to the outcome of his/her decisions; this questioning runs parallel to the authority granted to a person and how he/she deals with this authority.
Initiative and review: Every person on the board of directors is required to be proactive when the board prepares any resolution; it is necessary for each individual to understand the topic in detail and to request adequate information for that, then evaluate this information, express his opinion on it, and assess the decision when it is made.
Technical Experience: Board members must have the experience and knowledge necessary to judge good choices, regardless of how they present their opinions, but their views should be based on experience, not personal preferences.
Decision-making quality: Leaders are committed to the quality of decision-making to serve the company's interests, not only directly but also interests that aim to achieve the best sustainability standards.
Conclusion
Suitable governance methods aim to achieve integrity and transparency and apply control and responsibility systems to members of the Board of Directors, with the provision of practical tools for accountability and not only to be ink on paper and not to be counted, but good governance also helps in making better decisions and enhances trust and credibility between the Board of Directors, stakeholders, and shareholders.
References
Bechtel. (2022). Governance, https://www.bechtel.com/about-us/ethics-compliance/governance/
Edelman, L. B. (1990). Legal environments and organizational governance: The expansion of due process in the American workplace. American Journal of Sociology, 95(6), 1401-1440.
Hermanson, D. R., & Rittenberg, L. E. (2003). Internal audit and organizational governance. Research opportunities in internal auditing, 1(1), 25-71.
Price, N. (2019). Nominating and governance committee best practices. https://insights.diligent.com/nominating-governance-committee/nominating-governance-committee-best-practices/
Rothstein, B. (2012). Good governance. In The Oxford handbook of governance.
Yermack, D. (2017). Corporate governance and blockchains. Review of Finance, 21(1), 7-31.