The Importance of Good Corporate Governance Practices

Corporate governance reflects the systems of rules, practices, and processes by which companies are defined, directed, and controlled. It identifies who has power and accountability, and who makes decisions. The rules and practices enable management and the board to better and more effectively deal with the challenges of running a company, including complying with regulatory, legal, and risk requirements.

Helps Align All Stakeholders’ Interests

Corporate governance ensures that businesses have implemented decision-making processes and controls so that the interests of all stakeholders (shareholders, boards of directors, employees, suppliers, creditors, clients, and the community) are treated equitably and in alignment. 

A company with strong corporate governance practices ensures its board has the skills, competency, and understanding to review management’s performance and oversee and advise its executives and management. These practices signal to the market that the company is well managed and enables the organization to build a solid reputation of trust, resiliency and sustainability, and value. You want a board that can provide leadership and vision. 

Illustrates Commitment to Ethical Behavior

Good corporate governance ensures a company’s integrity and ethical behavior. It also ensures transparency and full disclosure to stakeholders of the company’s financial standing and other issues such as its social responsibility and sustainability practices. In this tight and competitive labor market, top talent, particularly among Millennials and Generation Z’ers, look very closely at a company’s corporate practices prior to accepting a position. If the company’s practices are not aligned with an individual’s values and beliefs, more often than not, he or she will turn down the job offer. 

In addition, increasingly more stakeholders, including customers, are looking closely at the practices of corporations regarding social issues and their environmental practices, such as whether a company is taking steps to achieve a lower carbon footprint. These practices impact many consumers’ decisions as to whether to purchase a brand’s products, stay at its hotel, and so on.

Attracts Investors

Good corporate governance also facilitates the ability to get additional investment and funding. Individual investors, private equity firms, and venture capitalists are more confident about investing in a business with strong corporate governance practices. The investor is assured that he or she will receive a good return on investment. Increased investments foster business expansion and the creation of more job opportunities.

In a challenging global landscape with supply chain disruptions, emerging cyber exposures, and increased financial and legal risks, a company with solid corporate governance shows its commitment to risk identification, evaluation, and management to mitigate and prevent risks that could upend its operation.