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7 Charactristsic of good corporate governance applicable to a homeowners associations

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7 Charactristsic of good corporate governance applicable to a homeowners associations

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2 min read

The Association of Residential Communities  overviews the 7 key characteristics of good governance as it applies to residential communities homeowners associations in South Africa

Discipline

Corporate discipline is a commitment by an HOA’s senior management to adhere to behaviour that is universally recognised and accepted to be correct and proper. This encompasses a company’s awareness of, and commitment to, the underlying principles of good governance, particularly at senior management level.

“All involved parties will have a commitment to adhere to procedures, processes, and authority structures established by the organisation.”

Transparency

Transparency is the ease with which a member is able to make meaningful analysis of a company’s actions, its economic fundamentals and the non-financial aspects pertinent to that business. This is a measure of how good management is at making necessary information available in a candid, accurate and timely manner – not only the audit data but also general reports and press releases. It reflects whether or not members obtain a true picture of what is happening inside the company.

“All actions implemented and their decision support will be available for inspection by authorised organisation and provider parties.”

Independence

Independence is the extent to which mechanisms have been put in place to minimise or avoid potential conflicts of interest that may exist, such as dominance by a strong board member or large property owner. These mechanisms range from the composition of the board to appointments to committees of the board, and external parties such as the auditors. The decisions made, and internal processes established, should be objective and not allow for undue influences.

“All processes, decision-making and mechanisms used will be established so as to minimise or avoid potential conflicts of interest.”

Accountability

Individuals or groups in a company who make decisions and take actions on specific issues need to be accountable for their decisions and actions. Mechanisms must exist and be effective to allow for accountability. These provide members with the means to query and assess the actions of the board and its committees.

“Identifiable groups within the organisation – e.g. governance boards who take actions or make decisions – are authorised and accountable for their actions.”

Responsibility

With regard to management, responsibility pertains to behaviour that allows for corrective action and for penalising mismanagement. Responsible management would, when necessary, put in place what it would take to set the company on the right path. While the board is accountable to the company, it must act responsively to and with responsibility towards all stakeholders of the company.

“Each contracted party is required to act responsibly to the organisation and its stakeholders.”

Fairness

The systems that exist within the company must be balanced in taking into account all those that have an interest in the company and its future. The rights of various groups have to be acknowledged and respected.

“All decisions taken, processes used, and their implementation will not be allowed to create unfair advantage to any one particular party.”

Social responsibility

A well-managed company will be aware of, and respond to, social issues, placing a high priority on ethical standards. A good corporate citizen is increasingly seen as one who is non-discriminatory, non-exploitative, and responsible with regard to environmental and human rights issues. A company is likely to experience indirect economic benefits such as improved productivity and corporate reputation by taking those factors into consideration.

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