What is good governance?

Any organisation, whether it is a for-profit private company, not-for-profit organisation, charity, cooperative, public-sector body or social enterprise needs to be guided towards the achievement of its particular purpose or objective.

Governance is the system that helps guide and control how a company is run. It sets out who can make decisions, who can act for the company, and who is responsible for making sure the company and its people do the right things and perform well. Good governance practices create a framework that ensures boards act with integrity, transparency, and accountability.

Directors are responsible for putting these principles into action — setting the tone from the top, overseeing effective decision-making, and ensuring the organisation is run responsibly and in the best interests of its stakeholders (e.g. shareholders, employees, suppliers, regulators, customers and the wider community).

Governance codes across the globe

While governance is shaped by an organisation’s relationship with its stakeholders, international laws and codes guide senior leaders in upholding its core values. The following headings introduce two key frameworks — one from the UK and one with global reach — that help define and promote good governance in practice.

In the UK

The UK’s approach to corporate governance is respected around the world for being based on principles rather than strict rules. The UK Corporate Governance Code or UKGC gives companies flexibility to apply key principles—like accountability, transparency, and fairness—in ways that suit their needs. It’s widely used as a model in other countries.

The legal duties of directors are set out in the Companies Act 2006, which forms the foundation of UK company law.

Globally

The Organisation for Economic Co-operation and Development (OECD) works with the G20 to publish the G20/OECD Principles of Corporate Governance. These global guidelines have shaped how many countries develop their own corporate governance codes.

The principles cover key areas such as shareholder rights, transparency, and the role of the board.

The sixth principle —The Responsibilities of the Board— includes seven points that explain what directors are expected to do. At the core of these duties is acting in the long-term interests of the organisation and its stakeholders, not for personal gain.

Although the specific details vary from country to country, the basic principles remain the same:

• The goal is to operate legally, efficiently, and profitably, for the benefit of the organisation, its stakeholders, shareholders, wider society and economy

We’ll explore the impact of practicing good governance for the organisation in more detail in the next activity.