“The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company.”
Nirvana – when you have a Board and an Organisational Culture and Strategy that are perfectly aligned and walking in-tune with one another. But in an economy where bureaucratic layers are simply there to fill, not feed, the positives of good Corporate Governance practice very quickly become just another thing to tick off the list. It shouldn’t be. And if it is, in your business, then you’re in trouble. We look at why Corporate Governance is more important than you may be giving it credit for.
Governance is now an established criterion for investment
In a survey conducted by McKinsey and Company, an overwhelming number of investors surveyed indicated that they were willing to pay a premium for a well-governed company. In fact, in that same survey, the majority of respondents advised that they would avoid investing in organisations that did not demonstrate a solid corporate governance structure as part of their organisational strategy and growth plan. Many respondents took that a step further by adding that the role of good governance within an organisation held as much merit as organisational financials did when reviewing investment opportunities.
Keeping compliant and reducing the chance of fines, penalties & lawsuits
When you set up a good Corporate Governance initiative, that usually also means implementing policies within your organisation that requires your business to take very specific acts to remain compliant with government and financial regulations. For example, as part of Corporate Governance, you may be required to review your accounting function’s activity by undergoing an external audit by an independent auditor every year. When executed effectively, Corporate Governance can prevent corporate scandals and fraud. And in fact, the Business Dictionary spells out the importance of strong Corporate Governance as follows: “It dictates the shared philosophy, practices and culture of an organisation and its employees. A corporation without a system of corporate governance is often regarded as a body without a soul or conscience. Corporate governance keeps a company honest and out of trouble. If this shared philosophy breaks down, then corners will be cut, products will be defective and management will grow complacent and corrupt. The end result is a fall that will occur when gravity – in the form of audited financial reports, criminal investigations and federal probes – finally catches up, bankrupting the company overnight. Dishonest and unethical dealings can cause shareholders to flee out of fear, distrust and disgust.”
Corporate Governance increases Trust
When the spotlight is on you as an organisation, and people are taking note of what you do, and how you behave, you will more than likely be cognisant of the role you play as a business, and therefore will, more than likely, prefer to work in a more transparent way by communicating clearly and providing accurate information to your stakeholders, regularly. When all stakeholders feel able to rely on what you tell them, that’s when you build trust and longer-lasting relationships. We don’t need to spell out the benefits of trusted, long-term relationships – because, as a growing organisation, you’re probably already dreaming of favourable credit terms and repeat business.
A reputation that exceeds aesthetics
This is the tricky part. We realise that there are many organisations who believe in the power of tick-boxes – simply to be able to look good. And we realise that there are organisations that have all their tick-boxes ticked, but the core of what they do, and how they do it, is sometimes not quite as clear-cut. Solid Corporate Governance – and we mean Governance that is tested, trusted and focused on growth, removes the “this will make us look good” and replaces it with “this is why we are good” mentality. Simply put – if you publicise your Corporate Governance policy and the detail on how it works, more stakeholders will want to do work with you. This may be in the form of lenders who see you have strong fiscal policies and internal controls, or this may be in the form of partners that you intend to work alongside in the long-run. Transparency breeds trust and Corporate Governance is the enabler.
You may be reading this and already have a structure in place which may not be performing as you’d wished, or you may be reading this and realise that you need to implement a Corporate Governance policy within your business. Whatever your struggle – you’re at the right place.
Speak to us today about how we can help you streamline your Corporate Governance policy and build your business for the long-term.