Category:Corporate Governance and Compliance

Introduction

Government contractors must conduct themselves with the highest degree of integrity and honesty.

Contractors should have a written code of business ethics and conduct. To promote compliance with such a code of business ethics and conduct, contractors should have an employee business ethics and compliance training program and an internal control system.^[1]

The Elements of a Sound Governance Framework

Corporate governance is the system and processes of an organization that protect the interest of and add value to diverse stakeholder groups.

Structure

• Boards and Committees
• Business Practices and Ethics
• Legal and Compliance
• Risk Management and Monitoring
• Communications
• Disclosure and Transparency

Corporate governance, to function properly, needs consistent attention, reinforcement, and ongoing education and training.

Governance Operating Model

A governance framework is an excellent foundation; however, an organization also needs a complementary governance operating model. An operating model allows the board and management to transform the organization’s governance framework and policies into workable practices, policies and procedures, and job responsibilities. A governance operating model consists of four main components:

Structure. Organizational design and reporting structure, committee structures, charters, and control and support function interdependencies. Oversight responsibilities. Documented oversight responsibilities for the board, defined duties of committees and management; accountability matrices; and boundaries of authority given to management for hiring and firing. Talent and culture. Compensation policies (particularly regarding incentives), promotion policies, business objectives, operating principles, performance measurement and management, training, and leadership and talent development programs. Infrastructure. Governance and risk oversight policies and procedures, reports, measures and metrics, management capabilities, and IT and communications support. All of these mechanisms work to promote better corporate governance by shaping behaviors and employee activity.

The four components of an effective governance operating model encompass additional roles and responsibilities, described as follows:

1. Board oversight and responsibilities. The board is charged with the responsibility of oversight of the organization in the following matters: business and risk strategy, organization, financial soundness, and regulatory compliance. As such, the governance operating model provides the board guidance to do the following:

Communicate the needed skill sets and knowledge bases required to execute the board’s oversight duties and review board composition best. Enlist management to provide the board the information needed to exercise effective governance and risk oversight. Provide management with guidance for policies to affect governance policy execution. Be aware of governance issues across the organization and be prepared to provide management with the needed support to increase program efficiency and effectiveness.

2. Committee authorities and responsibilities. Board and management committees should be created with structures meant to document the number, terms, and qualifications of members; committee responsibilities; reporting and escalation mechanisms; and the outline methods for the board and management committees to communicate effectively. For example, the model for a management committee may include the following:

Committee charters defining the committee’s responsibilities and addressing communication channels between the committee, the broader executive team, and the board of directors. Clear definitions of the types of decisions, investments, events, risks, and other items that should come to the committee’s attention, including thresholds or amounts set and the same documentation requirements. Strategies designed and assigned for escalating and reporting significant matters to the appropriate person(s) or committee.

3. Organizational design and reporting structure. A thoughtfully designed organizational structure will include defined reporting guidance for decision-making, risk management, financial and regulatory reporting, public disclosures, and crisis preparedness and response. Under the enterprise governance operating model, the organizational structure may provide the ability for executive leadership to do the following:

Establish independence from, and authority over, the control functions of compliance, risk, legal, finance, and audit. Determine procedures for managing the spectrum of risks across all regions and businesses, including strategic, operational, market, credit, liquidity, legal, compliance, property, IT, reputational, and other risks. Create and maintain a governance structure that internal employees and external stakeholders can easily understand.

4. Management accountability and authority. Clearly defined authority and accountability measures for management are crucial for key responsibilities and are needed at all levels of the organization and corresponding areas. A transparent governance operating model may include the following:

Delegating authority and accountability for key roles and defining processes to resolve disputes and mitigate escalation of issues in order to maintain equilibrium between global and regional strategies. Positioning business unit decision-makers against risk managers to create an environment for risk tolerances and exposure limits to be explored and determined. This situation also empowers risk managers to challenge those taking risks. Assigning decision-making powers so that authority is known for various positions, including any limits or checks. Providing guidance about control functions to assist overseers in assessing business management based on corporate limits related to global and regional business functions.

5. Performance management and incentives. When determining what incentives should look like, the organization should ensure those incentives reflect the organization’s overall commitment to good governance and principles that preserve assets and balance risk-taking with rewards. In this area, the model should help the board to do the following:

Design performance objectives and targets that balance asset preservation against the organization’s risk profile regarding value creation. Provide guidance to better match incentives with the organization’s views of asset preservation and risk-taking and the organization’s desired trade-off between the two. Design qualifications and performance metrics that define and bolster the organization’s corporate culture and tone from the top.

A robust compliance program’s prerequisites are good corporate governance, strong ethical culture, and a comprehensive anti-fraud framework. As long as fraud continues to undermine business, corporations can expect to grapple with the ramifications of the failure to have a properly designed and operationalized compliance program. Having policies and practices that support a robust compliance program and an overall culture of ethical conduct that encourages individuals throughout the organization to act appropriately will go a long way toward a robust ethical culture and good corporate governance. As a result, efforts to implement and enforce anti-fraud initiatives minimize the risk of violations and carry the genuine prospect of creating financial reward in the end.

Typical Business & Ethics Certificate

• I have read and hereby certify my understanding of the Standards of Ethics and Business Conduct

• I hereby agree to comply with the Business & Ethics Policies

• I hereby acknowledge my understanding that I have an affirmative obligation to report any actual or suspected violations of Business & Ethics Policies/Standards

References