Directors and executives are at the heart of the governance of an entity. Therefore, there is a direct correlation between financial performance and governance. We sincerely believe that a governance diagnostic is just as important and closely related to the financial outcomes contained in the financial statements.
Donors, directors, executives, and citizens themselves have been much focused on financial results. They all have a strong interest to be involved upstream, using the governance diagnostic not only to improve the quality of an entity’s governance but also to protect and improve its financial results.
Donors (governments, shareholders, members, lending institutions, investment funds, pension funds, financial asset managers, government guarantees companies) compose the first group.
Whenever a donor is making an investment in SMEs or NPOs or grants contracts, grants, donations, sponsorships, loans, and loan guarantees, they have to assess the risks associated with governance and especially to make a follow-up, without having the expertise needed to do so. Yet, the task of assessing the financial viability of an applicant is already a difficult task to assume.
Directors and executives are part of the second group intended by the governance diagnostic. The evaluation and control of risks related to governance are not meant only for donors, but also for applicants (directors and executives). There are three main reasons: 1) improve the financial results of their organization; 2) they have concerns regarding their governance practices, and 3) they have to be accountable in front of financial partners and they want to respect the practices of good governance.
The third group and not the least are the citizens and taxpayers. Whenever a level of government grants contracts, grants, donations, sponsorships, loans, guarantees of loans and tax allowance, to SMEs and to the NPO, citizens are completely in their right to demand a governance diagnostic in order to assess their accountability.
In future articles, we will cover the detailed requirements for each category of donors, directors and executives.