Why good corporate governance will benefit your business September 14, 2018

Why good corporate governance will benefit your business

What is Corporate Governance?

Corporate Governance refers to the way in which companies are governed and to what purpose. It identifies who has power and accountability, and who makes decisions.

Corporate governance is about the way in which boards oversee the running of a company by its managers, and how board members are in turn accountable to shareholders and the company. This has implications for company behaviour towards employees, shareholders, customers and banks.

Good corporate governance plays a vital role in underpinning the integrity and efficiency of financial markets. Poor corporate governance weakens a company’s potential and at worst can pave the way for financial difficulties and even fraud. If companies are well governed, they will usually outperform other companies and will be able to attract investors whose support can help to finance further growth.

What are the benefits of corporate governance?

Continue reading to find out what the benefits of corporate governance is to a company.

Encourages good decision making

If a market shifts or a new trend / opportunity emerges in your business sector, having a robust decision making methodology in your firm can help you to change direction efficiently in order to drive the business forward.

Enhances Sustainability

A company committed to good governance is more able to quickly identify and resolve any systemic issues thus reducing the likelihood of costly corporate crises and scandals. Of course, matters may arise which an organisation was unable to anticipate but with a governance system in place that is geared to manage such eventualities, an organisation can respond quickly in order to safeguard its reputation and future.

Fewer Fines, Penalties, Lawsuits

Corporate governance includes instituting policies that require the company to take specific steps to stay compliant with local, national and international rules, regulations and laws. For example, as part of corporate governance, an executive management team or board of directors might conduct a review of the company’s hiring practices if it falls under the guidelines of the Equal Opportunity Employment Commission. You might require that your accounting department undergo an external audit by an independent auditor every quarter or year.

Attracting talented directors

Bringing in talented non-executive directors with complementary skillsets helps to make an overall and comprehensive assessment of the overall sustainability of the organisation, including its level of compliance with relevant legislation. This kind of new talent is vital to the sustainability of the organisation which has to adapt to the ever-evolving conditions of the market. For the candidate to the non-executive post, providing this kind of environment is equally important.

Helps manage risk

You and your team may be focused on executing growth strategies, growing key client accounts and generating new business. This means there is a risk you could miss something. Good corporate governance practices ensure the business stays on top of statutory reporting, annual returns, renewing insurance or licenses, etc. Perhaps having an advisor on your board of management will help you to remain accountable and focus on meeting these obligations.

Lowers the cost of capital

In today’s volatile environment, the implementation of good governance practices may lead to a reduction in a company’s cost of capital. An organisation that is seen to be stable, reliable and able to mitigate potential risks will be able to borrow funds at a lower rate than those with no, or weak governance systems. Companies with debt or equity investors may find that their investors pay a premium for the comfort they obtain in knowing that the company has a sound governance framework.

Want to learn about the elements of corporate governance? Look no further and book on to corporate governance course we offer at London TFE.