Governance has become a concept that has been frequently mentioned recently in various administrative sectors. Its application in companies and economic entities has become a necessity after it was adopted by many economic institutions and called for by many government agencies.

Historical overview:

The study of governance, its elements, and components dates back to the nineteenth century, as a result of the emergence of public joint-stock companies and the accompanying emergence of numerous accounting and administrative problems resulting from the separation of ownership from management, known as the agency problem. This required numerous arrangements, procedures, and rules obligating companies to respect the rights of stakeholders and shareholders, in addition to the responsibilities of the board of directors, its members, and the audit committees that represent the elements and principles of governance. Governance principles were subsequently approved and implemented after the concept developed and its elements crystallized clearly worldwide.

The accounting and administrative methods and approaches followed by companies have failed to address any financial problems or shocks that may be encountered in financial markets, including those experienced by major companies on global stock exchanges in 2008, as occurred in the United States of America, which led to numerous financial collapses and turmoil in stock markets, proving the failure of traditional procedures in confronting financial collapses and financial and administrative corruption.

What is governance?

There is no unified definition of corporate governance globally among economists, analysts, and legal experts, given the concept’s overlap with numerous economic, financial, regulatory, and social issues affecting businesses, impacting the economy and society as a whole. However, many professional and academic institutions have focused on defining corporate governance as…

Governance is defined as the structure through which the behavior of corporate executives is monitored and directed in various areas, such as the financial unit implemented by the board of directors and investors. The impact of corporate governance can also extend to various administrative aspects of the company.

The International Finance Corporation (IFC) defines it as: “The process by which companies are directed and controlled.” It explains that good governance helps companies operate more efficiently, improves access to financing, reduces risk, protects against mismanagement, makes companies more accountable and transparent to investors, and provides them with the tools necessary to respond to stakeholder concerns.

The importance of governance:

The importance of governance has increased recently, with the aim of achieving several economic objectives. This is evident in:

1. Preserving the rights of stakeholders, especially small shareholders, and ensuring the sound financial performance of financial and non-financial investment instruments that generate an appropriate return on their investments.
2. Increasing and maximizing the market value of the company’s assets and utilized resources, and activating competition between companies in global financial markets through the development of modern methods, tools, and mechanisms.
3. Supporting the implementation of privatization programs and guiding companies toward optimal use to prevent any associated corruption.
4. Working to provide local and international funding sources for institutions, whether through the banking system or capital markets, in light of the increasing speed of capital flows.
5. Avoiding accounting and financial problems, achieving support and stability for the activities of economic institutions, and working to prevent collapses or financial shocks in financial and banking institutions to achieve economic stability.

The administrative structure in companies according to the governance system consists of a group of entities that affect and are affected by each other, as any institution includes a group of main parties that determine the form of governance through the mutual relationships between them and the powers and responsibilities that each party possesses, and determines to a large extent the extent of success or failure in applying the rules of governance,

The institution can mainly be represented by three basic entities (shareholders, board of directors, executive management) and these entities affect each other as well as affect various other concerned parties

The main parties that make up the administrative structure in the governance system

1- Shareholders (owners): They are the most important ones who provide capital through their ownership of shares in exchange for appropriate profits for their investments. They have the right to choose the appropriate members of the Board of Directors to protect their rights. The company also provides comprehensive, comprehensive, accurate and timely information to enable them to exercise their rights efficiently. They also have the right to view the minutes of the General Assembly, and they exercise their role by communicating their opinions and inquiries to the Board of Directors and senior management on a regular basis.

2- Board of Directors: They represent shareholders and stakeholders. The Board of Directors appoints and selects executive employees in key positions, supervises senior management, monitors the company’s performance and compares it to the performance objectives set by the Board. Its tasks also include setting goals, formulating strategic plans and supervising their implementation, establishing the internal control system and ensuring its efficiency and effectiveness, and managing risks to assess and monitor risks on an ongoing basis. It also raises the level and standards of governance in the company and ensures compliance with relevant regulations and regulations at all times.

3- CEO: He is the entity directly responsible for the company’s various operations, and is considered the entity responsible in the company for submitting performance reports to the Board Management The executive management is also responsible for maximizing the company’s profits and increasing its value, in addition to disclosure and transparency in the information it publishes to shareholders. The management is responsible for supervising the company and carrying out all necessary work to achieve the purpose for which it was established. Therefore, the executive director plays a vital role in the company as he is primarily responsible for the company’s interests and thus the interests of investors and shareholders.

4- Stakeholders: This includes every party that has interests within the company, such as creditors, suppliers, workers and employees. The interests of these parties may conflict and differ from each other at times, and governance is greatly affected by the relationships between these parties. Therefore, the role of governance is to manage the tasks that help the company provide the goods or services it produces. Without them, neither the management nor even the board of directors nor the shareholders can achieve the goals and strategies set.

5- Audit Committee: It is one of the main factors in evaluating the levels of governance applied. It is a committee emanating from the board of directors that plays a major role in the reliability of the quality of internal and external reports and resisting management pressures and interventions in the auditing process. Moreover, the mere announcement of the company’s formation of the audit committee will have an impact on the movement of its shares in the stock market.

6- Internal Auditor: His job is to evaluate Independent within the organization by evaluating the effectiveness and efficiency of the company’s internal controls, policies, procedures, and reporting mechanism, and the extent of compliance with them and providing recommendations to improve them (this is what the Saudi Arabian Monetary Agency, Insurance Companies Governance Regulations have determined). This task is carried out by a group of employees who have special competence and have extensive study of all aspects of the company’s activity and methods of workflow.

7- External Auditor: This task is performed by a certified accountant outside the facility and independent of it to review its data, as the independence of the external auditor is the basis for performing the audit process, as he expresses his opinion and the independent auditor in the financial statements is neutral, and expresses his neutral technical opinion on the extent of the truthfulness and fairness of the financial statements prepared by the companies through the report he prepares attached to the financial statements. Therefore, the role of the external auditor has become essential in corporate governance because it prevents conflict between shareholders and the company’s management and also reduces the problem of mismatching information

Why do we advise companies to rely on Tatweer Alpha Company to develop the company’s governance system?

Tatweer Alpha Company is a leading company in the field of issuing classification certificates and developing the governance system for all economic establishments in the Kingdom of Saudi Arabia in its various specializations.

Tatweer Alpha Company is distinguished by conducting a preliminary study of companies whose governance system is to be built or developed in order to analyze the strengths and weaknesses, while providing a comprehensive analysis that contains all the necessary steps to build an effective and robust governance system, in order to keep decision-makers in the establishments fully informed of all the procedures that must be followed to improve the establishment’s activity and financial figures, and thus ensure that the governance system is consistent with the company’s activities and administrative structure.

The company develops a plan to establish an administrative structure for each case separately, so that the procedures are consistent with the company’s situation and administrative activities.

High transparency in performance in addition to field experience and extensive relationships has made Tatweer Alpha Company the first choice for major companies from various sectors in the Kingdom of Saudi Arabia

You can request a free consultation by contacting the company. Request a free consultation

IT Governance is the regulatory framework that defines how information technology is used within organizations in a way that supports strategic objectives and achieves the desired value. Governance ensures that information systems and technology services are compliant with laws and regulations, and are managed in a cost-effective manner and minimizes potential risks.

IT Governance focuses on defining responsibilities, improving technology-related decision-making, and ensuring compliance with international standards such as COBIT, ITIL, and ISO/IEC 38500, which helps improve organizational performance and achieve a competitive advantage.

The Importance of IT Governance

IT governance is a vital element in the success of organizations, as it provides many benefits, including:

Achieving alignment between technology and strategy: Ensures that investment in information technology is consistent with the organization’s goals and achieves added value that can be utilized
Improving operational efficiency: It enhances the optimal use of technical, human, and financial resources.
Effective risk management: IT governance helps identify and manage risks related to cybersecurity, system failure, and legal compliance.
Enhancing transparency and accountability: It helps to clearly define responsibilities, which leads to improved technical decision-making.
Improving customer and user satisfaction: It contributes to providing reliable and secure technical services that enhance the user experience and ensure their satisfaction.

IT Governance Implementation Mechanism

IT governance requires the application of an integrated approach that includes a set of steps to ensure its success, including:

Developing frameworks and standards: Choosing and adopting an appropriate framework such as COBIT or ITIL to control IT operations according to global best practices.
Defining roles and responsibilities: Establishing a clear organizational structure that defines responsibilities between different administrative and technical levels.
Developing policies and procedures: Developing technical policies that include cybersecurity, data management, risk management, and ensuring compliance with regulatory regulations in the company.
Risk management and business continuity: Developing strategies and contingency plans to ensure business continuity in the event of any technical failure.
Measuring performance and continuous improvement: Using key performance indicators (KPIs) to monitor the effectiveness of IT and make the necessary improvements.

IT Governance Frameworks and Systems

Organizations rely on several global frameworks to implement governance, the most prominent of which are:

COBIT: Provides a comprehensive approach to IT management with a focus on control and compliance with laws.
ITIL: Focuses on providing IT services in a way that ensures quality and continuity.
ISO/IEC 38500: An international standard that sets out guidelines for IT governance.

Challenges facing the implementation of IT governance

Despite its significant benefits, organizations face challenges when implementing governance, including:

Resistance to change: Employees may have difficulty adapting to new policies and procedures.
Cost and investment: Governance may require additional investments in tools and training.
Balancing security and flexibility: Organizations need to strike a balance between securing systems and giving users the flexibility they need to perform their work.

Conclusion

IT governance is an essential element in ensuring the effective and secure use of information technology within organizations. By implementing appropriate frameworks and developing effective policies, organizations can maximize the benefits of information technology while reducing risks and ensuring compliance with regulations. To be successful, there must be strong commitment from senior management and an organizational culture that supports continuous improvement in IT processes.

Do you have questions about how to implement governance in your organization? Contact Tatweer Alpha Company for guidance. Request a free consultation