quotes Importance of good financial governance to business success

10 June 2021
Short Url
Updated 10 June 2021

Importance of good financial governance to business success

One of the main reasons behind the failure of many companies in regional and international markets is poor financial governance. Why is that?

Lax money management can expose firms to risks such as fraud, embezzlement, and weak decision-making, all of which can quickly erode the confidence of stakeholders.

The ability to efficiently manage an organization’s finances is one of the most important contributors to running a successful business operation, whatever its size.

However, little has been written about regulatory financial governance and its role in different kinds of companies, and discussions surrounding the subject are still in their early phases.

So, what is financial governance?

In essence, it is the method by which a firm collects, manages, monitors, and controls its financial information. It includes the policies and procedures that the company uses to track its financial transactions, manage performance, and monitor statistics, compliance, operations, and data disclosure.

In addition, good financial governance includes the accuracy of financial information, issuance of regulatory reports and compatible financial disclosures, the existence of budgets, plans, and models, the swift completion of financial operations using correct procedures, and risk identification.

The general governance pillars of independence, accountability, transparency, and integrity should complement and reinforce each other when applied to financial governance.

Policymakers are making great efforts to improve the foundations for regulatory financial governance for listed and non-listed companies to help ensure sustainable businesses and consequently improve firms’ social and economic national contributions.

But there is still a need to reinforce the beneficial effects of having strong financial governance.

Any organization’s board of directors should have the capacity and capability to understand and monitor company performance, while processes should be in place to make sure CEO’s have all the relevant financial information they need at their fingertips.

Procedures, including the use of a unified management program to disclose data, adherence to regulations, automated financial controls, internal and external audits, and the employment of a single company database can all help to streamline financial governance.

• Dr. Zahra Al-Nasser is an assistant professor in the department of finance and banking at Dar Al-Uloom University in Riyadh and an advisory board member in the department. Her research interest is corporate governance in GCC countries. She has published a number of peer-reviewed papers.