In a dynamic and competitive corporate environment, corporate governance has earned its place as an essential business tool that encourage opportunities for growth and investment.
Corporate governance has been quoted by the Financial Times as “crucial to the achievement of a new frontier of competitive advantage and profitability.”
With such a large focus on corporate governance as integral component of good management for any sized company why is it SO important?
Why is Corporate Governance SO Important?
It’s been seen that that corporate governance has now become a “topic of increasing interest to policymakers, investors and other stakeholders,” but the way people plan and execute governance isn’t always consistent with industry benchmarks.
Corporate governance strategies will be different for each company, but overall, the business practices they comprise are generally consistent and fit to a set of standards.
Governance encompasses the system by which an organisation is controlled and operates, and the mechanisms by which it, and its people, are held to account. Ethics, risk management, compliance and administration are all elements of governance.
Corporate governance advisory firms like ASCENTIUM look at corporate governance as a performance issue, because it provides a framework for how the company which defines a system of rules, standards, and also processes by which their company is directed and controlled.
An example of what Corporate Governance should encompass is:
· The company’s performance and the performance of the board
· The relationship between the board and executive management
· The appointment and assessment of the board’s directors
· Board membership and responsibilities
· The “ethical tone” of the company, and how the company conducts itself
· Risk management, corporate compliance and internal controls
· Communication between the board and the C-suite
· Communication with the shareholders
· Financial reporting
Corporate Governance - Roles and Responsibilities
Key to corporate governance are transparency and trust.
Businesses in all industry segments today are held to incredibly high standards by investors, partners and their customers. Research from Nielsen suggests that 66 percent of global consumers would be willing to pay more for products from a company that demonstrates corporate governance and good social behaviours/standards.
Having management roles who are honest and open about process and operations will weight in as a positive aspect. Business stakeholders, shareholders and consumers want to see companies operating with integrity and values – doing the right thing.
Corporate Governance - Social Responsibility
“Building and maintaining trust through a shared commitment to ethical behaviour and to act with integrity in everything we do.” Was statement made by Microsoft as a way of emphasising their social responsibility and their corporate governance thus easing the stress on stakeholders, shareholders and consumers?
Incorporating a promise such as this can make a positive impact on an organisation’s reputation and success in the public domain.
PR Week magazine mentions, “Corporate Governance affects and dictates the internal functioning and morale of a company, and it also projects externally to the public.”
Corporate Governance – Company Culture
Business priorities aside, another explanation for different corporate governance strategies comes down to different company cultures. A company’s unique culture permeates everything from vision to values, organisational structure, work environment and hiring practices, so it stands to reason that it should also affect corporate governance.
According to EY, “Corporate culture is emerging as an important consideration for boards and audit committees, touching as it does every aspect of a company, from strategy to compliance.”
Corporate governance has value beyond demonstrating a company’s social responsibility efforts and overall principles. It can also shape a company’s culture, which, in turn, shapes the way an organisation’s leaders lead, the way its workers work and how customers perceive the businesses with which they choose to engage.
Corporate Governance – Security
Policies and corporate guidelines are essential when it comes to Cybersecurity or security in general. Given that good corporate governance is linked to transparency, accountability and trust, the issue of security warrants special attention.
Communication may be just one facet of corporate governance, but the fact that it includes the internal and external exchange of invaluable data and information makes prioritizing cybersecurity a key part of company policy.
Good corporate governance is a competitive advantage. Without it, a company cannot reach its potential, and that makes corporate governance indispensable.
Need help to understand how Corporate Governance are associated with your type of business?
Book one of our complementary risk assessment meetings by contacting us on info@ascentium.com.au
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