26th Feb , 2016
Corporate governance applies to all businesses from the huge multinationals to the modest SME, and yet many organisations neglect this fundamental aspect of running a successful business.
Corporate governance refers to the set of systems, principles and processes by which a company is governed. They provide the guidelines as to how the company can be directed or controlled such that it can fulfill its goals and objectives in a manner that adds to the value of the company and is also beneficial for all stakeholders in the long term. Stakeholders in this case would include everyone ranging from the board of directors, management, shareholders to customers, employees and society. The management of the company hence assumes the role of a trustee for all the others.
Corporate governance is based on principles such as:
Why is it important?
Fundamentally, there is a level of confidence that is associated with a company that is known to have good corporate governance.
The presence of an active group of independent directors on the board contributes a great deal towards ensuring confidence in the business.
Corporate governance is known to be one of the criteria that investors and banks increasingly depending on when deciding on which companies to invest in or lend to. It is also known to have a positive influence on the share price or value of companies.
Having a good image on the corporate governance front can potentially increase the amount of capital available and reduce the cost of capital due to the reduction in risk as the corporate governance takes effect.
Unfortunately, corporate governance often becomes the centre of discussion only after the exposure to a particular risk or bad financial performance.
Good governance covers numerous aspects that are crucial to the smooth running of a business such as:
We are often approached by businesses asking for guidance from an experienced business mentor in developing or reviewing their corporate governance. Whilst businesses differ enormously in size, structure, industry and vision, they all share the need for solid corporate governance and identifying areas of priority for improvement.
Many business owners may be focused on business growth and performance and may overlook potential weaknesses in good corporate governance.
Talking through with your International Business Mentor to help you establish and maintain good corporate governance is essential for organisations that want to continue as good corporate citizens and to perform and reduce risk in the business.