What is Corporate Governance?
Corporate governance is the system of rules, regulations, and practices that governs a corporation. Corporate governance can be divided into two broad categories: financial governance and business governance. Financial governance refers to the rules that govern how a company manages its finances, while business governance covers rules on how a company operates its business.
The three main goals of corporate governance are to increase the company’s long-term profitability, maximize shareholder value, and minimize the risk of a company’s failure.
The basic principles of corporate governance include transparency, accountability, and responsibility.
13 Reasons Why LOGIC Corporate Governance Constitution Is a Success.
Corporate governance is an important aspect of the decision-making process for an organization. It provides a framework for the company to work within and ensures that all stakeholders of the company have a say in its direction, here are the 13 reasons why corporate governance is important:
Assessments Require Benchmarks
A lot of companies don’t always gauge their progress on the different fronts of business and this can lead to gaps that are hard to fill until assessments are made periodically in a company-wide manner. This will expose any obstacles or weaknesses that need remedying.
Sustainability Needs Governance
The objective behind sustainability is to maintain the longevity of a business for generations and for functions. This should be achieved by accomplishing optimum levels of success with the company’s values. Keeping shareholders’ interests, in the presence and absence of its leaders, is of great importance. For this to be attained and sustained, all Corporate Governance fundamentals need to be preserved.
Institutionalization: You’re Not a Start-Up Anymore
More and more companies are starting to outgrow their startups and this is creating a need for established corporate rules. As these companies grow, the need for a standardized set of institutions arises. The importance of professional managers, well-established departments, and solid systems are crucial to consider at this stage.
Upon Full Exit: Make It Shine
Companies that are well-governed in all the various aspects of Corporate Governance have a higher chance of increasing their equity value in the sellout process. This is particularly due to the fact that the buyer is more reassured when buying a company that scores well on all institutionalized measures.
Going Public Needs a Foundation
Companies with the ambition to go public (perform an Initial Public Offering – IPO) need to have a solid Corporate Governance foundation and be prepared for a different stage of transparency and relative loss of control to ensure getting the highest returns on their equity.
Separating Ownership & Management: 2 Jobs, Not 1
What really matters is having the company ready to move forward successfully in case the owner decides to step down from the management seat. This decision requires a stable company with efficient systems, controls, authorities, and, most importantly, effective talent management and control.
Establishing a Board to Keep You Focused
Businesses should establish boards that well represent the company, are qualified to make decisions, and reflect the aspirations and vision of the owners. The representatives of independent directors need to be considered seriously as it may lead to biased decisions and conflict.
Identify Authorities to Avoid Conflict
The authorities in the company need to be clearly identified, listed, and reflected in the internal policies. Avoiding overlaps and having clarity about authorities provide focus on employees’ performance, as well as a fair basis for evaluation and controls.
Absence of Risk Management and Mitigation Is Risky
A detailed risk register covering the various aspects of the business and prioritizing the different areas while developing mitigation plans should become part of the company’s DNA.
Talent and Executive Management Need Protocols
Companies should fill their executives’ structure with the right talent and have good successors at least for the key jobs. Talents need to be attracted and retained but also developed to ensure that employees remain productive.
Succession Plans Are Essential
Succession is an essential aspect of most businesses and being a CEO requires a strong succession plan. This is reliant on two arms: the accessibility of talent on one hand and the maturity of the HR function and succession systems on the other hand.
Conflicts of Interest Between Family Members Need to Be Managed
When the number of family members involved in the business increases – especially when reaching the 3rd generation, many conflicts arise. To handle this very sensitive topic, foundational work needs to take place on the corporate side as well as the family side.
The Executive Committee Is the Key
The Executive Committee is the place where the board-approved strategy becomes implemented and executed. The ex-com needs to operate using more profound tools and techniques that allow the highest efficiency and effectiveness in executing and cascading the strategy, positively affecting the culture, mitigating risks, and ensuring the business follows a clear approach in setting the objectives and KPIs down to the individual levels.
How Corporate Governance can Help Protect Your Company from Lawsuits and Financial Pressure?
The board of directors has to make sure that the company’s management is accountable and transparent. They also have to make sure that there are no conflicts of interest or fraud happening in the company. They need to make sure that the company is following all laws, regulations, and ethical standards.