Importance of Corporate Governance and Internal Controls in the Existence of Business
In view of various accounting frauds that have been coming to light, establishment of a good governance framework is a decisive need of the hour in the corporate world and the same has been brought in as a regulatory requirement in many countries. The ultimate responsibility for establishment of an effective corporate governance framework and internal control remains with the board of directors in each company. The board shall also ensure the periodical review of the corporate governance framework and internal controls in the company to include relevant good practices and make certain that the framework is updated to confront the changes and challenges of each period.
Is there any regulatory requirement in UAE that mandates establishment of an effective corporate governance framework in a company?
There are specific guidelines and rules from various regulatory authorities in UAE regarding corporate governance such as ‘Corporate Governance Regulations and Standards’ issued by the Central Bank of UAE on 18 July 2019, Securities & Commodities Authority’s Decision no. (3/Chairman) of 2020 concerning the Joint Stock Companies Governance Guide and Cabinet’s new Decision no. (2/9w) of the year 2020 on the Governance System for Federal Government Boards.
Apart from these, there are regulatory requirements applicable to companies in specific sectors issued by respective regulatory authorities. For example, insurance companies operating in UAE are obliged to comply with the governance requirements issued by the Insurance Authority of UAE.
Key elements to be considered while establishing an effective corporate governance framework in a company
The major elements in a corporate governance framework are discussed below:
- Operating model-this includes majorly the constitution of board members and various committees, their selection processes, defining of their responsibilities, reporting lines, policies and procedures
- Culture-awareness of governance framework and internal controls within the organisation which is made possible through training, internal sites and circulars/notifications. Employees should be aware of and be adhering to the code of conduct, whistleblowing mechanisms and other controls to prevent fraud
- Risk management and internal control environment: This includes establishment of Entity level structure for risk management and compliance with three lines of defence model ensuring periodic internal audit and quality reviews across the organisation
- Reporting and company secretarial practices: This includes timely completion of reporting and disclosure requirements including annual governance report along with maintenance of minutes of meetings and follows up for action plans
Benefits of establishing an effective corporate governance framework in a company
The corporate governance framework is a crucial element to ensure progressive expansion and sustained functioning of any organisation. Also, the expectations of various stakeholders in the business world have been advancing more into the spectrum of responsibility and transparency. Apart from fulfilling the regulatory requirements, there are other advantages in establishing an effective corporate governance framework in the perspective of achieving performance stability and meeting the strategic objectives of the company.
Major challenges in establishing an effective corporate governance framework in a company
Apparently, the corporate governance framework in any company has to evolve and develop dealing with the surfacing issues and concerns along the way. There are many challenges in establishing an effective corporate governance framework in a company, of which few are as below:
- Determining what is adequate for an organisation with respect to the frontiers of its corporate governance framework in ensuring the compliance with applicable regulatory requirements and enduring the need for setting up of the best practices as possible
- Developing the governance culture throughout the organisation by giving it its due importance
- Gathering the appropriate resources and skill set as required for developing the key elements for the governance framework
- Conducting the periodic assessments of the government framework and internal controls to ensure the design and operating effectiveness
How CDA can help in establishing corporate governance framework in your company?
It is important to be aware of the business and regulatory requirements along with the best industry practices of the region to review and benchmark the governance framework of any organisation. CDA has competent professionals with extensive knowledge and experience, who have been providing advisory and related consultancy services to clients in various sectors.
You may also read, Tips To Avoid Internal Audit Mistakes In Dubai, UAE
CDA is well equipped with skills and review tools to help you in assessing the effectiveness of existing corporate governance frameworks in your company and to share insightful thoughts on how to implement the leading best practices.
Hope you got a clear idea of the importance of corporate governance and internal controls in the existence of business. Having any queries on corporate governance and related practices? Feel free to contact us for a one-hour free consultation with us to get clarity on your areas of concerns in this context.