You are on page 1of 37


Governance is the practice of leadership supporting the decision-making that
defines expectations, grants power, or verifies performance. (Yocam & Choi, 2008).
According to United Nations Economic and Social Commission for Asia and the Pasific,
Governance means,
The process of decision-making and the process by which decisions are
implemented (or not implemented). Governance can be used in several contexts such as
corporate governance, international governance, national governance and local
Since governance is the process of decision making and the process by which
decisions are implemented, an analysis of governance focuses on the formal and informal
actors involved in decision-making and implementing the decisions made and the formal
and informal structures that have been set in place to arrive at and implement the
decision. Good governance promotes equity, participation, pluralism, transparency,
accountability and the rule of law, in a manner that is effective, efficient and enduring.
Governance is the act of governing or administrating something. By far the most
common form of governance is that of an organization. A system of governance is
therefore generally a type of organizational system. For example, a society uses an
organizational system to govern a public community. A company uses an organizational
system to govern its own internal community.(Erl, 2004)
A system for organizational governance exists as a meta-decision system. In other
words, it is not just a means by which the organization makes decisions, it is the means by
which the organization makes decisions about decision-making. Within this context, a
governance system:
1.1.1 places constraints on decisions
1.1.2 determines who has responsibility and authority to make decisions
1.1.3 establishes constraints and parameters that control, guide, or influence
1.1.4 prescribes consequences for non-compliance
At the highest level in society, governance is established by a constitution.
Within a company, it may be declared in the form of a business charter. Founding
documents such as these establish a parent level of authority and constraints from
which all other decision-making authorities and structures are derived. At deeper
levels within the organization, a governance system can further influence the
definition of policies, standards, and processes that guide and control day-to-day
decision-making activities. (Erl, 2004)
A good system of governance helps the members of an organization carry
out responsibilities in a manner supportive of the organizations business goals
and vision. It mitigates conflict by clearly defining responsibilities and
assignments of authority, and further reduces ambiguity by articulating constraints
and parameters in practical forms (such as rules and decision guidelines). It also
helps balance tactical and strategic goals by expressing the intents and purposes of
its rules.

Governance type according to Yocam & Choi, 2008:

Figure 1. Governance Type

1.2.1 A for-profit corporation is a corporation intended to operate a business that
will return a profit to the owners.
1. A public corporation is a legal entity permitted to offer its
securities (stock, bonds, etc.) for sale to the general public and in
most cases through a stock exchange.
2. A privately-held corporation is a legal entity owned by one or more
company founders and/or possibly their families and/or heirs or by a
small group of investors. Sometimes employees also hold a shares of
private companies. Most small businesses are privately held. In the
broadest sense, the term privately held company refers to any business
not owned by the state.
1.2.2 A non-profit organization (NPO) is an organization with a specific purpose,
such as educational, charitable, or other enumerated purposes. It may be a
foundation, a charity or other type of non-profit organization.

A governance system is responsible for providing organization, direction, and
guidance for the creation and evolution of IT assets and resources. To fully understand the
scope of a governance system within a given IT department, we need to determine how a
governance system relates to and is distinguished from methodology and management .

According to Governance Principles: A Good Practice Guide, there are six major
principles, focusing on:
1.4.1 Board Composition, Roles, and Powers
The organizations framework of governance should:
Enable strategic guidance of the entity
Ensure the effective monitoring of management by the board
Clarify the respective roles, responsibilities and powers of the board and
Define the boards accountability to the members and stakeholders
Ensure a balance of authority so that no single individual has unfettered
1.4.2 Board Processes
Each board should agree to and document a clear set of governance policies
and processes to facilitate effective governance. These processes should reflect best
practice and be subject to regular review. An effective board meeting should have
the following attributes:
a. A capable chair with meetings held regularly and attended by the
appropriate personnel
b. Board papers for every item provided in advance so directors are informed
and well prepared
c. Clear, timely and accurate recording of decision making and
communication of outcomes to stakeholders.
1.4.3 Governance Systems
The board ultimately responsible for the success of the organization it
governs. The board should clearly define its role in discharging this
responsibility. An effective organization should have the following systems:
a. A strategic planning framework, identifying core organizational values,
goals, and performance management indicators.
b. Clearly document board/management interaction including appropriate
delegations and authority of all parties
c. A thorough process for identifying and monitoring legal compliance and
risk management requirements
d. A thorough system of audit including internal and external processes
e. A performance management system to provide evidence and ensure
monitoring of legal compliance and performance against plans.
1.4.4 Board Reporting and Performance
Each organization should have a comprehensive reporting and performance
management system in place to ensure organisational effectiveness and efficiency. It
is essential that directors be provided with timely and accurate financial accounts to
ensure effective decision making can occur.
In addition, the board should review the directors individual and
collective performance, including the effectiveness of the chair, to ensure they
are discharging their responsibilities against that of the stated objectives.
Ensure a board and individual director development program is in place,
including mechanisms to respond to non-performing directors. An effective
system of reporting and performance management should include:
a. Comprehensive and complete financial accounts
b. A review and consideration of the accounts by an audit committee
c. Ensuring the independence of the organizations external auditors
d. Directors and board committee members being knowledgeable, well
briefed and informed, having access to the appropriate information or
advice when required and being provided with the opportunity for
continuous improvement and education
e. A board and director performance evaluation system
f. An alignment between key performance indicators and the strategic
objectives at outlined in the organizations strategic and operational

1.4.5 Member Relationship and Reporting
Each board should ensure it exercises leadership, integrity and good
judgment, always acting in the best interest of the organisation as a whole,
demonstrating transparency, accountability and responsibility to its members.
An effective organisation should ensure its members are:
a. Consulted and involved in the development of the sports strategic plan
b. Supportive of and actively involved in achieving the outcomes of the
national plan
c. Well informed and actively participate at its general meetings
d. Regularly provided timely and accurate disclosures on all material matters
regarding the governance and performance of the organisation.
1.4.6 Ethical and Responsible Decision Making
Each board should ensure and actively promote ethical behaviour and
decision making within their organisation. Good corporate governance
ultimately requires people of integrity to ensure the reputation of an organisation
is managed, protected and enhanced. A culture of integrity and ethical behaviour
is characterised by:
a. An effective code of conduct
b. Quality decision making processes
c. People of the highest integrity and ethical standards
d. An intent to put the organisation ahead of individual gains.
According to Goold (Goold, 1996, pp. 572-575), the possible duties of governance
in the Anglo-American system are:
a) reviewing business level strategies,
b) reviewing the corporate level strategy,
c) providing specialist advice,
d) reviewing the decision process,
e) providing a sounding board or a second opinion,
f) changing corporate management.

Systems Theory portrays the living system and its subsystems from an external
perspective that ignores internal structure details. The other three techniques (Aggregate
Object Concept, Organizational Theory, and Governance Control) provide the basis for
an internal structural perspective that employs an aggregate object concept to portray the
relationships of governance, organization units and components.

External System
Internal Structure

System Governance

Subsystem Functions Organization Units


a. External System View
The breakdown of a system into subsystems is more conceptual
than physical, because it relates to the overall system's emergent properties
once it has been designed and constructed. For example, an airplane's
system requirements may be described in terms of lift, thrust, steering,
landing, passenger accommodating, etc. These functional specifications
may be thought of as the design requirements to meet the purpose of the
b. Internal Structure View
The breakdown of a system's internal physical structure relates to
its physical parts and the actions they can take. Using the airplane
example, these would be body, wings, engine, rudder, landing gear, etc.
These physical "organs" have been physically designed and constructed to
fulfill the conceptual functional requirements of the system. The set of
physical organs does not necessarily match the set of functional
requirements one-to-one, as long as all requirements are fulfilled. A living
system is made up of a set of functional subsystems, a governance
mechanism, various organization units, and an array of components..
Governance has no direct contact with the components. Instead, governance
control initiatives and directions are played out across the organization units which, in
turn, translate them into specific physical work assignments for the components to
Subsystem Life Functions is relatively easy to give examples of life functions
for a particular level and kind of living system. For example, in an organism, its
organs ingest and process food, distribute the results where needed throughout the
body, gather and extrude of waste material, etc. Using the three-level architectural
schema, the life functions have been categorized and compared across all three levels
of living system. The conclusion reached here is that eukaryotic-based living
organisms all have the same inherent structure, and based on their evolution from the
same original cell:
Every Living System Must Have the Same Basic Architectural Structure

Building on this concept, the list of standardized subsystem functions shown
in following table has been adapted from the original work on living systems by
James Grier Miller. Although subject to further refinement, it is presented here to
illustrate what a comprehensive list of the functionality necessary for life must look
like. For each subsystem function, three examples of participating organization units
are shown, one each from the cell, organism, and superorganism levels of living
system. Note that this is analogy on the human cell :

Living System
Subsystem Life Functions
Life Function
Awareness: Maintain sensory awareness of external and internal
Perimeter: Maintain a barrier to protect from external environment.
Structure: Maintain proper relationships among organization units.
Ingestion: Bring in material and energy from environment.
Storage: Store material and energy within system for later use.
Conversion: Transform ingested material into useful form.
Production: Construct needed materials within system.
Distribution: Transport material and energy within system.
Extrusion: Send out material from within system.
Movement: Change location of system and/or move its parts.
Defense: Protect organization units and components from harm.
Enforcement: Police rogue organization units and components who fail to
follow rules of behavior.
Repair: Fix structural damage or malfunction.
Reproduction: Create similar offspring.

Each subsystem shown it this table defines a living system function that must
be performed as needed by the work of specialized component entities. This work is
orchestrated by organization units that harness and focus the capabilities of
component living systems. This applies to all three levels of living system.
For example, a human organism is made up of cells that are organized within
organs. Each organ is an intermediate structure that marshals the work of its member
cells to perform part or all of one or more organism-level functions. Similarly, a cell
is made up of biomolecules that are organized within organelles, and a superorganism
is made up or organisms that are organized within organizations (non-profit and
a. Note 1: For brevity, an example of only one participating organization unit is
shown for each level of living system. Numerous additional examples are
readily available.
b. Note 2: As indicated in the table, there is seldom a one-to-one correspondence
between subsystem function and organization unit, because coordinated
actions by multiple kinds of organization unit are often needed to produce a
particular subsystem function.
c. Note 3: The list of subsystem life functions shown here includes
"Reproduction." This is based on the view that action toward reproduction is
initiated because of a living system's inherent propensity, and that need is
manifested as a homeostatic imbalance.
d. Note 4: Organization units (organizations, organs, organelles) are intermediate
structures, and are not living systems themselves. When life is perpetuated
across generations, the thing being sustained is a set of self-replicating
instructions for creation of the entire living system, not the independently for
the internal organization unit structures that it produces. To perpetuate their
species existence, superorganisms, organisms, and cells reproduce themselves.
Organization units do not reproduce themselves.

In the living systems model, governance is divided into three parts:
a. Director: Determine how to respond to new situations, and establish priorities
to be used by the administrator in responding to current situations.
b. Administrator: Interpret prioritized responses to schedule the functional
scenarios required to maintain homeostasis.
c. Implementor: Translate scheduled functional scenarios into orchestrated
actions by organization units and their component members.


Prioritized Responses
to Situations and

Aggregated Results of
Functional Scenarios


Schedule of Functional
Scenarios to be

Aggregated Results of
Organization Unit


Commands to
Organization Units

Sensory Patterns from
Individual Sensory

Governance is viewed here as the information-based, homeostatic control,
mechanism that keeps its living system alive and healthy. This same mechanism
occurs at each of the three levels of living system, using this same architectural
a. Superorganism Governance works through its organizations to direct and regulate
the physical actions of its organisms.
b. Organism Governance works through its organs to direct and regulate the physical
actions of its cells.
c. Cell Governance works through its organelles to direct and regulate the physical
actions of its biomolecules.
To keep its living system alive and healthy, the governance mechanism must
have three functional capabilities: adaptation, operation, and execution. Each of these
capabilities requires a different frame of reference, as embodied in the three distinct
parts of governance. Governance is Divided into Three Cooperative Units. At each
level of the living system hierarchy, governance can be viewed as a tiered structure
that performs these three functions:
Recognize new situations in the external environment
or new internal conditions that present threats or
opportunities, and establish appropriate responses.
This is where living system learning takes place.
Conduct established functional scenarios to maintain
the health and well-being of the living system and its
component living systems. This is where homeostasis
takes place.
Interpret functional scenarios in terms of required
organization unit actions. Broadcast an orchestrated
schedule of or actions to individual organization units.
This is where physical action is initiated.

Within this three-tiered structure, control flows from top-to-bottom, while
feedback of results flows from bottom-to-top.

Governance Action Flows Downward
a. The Director prioritizes responses to living system situations and conditions,
and passes them down to the Administrator
b. The Administrator translates the prioritized responses, incorporates them into
the set of homeostatic scenarios that are currently in process, and then passes
them on to the Implementor
c. The implementor translates the current scenarios into an orchestrated array of
action commands, and passes them on to the Organization Units.
This complex sequence of action is accompanied by a corresponding feedback
loop, where the outcomes of the actions are perceived at different levels of

Feedback Action Flows Upward
The Implementor receives detailed sensory patterns from Organization Units,
which are interpreted in terms of the original orchestrated commands and compared
with their expected results. The orchestrated commands feedback details are then
aggregated and passed up to the Administrator. Any unexpected changes, or new
encounters are evaluated and handled by local adjustments to Organization Unit
commands if possible; otherwise they are noted and passed on to the Administrator as
The Administrator interprets the orchestrated commands feedback in terms of
the original schedule of functional scenarios and compares them with expected
results. The functional scenarios feedback details are then aggregated and passed up
to the Director. Any unexpected changes or new encounters are evaluated and handled
by local adjustments to functional scenarios if possible; otherwise they are noted and
passed on to the Administrator as discrepancies.
The Director interprets the functional scenarios feedback in terms of the
original situations and conditions responses and compares them with expected results.
The buck stops here for any remaining discrepancies, changes, or new encounters.
Discrepancies and changes are usually handled by adjustments to the prioritized
schedule of responses. New encounters are interpreted as new situations of conditions,
for which appropriate responses must be developed, and for which response priorities
may change.
Governance Structural Diagram

Develop appropriate responses
to new or changing situations
and conditions.

Determine the threat or
opportunity potential of new or
changing situations and
Schedule and prioritize
responses to situations and

Compare with expected results;
correct where possible. Forward
The following diagram combines the downward flow of governance action
with the upward flow of perceived feedback results. The left side is meant to be read
top-to-bottom, the right side bottom-to-top. Also included are horizontal arrows to
indicate where results are compared with original actions and local corrections
introduced. The Director part has an additional leftward arrow to indicate how new
situations and conditions are dealt with.

Prioritized Responses
Situations and

Aggregated Results of
Functional Scenarios


Interpret any new prioritized
responses as functional
Aggregate results of functional
Schedule functional scenarios as
required to maintain

Compare with expected results;
correct where possible. Forward
Issue a schedule of functional
scenarios to be initiated.

Interpret results of Organization
Unit actions as functional
scenario results.
conditions. discrepancies.
Issue directives on how to
respond to situations and

Interpret results of functional
scenarios as responses to
situations and conditions

Schedule of Functional
Scenarios to be

Aggregated Results of
Organization Unit


Translate scheduled functional
scenarios into Organization Unit
Aggregate results of
Organization Unit actions.
Orchestrate Organization Unit
actions to collectively meet

Compare with expected results;
correct where possible. Forward
Issue orchestrated commands to
individual Organization Units

Interpret Sensory Patterns as
results of orchestrated
Organization Unit actions.

Commands to
Organization Units

Sensory Patterns from
Individual Sensory

2.1 Definition of Corporate
A corporation is a specific legal form of organization of persons and material
resources, chartered by the state, for the purpose of conducting business.
According to Oxford Dictionary, corporate is an adjective which means of or
belonging to a corporation (Oxford, 2008). Then, corporation is a noun which
means large business or company (Oxford, 2008). The term of corporate came
from Latin which is corporare that means form into a body, from corpus, corpor
which means body. Furthermore the term of corporation also came from Latin
which is corporare, then changed to corporatio in Late Latin, and became
corporate in English. According to origin of the term, corporate and corporation
has the same meaning.
Furthermore in 1818, Chief Justice John Marshall defined as a corporation as
an artificial being, invisible, intangible and existing only in contemplation of the
law (Douglas J. McQuaig, 2007). A corporation does indeed act as an artificial
legal being, deriving its existence from its charter. In every respect it is a separate
legal entity. As an entity, a corporation may own property, enter into contracts,
sue in the courts, be sued and so forth.
2.2 Types of Corporate
According to the nature of ownership, there are two types of corporate. They
are open corporation and closed corporation.
1. Open Corporation
Open Corporation or also known as public corporation is a corporation whose
ownership shares are available for exchange on a public market (College,
n.d.). Open corporation held by just a few people, such as those who worked
for or financed the company, and allowed anyone with a few dollars to invest
in that company. This process is called company goes public. The market on
which the shares are traded may be an organized market or private market.
The example of organized market is the New York Stock Exchange (NYSE),
the American Stock Exchange (AMEX), or in Indonesia, Jakarta Stock
Exchange (BEJ). Furthermore, the shares might be exchanged in private, so-
called over-the-counter (OTC) transactions. (College, n.d.) These
transactions involve the shares of companies that are not listed on an
exchange, but whose shares are still available for public trading. The example
of open/public Corporation is Microsoft and Facebook.
2. Close Corporation
Close corporation is also known as private corporation. According to
Massachusetts , close corporation is a corporation meeting these three
requirements: a small number of stockholders, the lack of market is the lack of
any ready market for the corporations stock and the stockholder participation
is substantial participation by the majority stockholder in the management,
direction and operation of the corporation (Steven Emanuel, 2009). The close
or privately held corporation is one where ownership of the corporation is held
by a limited number of individuals or, on occasion, by other companies. The
shares of the company are not available to the general public for sale or
exchange. The advantage of close corporation is it concentrates ownership in
the hands of a few individuals. However there is many advantages from the
hands of a few individuals. First, while the company is more maneuverable,
because of the fact that only a few people own the company, if those people
happen to disagree with each other, the result may spell trouble for the
companys future. As there is no public market for the companys stock, and
the stock itself often contains restrictions and covenants on the transferability
of ownership rights, a person trying to disentangle his or her interests from a
close company will often face a difficult situation.
2.3 Objectives of Corporate
There are two objectives of corporate establishment (M. Fuad, 2006):
1. Economic objective
The economic objective is about corporate effort in maintaining corporate
existence. In order to achieve economic objective, corporate try to create a
profit, costumer, and try a development effort such as create product based on
community need (quality, price, quantity, and product usability). Corporate
need (Anon., n.d.) continuous innovative efforts to achieve petitive advantage
and comparative advantage in the long term in order achieve the economic
2. Social objective
Corporate should pay attention to investor desire, employee desire, distributor
of factors of production desire, and community desire.
Furthermore the main objective of corporate is providing satisfaction to
consumer desire. In order to achieve it the economic and social objective must
support each other.
2.4 Function of Corporate
There are two main functions of corporate. They are operation function and
management function (M. Fuad, 2006). Corporate could run its operation
smoothly, coordinated and integrated if the two functions of corporate run
a. The operation function of corporate consist of
1) Production and procurement
2) Marketing
3) Finance
4) Human resources
5) Accounting
6) Administration
7) Information technology/ computation
8) Transformation and communication
9) Public services
10) Law or public relation
Production and procurement function, marketing function, human resources
function and finance function are the main operation function of corporate. The
other function is supported operation function.
b. Management function of corporate consist of
1) Planning
2) Organizing
3) Directing, and
4) Controlling

3.1 Definition of Corporate Governance
Corporate governance can be defined as the set of processes, customs, policies,
laws and institutions affecting the way a company is directed, administered or
controlled. (Fisher, 2010)
The term Corporate Governance is susceptible of both narrow and broad
definitions, related to the two perspectives of shareholder- and stakeholder
orientation. It therefore revolves around the debate on whether management should
run the corporation solely in the interests of shareholders (shareholder perspective) or
whether it should take account of other constituencies (stakeholder perspective).
Narrowly defined corporate governance concerns the relationships between
corporate managers, board of directors and shareholders. But it might as well
encompass the relationship of the corporation to stakeholders and society. More
broadly defined, corporate governance can encompass the combination of laws,
regulations, listing rules and voluntary private sector practices that enable the
corporation to attract capital, perform efficiently, generate profit, and meet both, legal
obligations and general societal expectations. (Thomson, 2009)
Corporate governance is a field in economic that investigates how to secure /
motivate efficient management of corporations by the use of incentive mechanism
such as contracts, organizational design and legislations. (Balachandran &
Chandrasekaran, 2011)
Corporate governance means doing everything better, to improve relation between
companies and their shareholder; to improve the quality of outside director; to
encourage people to thing long term; to ensure that information needs of all
stakeholder are met; and to ensure that executive management is monitored properly
in the interest of shareholder. (Balachandran & Chandrasekaran, 2011)
3.2 Objectives of Corporate Governance
Corporate governance extends beyond corporate law. It is integral to the very
existence of a company. They key objective of corporate governance are listed below:
1. Strengthening investors confidence: it tries to inspire strengthen the
investor confidence by ensuring companies commitment to higher profits.
2. Transparency: its rudimentary objective its not mere fulfillment of the
requirements of legal provisions but to ensure commitment of the board in
managing the company in a transparent manner so as to maximize the
stakeholders value.
3. Balance Board: to see that the board is balanced as regards the presentation of
adequate number of non-executive director and independent directors to take
care of the interest of stakeholders.
4. Review of boards policies and procedure: to review that the board adopts
transparent procedure and practices in the interest of both company and
5. Boards decision to shareholders: to check that the board provides adequate
information pertaining to the development taking place in the company to the
shareholders periodically.
6. Long-term vision of the board: to ensure that the board leads the company
forward so as to maximized long-term value and shareholders wealth.
(Balachandran & Chandrasekaran, 2011)
3.3 Principles of Corporate Governance
Corporate governance is based n principles such as conducting the business with
all integrity and fairness, being transparent with regard to all transactions, complying
with all the laws of the land, accountabillity and respossibillity towards the
stakeholders and commitment to conducting bussiness in an ethical manner. Another
point which is highlighted in the SEBI report on corporate governance is the need for
those in control to be able to distinguish between what are personal and corporate
funds while managing a company. (Thomson, 2009)
1. Fairness
It refers to the manner in which the business is conducted without any detriment
to the interest of the stakeholders, shareholders, employees and the public as a
whole. Business ethics plays a vital role in this context, hence they have to be on
par with the ethical code of the society in which a businessnoperates.
2. Transparency
It is disclosure, which a tool of corporate governance. Corporate governance
ensures timely and accurate disclosure on all material matter. Disclosure regarding
the corporate performance, ownership and governance should be of high quality
and accordance with the financial, accounting and auditing standard.
Transparancy is access to information by user / stakeholders/ public, which by
way of disclosure should include the following:
a. Financial and operating result of the company
b. Companys objectives
c. Members of the board
d. Material foreseeable risk factors
e. Information regarding employees and stakeholders
3. Accountability
It is monitoring managerial performance and achieving adequate return for the
shareholders by true and fair means by the managerial body ( board of directors ).
It is also a responsibility to implement system designed to ensure that the
corporation obeys laws. It is acting in good faith, with due diligence and care, and
in the best interest of the company and its constituents.
4. Responsibility
Responsibility and accountability go hand in hand. Corporate is expected to be a
responsible citizen and serve not only the interesrt of stakeholders but also in the
best interest of the society. Corporate governance reflects the large ethics
prevailing in society. Companies are required to take more active role in changing
the practices and values that are believed to be harmful to groups outside the
3.4 Requirements to Strengthen Corporate Governance
The following are some of the requirements meant for strengthening corporate
1. Enforcement of right by minority shareholders: Shareholders activism have
to be encouraged so as to enhance the shareholders value in the long run.
2. Quality of audit: There is an imperative need on the part of the government to
strengthen the quality of audit so as to make the Auditor accountable for the
disclosure of information in the annual report and to monitor the working of
audit firms.
3. Ensuring the independence of director : an appropriate and acceptable
system has to be designed to ensure the independence of directors to discharge
their duties as per the requirement of the law
4. Awareness for adoption of corporate governance: Efforts have to be made
for propagation of corporate governance norms amongst entrepreneurs for
better compliance.
5. Amendment to bankruptcy laws: There is a need to amend bankruptcy laws
for prompt implementation of provisions.
6. Accountability of the board to stakeholders: The board of Directors as well
as the CEOs and CFOs are made accountable for the discharge of their duties
with the proper use of their rights within the powers.
7. Upgrading the efficacy of systems : Adequate care has to be exercised to
ensure the quality and effectiveness of the legal, administrative and regulatory
8. Report on corporate governance: To make a statutory compliance for the
listed companies to compulsorily obtain a report on Corporate Governance
Rating (CGR) from a Credit Rating Agency in India. (Balachandran &
Chandrasekaran, 2011)

4.1 Definition of Good Corporate Governance
Good corporate governance assists the board and management to pursue
objectives that are in the interests of the organization and its stakeholders,
facilitates effective monitoring and encourages an organization to use its resources
more efficiently.
The issue of corporate governance has been high on the agenda in the private
sector for more than a decade. The focus has been primarily on listed companies
and the role of the board not only in providing a strategic direction for the
company, but also in ensuring that the company is responsive to the broader
interests of shareholders and stakeholders, rather than merely the interests of
controlling and major shareholders and executive management. Transparency,
accountability and integrity are key concepts in the promotion of good corporate
governance (Accountants, 2004).
4.2 Objectives of Good Corporate Governance
The principles of good corporate governance are neither prescriptive nor
mandatory. They are designed as a basis to assist individual companies formulate
their own specific and detailed codes of best practice. The Private Sector Initiative
for Corporate Governance expects that these principles will excite debate and
result in the further evolution of better practices and procedures.The purpose for
which these guidelines are formulated will have been served if every corporate
entity in examines its own governance practices, improves what needs
improvement and/or otherwise enhances its own governance practices (Kihumba,
4.3 Principles of Effective Corporate Governance
There are a number of key principles that underpin good governance in public
sector entities, which fall into personal and managerial qualities (Brown, 2011) :

Australian National Audit Office
1. Leadership
Leadership is required from the Director-General and Executive in terms of:
a. Clearly identifying and articulating responsibilities
b. Understanding and facilitating relationships with stakeholders
c. Communicating unambiguously to the Minister
d. Clearly stating government priorities, and
e. Coherently setting organisational values.
2. Commitment
Corporate governance is both process and people oriented and requires a
commitment to implement the elements of this at all levels of the agency,
a. Open communication
b. An emphasis on corporate values and ethical conduct
c. A systematic, risk management approach
d. Quality in service delivery, and
e. A responsible relationship to and with stakeholders.
3. Integrity
The integrity of an organization is based on the honesty, objectivity and
propriety of those who work within it. Integrity is also dependent on the
effectiveness of the entitys probity structures, including:
a. Personal standards
b. Professionalism
c. Decision-making practices
d. Procedures
e. Control frameworks, and
f. The quality of performance management and reporting.
4. Accountability
Sound accountability in the public sector requires the clear articulation of the
roles, responsibilities and powers of the Minister and the Director-General as
well as all other relevant stakeholders.
5. Transparency
Transparency means an ongoing commitment to openness regarding decision-
making processes and the actions of the agency, and an understanding that the
public has the right to clear information about these processes.
6. Integration
Integration within an agency refers to the ability of the various organizational
elements to work together to achieve a common goal, while adhering to shared
principles, values and ethics.
4.4 The element of Good Corporate Governance
There is no single model of corporate governance, however good corporate
governance in public entities includes at least the following common elements
(Brown, 2011):

1. Public governance
ACT public sector agencies are accountable to the relevant Minister for the
delivery of government commitments, and Ministers in turn are accountable
for their portfolios performance to the Chief Minister, the ACT Legislative
Assembly and to the community.
2. Management structures
In the public sector, legislative responsibility rests with the Director-General
of the agency for the efficient, effective and ethical use of public resources.
Whoever governs exercises ultimate authority within organisations and is
finally held accountable for overall organisational performance by
stakeholders. In essence, those who govern authorise what organisations do.
Executives manage organisations by virtue of the authority delegated to them
by those who govern. (Bird, 2001)
3. Strategic and business planning
An organisations corporate plan sets the direction of the whole entity for the
future. Corporate plans articulate an agencys vision, objectives and values, as
well as provide the framework for achieving these. Organisational priorities
are established within this framework and performance indicators and
reporting requirements are set.
The Health Directorate corporate plan is informed by and links to the broader
ACT Governments strategic planning framework:

4. Performance management
In public sector agencies performance is measured against the achievement of
the governments stated goals and objectives. To achieve this, a framework to
evaluate and report against outcomes, outputs and resource requirements is
established for key performance areas of importance. These are referred to as
key performance areas (KPAs).
In this context, results or outcomes refer to the actual achievements of the
organisation, which in the case of a public sector agency means the positive or
negative effect of their service on the community. Outputs measure the
process through which the agency delivers its services or goods to the public.
Cost refers to the financial and other resources that are necessary to deliver
these services or goods. Benchmarking between similar entities can be a useful
tool in establishing, comparing and evaluating agency performance.
5. Risk management
Risk is an occurrence that may prevent an organisation from achieving its
business objectives. Risk management is not a separate process but part of
good management and is comprised of three principal steps: risk
identification, risk analysis and risk mitigation. Good risk management in the
public sector means making decisions in accordance with statutory
requirements, consistent with public sector values and ethics, and considering
their social, environmental and economic implications. In short, it is more
important to make the right decision, rather than the quick decision.
6. Compliance and controls
Governing and law-making often overlap, but in theory, government powers
are divided between three institutions:
a. Parliament, which makes laws (legislative power)
b. Executive government which implements, administers and enforces
laws (executive power)
c. Courts which interpret and apply laws (judicial power).
In addition to setting the strategic direction and vision for the ACT
community, a core function of the Australian Capital Territory Government is
to make new laws or change existing laws.
The Health Directorates governance is, at the highest level, directed by
relevant Commonwealth and ACT legislation. The enacting of this legislation
on a day to day basis occurs through the interpretation of the law into
Directorate specific policies and procedures.
7. Audit
The primary role of internal audit is to provide reasonable assurance to
management about the adequacy and effectiveness of the integrated risk
management framework in operation. Internal Audit provides management
with analysis, appraisals, and recommendations on the operations reviewed.
Internal audit is supported through:
a. Access to documents, records, premises and electronic systems
b. Independence, represented through direct reporting to the Director-General
and to the Internal Audit and Risk Management Committee
c. The Integrated Risk Management Policy, and related guidelines
d. An annual audit program
e. A quality assurance program
f. Liaison and coordination with the ACT Government Audit Office, as
external auditors
g. Liaison and contracting of contracted external auditors as required to
report to the Director-General or Audit and Risk Management Committee
h. Staff meeting audit practice standards, as prescribed by professional
bodies, and
i. Continuing education and performance management of internal auditors.
8. Values and code of ethics
The Health Directorates values are articulated in the Corporate Plan 2010-
2012. Our values are:
a. Care
b. Excellence
c. Collaboration and
d. Integrity
Developed by staff of the directorate, our values represent what we believe is
important and worthwhile. They underpin the way we work and how we treat
each other.
We often see people in our community at their most vulnerable. The way we
interact with them is extremely important and directly influences their
experience of care. Both compliments and complaints from our consumers are
largely to do with our commitment to our values, as evidenced by our

5.1.1 Role
Canberra Hospital & Health Services is led by the Deputy Director-General and
provides acute, sub-acute, primary and community based health services to the ACT and
surrounding region.
A comprehensive range of services are delivered from the Canberra Hospital campus
including acute inpatient care, overnight and day services and outpatient treatment.
Canberra Hospital is the largest public hospital in the region, supporting a population in
excess of 500,000.
The hospital delivers a full range of medical, surgical and obstetric services, including
complex procedures in areas such as cardiac surgery, neurosurgery and neonatal intensive
Strong links exist between hospital and community-based services, as many of the
operational divisions deliver services across the continuum of care to ensure continuity of
care for patients.
The community based services of the Health Directorate include early childhood,
youth and womens health; dental services, rehabilitation and community care; mental
health and alcohol and drug services. In addition, justice health services are provided
within the Territorys detention facilities.
The nine divisions of the group are:
a. Division of Surgery & Oral Health;
b. Division of Women, Youth & Children;
c. Division of Critical Care & Diagnostics;
d. Division of Capital Region Cancer Service;
e. Division of Rehabilitation, Aged & Community Care;
f. Division of Mental Health, Justice Health, Alcohol & Drug Services;
g. Division of Pathology;
h. Division of Medicine; and
i. Division of Operational Support

The Health Directorate is a partner in teaching with the Australian National
University and the University of Canberra.
Detailed information on each of these Divisions are contained in the following
The Canberra Hospital and Health Services Group liaises closely with Calvary Public
Hospital (managed by the Little Company of Mary) to ensure effective coordination of
services across the territory. A number of Divisions provide services within Calvary Public
Hospital facilities and many of the community based services liaise closely to ensure a
seamless service is provided.
As two members of the ACTs Local Hospital Network, Calvary Hospital and the
Canberra Hospital also provide advice to the Director-General on the clinical and
corporate governance framework needed to maintain and improve patient care and
services, and provide advice on methods toimprove efficiency across the public hospitals.
In addition, the Local Hospital Network provides an annual report to the Minister for
5.1.2 Reporting structure
The Deputy Director-General reports directly to the Director-General, Health
The Deputy Director-General leads the Canberra Hospital & Health Services through
the Executive Director of each of the divisions.
5.1.3 Committee representation
The Deputy Director-General, Canberra Hospital & Services is represented on the
following Tier One committees:
a. Executive Council
b. Executive Directors Council
c. Management Advisory Council
d. Clinical Senate
e. Safety and Quality Committee
f. Workplace Safety Committee
g. Audit and Risk Management Committee
h. Workforce Strategy Committee
i. Redevelopment Committee
j. Information and Communication Technology Committee

5.2.1 Role
The Strategy & Corporate Group is led by the Deputy Director-General Strategy &
Corporate. The role of the Strategy & Corporate Group is to provide corporate and
strategic support to clinical service areas. The group supports the delivery of acute,
primary and community healthcare services to the ACT and surrounding region, and plans
for workforce and health services needs into the future.
Strategy & Corporate provides infrastructure, policy, funding and strategic planning
support to the organisation to ensure that clinical services can meet current and future
demands. Strategy & Corporate is also responsible for managing government relations,
including legislative requirements and management of intradepartmental relationships and
for management of Non Government Organisation funding and agreements. The Branches
within the Group liaise closely with operational areas and divisions in undertaking their
function. All branches work across the Health Directorate.
The seven branches of the group are:
E-health & Clinical Records
Professional Leadership, Education & Research
Performance & Innovation
Business & Infrastructure
Policy & Government Relations
Service & Capital Planning, and
Human Resource Management.

Detailed information on each of these branches is contained in the following section.
Strategy & Corporate negotiates and manages the contractual arrangements between
the Health Directorate and the Little Company of Mary for the provision of public hospital
services at Calvary Hospital, Bruce. Calvary Public Hospital is required, under the
agreement, to meet set performance based objectives and targets as well as quality and
safety targets. Calvary Public Hospital reports against this Service Level Agreement to
both the Director-General and Minister for Health.
While Strategy & Corporate maintains a corporate relationship with Calvary Public
Hospital, the Canberra Hospital and Health Services group also maintains a strong
operational relationship to ensure effective delivery of clinical services.
5.2.2 Reporting structure
The Deputy Director-General reports directly to the Director-General.

The Deputy Director-General leads the Strategy & Corporate Group through the Strategy
& Corporate Executive.
5.2.3 Committee representation
The Deputy Director-General, Strategy & Corporate is represented on the following Tier
One committees:
Executive Council
Executive Directors Council
Management Advisory Council
Clinical Senate
Safety and Quality Committee
Work Safety Committee
Audit and Risk Management Committee
Workforce Strategy Committee
Redevelopment Committee, and
Information and Communication Technology Committee

5.3.1 Role
The E-health & Clinical Records Branch is led by the Chief Information Officer
(CIO) who provides high-level leadership and advice on policies, planning, and
implementation of strategies in relation to health information, Information Communication
and Technology (ICT) projects and clinical records management.
The E-health & Clinical Records Branch is responsible for:
a. Implementation and support of the Health Directorate Information Technology
(IT) Strategic Plan
b. Management and support of Health Directorate clinical records across acute,
primary and community based services
c. Coordination of ICT projects
d. Management of the relationship with Health Directorate ICT vendors
e. Financial reporting on Health Directorate use of ICT
f. Development, implementation and maintenance of ICT policies and procedures,
g. Ensuring Health Directorate information security;
The Branch is comprised of:
a. Clinical Records
b. E-health Strategic Planning
c. NEHTA & National E-health Initiatives and E-health Projects
- Clinical Systems
- Support Systems
- Digital Health Infrastructure


Accountants, T.H.S.o., 2004. Corporate Governance for Public Bodies a Basic Framework. Honfgkong.
Ackley, Dave., 2012. Living System Models. Oregon: Ackley Associates.
Australian Government, 2009. Governance Principles: A Good Practice Guide. New South
Wales, Australian Government.
Balachandran, V. & Chandrasekaran, V., 2011. CORPORATE GOVERNANCE, ETHICS AND SOCIAL
RESPONSIBILITY. 2nd ed. New Delhi: PHI Leraning Private Limited.
Bird, F., 2001. A Philosophical Discussion of the Responsibilities and Practices of Organizational
Governors. Good Governance, 18(4).
Brown, P., 2011. Corporate Governance Statement. (5), pp.2-3.
College, N.P., n.d. Open versus Closed Ownership of the Corporation. [Online] National Paralegal
College Available at:
m&Features/OpenClosedOwnership.asp [Accessed 24 October 2013].
Douglas J. McQuaig, P.A.B., 2007. College Accounting, 1-26. South-Western College Pub.
Fisher, J., 2010. Corporate Governance and Management of Risk (M_O_R). white paper.
Goold, M., 1996, The (Limited) Role of the Board, Long Range Planning ed.29th (4). 572-
575. United States of America: Prentice-Hall

Kihumba, J.K., 1999. Principles for Corporate Governance in Kenya. Nairobi, Kenya: Private Sector
Corporate Governance Trust.
M. Fuad, C.H.N.S.P.Y., 2006. Pengantar Bisnis. Jakarta: PT Gramedia Pustaka Utama.
Oxford, 2008. Oxford Dictionary. Oxford: Oxford University Press.
Steven Emanuel, L.E., 2009. Corporations. Aspen Publishers.
Thomson, L.M., 2009. THE ECONOMIC TIMES. [Online] Available at: [Accessed 24 October 2013].
United Nations Economic and Social Commission for Asia and the Pasific. United Nations
ESCAP.[Online] Available at:
[Accessed 24 October 2013].
Yocam, E. & Choi, A., 2008. Corporate Governance: A Board Director's Pocket Guide.
United States of America: Yocam Publishing LLC.