Corporate Governance: Role of key management personnel

Corporate governance aims to “facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company”.

Corporate governance is group of systems, processes, rules and practices which enables in companies being directed and controlled. Board along with Key Management Personal (KMP) are responsible for setting the company’s strategy, providing with leadership direction, supervising the business and reporting to key stakeholders.

Corporate governance is enabled by active interaction between numbers of actors and processes, with major roles being played by boards of directors, shareholders, internal and external auditors, corporate reporting, legal/regulatory framework and KMP.

Corporate governance strive to put in place a properly structured board and strives to maintain a healthy balance between management and shareholders which enables in independent decision making which are required for creating long-term value and trust between the company and multiple stakeholders.

Key Managerial Personnel (KMP) and other officers of the company who serve the top management includes the Chief Executive Officer, Managing Director or Manager; Whole Time Director; Company Secretary.

KMPs are at the helm of day today execution and periodically update the board on achieving corporate strategy, play a pivotal role in enabling and enhancing corporate governance.

Key enabler for KMP to enhance corporate governance and are:

• Engage in creating a safer, transparent and dynamic corporate environment for organizations, investors and all other stakeholders
• Enable organizations to build trust and confidence, while focusing on growth and shareholder value creation
• Transparency in day to execution and highest level of integrity in financial reporting
• Facilitating stewards of the interests of all shareholders by taking a bird's eye view of not just the company but the entire sector and the economy as a whole
• Diversity in management further enhances company performance and corporate governance

Pitfalls for KMPs with regards to corporate governance are:

• Performance pressures and aggressive competition
• Roles and responsibilities not delineated from promoters
• Absence of questioning mind specifically for direction provided by promoters
• Acting in pure compliance mode - ensuring only that the minimum formalities are complied with

KMP play the role of gate keepers of governance when they act as independent professional who act as reputational intermediary between organization and board, are positioned to prevent wrongdoing, and is susceptible to significant reputational / disciplinary action if found to have condoned wrongdoing.

KPM as gatekeepers must check and address on tendency to focus on short-term profits at the expense of long-term shareholder value.

Good corporate governance is not an end in itself. It is a means to create market confidence and business integrity, which in turn is essential for companies that need access to equity capital for long term investment.

Benefits of good governance positively impacts the share value, liquidity and investor confidence in the organization, contributes substantially to the success of companies and is essential for business growth in the long term, produced substantially better operational and market results and demand a premium in the market which must be enabled by KMP playing a pivotal role.