Over the last 10 years a much greater awareness of the need for good governance and a corresponding revulsion of bad practice in this area has developed in the Republic. It is being driven by the exposure of political and financial scandals.

Generally, the response, not just in the Republic, but also internationally, has been to introduce new policing methods, penalties and codes of practice. In reality, all that happens following such measures is that the cost of conducting business increases and the environment necessary to encourage innovation and investment is stifled.

Although there is an economic rationale for good governance, we must apply the principles in the context of the traditions and cultures within different countries and understand how these are changing and at what pace. Good governance is not a matter of a stated set of principles - on the contrary it is a living of the values on a daily basis. There ought to be a very clear link between good governance and better performance.

Poorly governed corporates will ultimately reach a certain level but then collapse, because they do not have the foundations necessary to see them through the good and the bad times.

It is more likely that a well-governed corporate will survive difficult times. Where poor governance applies and overall objectives are driven more by greed, the outcome is likely to be less favourable than in a company where there is a shared set of values of the highest order.

History shows that it is essential to consider having an independent director on the company board with the necessary skill and integrity to voice opinions when it is clear that incorrect measures are being taken. The actual board structure will have a bearing on the company's effectiveness and much has been written on the pros and cons of a unitary board structure or a two-tier structure comprising executive and non-executive sections.

However, to overcome the absence of a two-tier structure, special committees to examine complex and new issues like executive remuneration and the relative interests of the various stakeholders have emerged in recent times. But what will define characteristics of future leading European companies? Among the key indicators at present are product innovation, service quality and customer relations.

These key indicators are driving company values. Therefore they are the characteristics that managers need to pass on to employees to ensure the promise made to the customer is delivered. Not only must the customer be satisfied, but the company in turn must ensure that it achieves a reasonable level of profitability in the process and has re-invested sufficient profits to generate the capital necessary to maintain competitiveness.

Perhaps the ultimate answer to the question "what is governance" must lie in the answer to the question, whose business it is anyway? Corporate governance issues are in the spotlight worldwide and the important point for managers is that the principles underlying corporate governance must be consistent with building long-term value for shareholders.

To this end good practice for an effective board must involve an appropriate structure. Structure will involve a working partnership between the board and the executive management and strong independent representation on the board. The board size should be small enough for effective decision-making and international experience should be sourced where appropriate in the context of ever-expanding markets.

The need for transparency and disclosure is a major issue that has gained momentum in recent years. This embraces the need for an understanding of the information provided and an understanding of the need for information on the part of shareholders and others.

However, information must be published in a balanced manner with appropriate comment on the operating and financial results. If there is one certainty it is that corporate governance issues will not go away and are now permanently in the spotlight worldwide.

Corporate governance has become a fashionable term but must not recede into the bowels of mediocrity. The more far-sighted company boards have long recognised that transparency and dealing fairly with all groups including consumers, employees, regulators and others is consistent with building long-term value for shareholders.

Gerry O'Carroll is a partner with Watson Wyatt, which provides consulting services on employee benefits, insurance and human capital management.