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Good Practices for Good Governance of Foundations and Corporations

When we speak of governance, we refer fundamentally to the tasks of management, supervision and control in organizations. In foundations and corporations, both non-profit entities, the governance function must be oriented towards fulfilling the mission, which is the ultimate goal of this type of organization.

In foundations and corporations this function is delivered mainly to the board of directors. Although corporations also have a shareholders' meeting and a disciplinary body that we can qualify as governing bodies, the law expressly grants the direction and administration to the board of directors. Consequently, the board of directors has a preponderant role in the corporate governance of both types of entities.

To ensure proper direction, supervision and control in corporations and foundations, their boards must ensure the implementation of certain practices that make it possible. In this regard, there are various proposals both nationally and internationally, which can be found in regulations, recommendations from regulators and organizations that promote good practices in the third sector, academic articles, governance guides and manuals, among other background information.

Our recent "Guide to Good Corporate Governance Practices for Foundations and Corporations in Chile", based on the aforementioned background, proposes a series of principles and specific practices, whose implementation is recommended to these organizations, in nine areas:

  • Compliance with legal and regulatory regulations: The minimum floor for good governance is adequate regulatory compliance. This refers both to compliance with the regulations that govern the governing bodies and to the adoption of decisions that comply with the applicable regulations and the supervision of legal compliance by the organization.
  • Structure and functioning of the governing bodies: Every board of directors requires an adequate structure and defined rules for its proper functioning. This refers to the number of members, the composition and diversity of the same, the procedures for the incorporation of new members, the existence of training instances, the preparation of the sessions, the follow-up of the implementation of the decisions, among other matters that must be defined for the directory to function properly.
  • Ethics and integrity: Regulatory compliance is a minimum floor, but it is not enough. The adoption of ethical standards is essential for the credibility and sustainability of this type of organization. It is not enough to fulfill the mission, however noble it may be. You need to do it the right way. In this matter we refer to conflict of interest policies,codes of ethics, treatment of complaints, among other highly relevant aspects.
  • Relationship of the board of directors with the executive team: Although the board of directors is legally the administrative body, administrative tasks and day-to-day management are often delegated to an executive director, who reports to the board of directors. The CEO is an essential actor for good governance. Depending on the size of the organization, the CEO may be part of a larger executive team, which he leads.
  • Control and evaluation systems: The board of directors is responsible for guaranteeing adequate financial control and performance evaluations that allow adequate monitoring of the use of the organization's resources and the performance of the organization as such, as well as of the board of directors, its members. and the executive director.
  • Strategic planning: As already pointed out, the mission plays a central role in non-profit entities. For the determination of a solid mission and its proper updating, as well as establishing clear objectives aimed at its fulfillment, the strategic planning process is essential. The board must have an active participation in the strategic planning and supervise the implementation of the plan that arises from it.
  • Fundraising: Fundraising is essential for the operation of non-profit entities and the board of directors must give it special attention. In addition, there must be clarity about the involvement that is expected in this matter by the members of the board individually considered.
  • Transparency and relationship with the company: The board of directors must ensure the delivery of information to the general public and relevant interest groups, especially financial information and information on the use of funds provided by third parties. In addition, you must actively seek community participation in the organization's decisions, so that they are relevant actors in the fulfillment of their mission.
  • Individual performance of the directors: Beyond the structures and rules of operation that may be established, the board of directors is made up of people. Therefore, the quality of governance will always be linked to the individual performance of the directors. This performance is reflected in the attendance and preparation for the sessions, the request for information, the formulation of proposals and, in general, in being proactive in carrying out their work.

In the context of the aforementioned guide, a survey was conducted of 59 directors of non-profit organizations. In this survey, some of the practices indicated in the guide were consulted, and strengths and aspects to improve in these matters could be verified. These results reflect the importance of continuing to advance in the promotion of good governance practices in foundations and corporations, in order to strengthen them and enhance their ability to fulfill their mission.

We hope that this guide will be a contribution in that direction and that it can serve as guidance for the adoption of specific practices for good corporate governance. (You can download the Guide to Good Practices for Foundations and Corporations in Chile at www.cgcuc.cl)

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