What is it?
Corporate Governance refers to the manner in which companies are run. Essentially, we are talking about the boardroom issues for which the directors of a company are responsible on a day to day basis and which the shareholders, as custodians of the business, will want to oversee being dealt with properly.
At a basic level corporate governance is concerned with the board of directors putting in place an appropriate strategy for the business, ensuring the correct procedures and people are in place to implement that strategy, and ensuring that the company keeps a detailed and accurate record of all decisions in relation to that strategy in order to be able to report effectively to the shareholders.
More specifically, corporate governance should concern the broader board room issues at the forefront of the minds of those responsible for running a company. Chief among these will be climate change, energy efficiency, community engagement, health and safety, diversity and inclusion, anti-bribery and anti-money laundering.
Why is it important?
There are two main reasons companies should be concerned with good corporate governance. First is brand recognition. The reason the issues listed above are key boardroom issues is that these are the issues which society deems most important to be tackled. Consumers expect businesses to be sensitive to these issues and to put in place strategies which seek to embrace an environmentally friendly and socially responsible way to do business. Not doing so presents the very real risk of being named and shamed and the business will suffer accordingly.
The second key point is in relation to potential investment. Corporate governance is a key area of concern for any prospective investor and will form a key part of any due diligence process. Investors will look for good governance as a marker of a business which has a strong reputation and good financial prospects. This is one of the key ways in which they can manage their risk when seeking to inject capital into a business. A well-organised business with a clear strategy and appropriate processes in place to deal with key issues will present an attractive opportunity to prospective investors.
How is it managed?
The board of directors is responsible for the day to day management of a company and it will therefore fall to them to put in place appropriate processes for good corporate governance. The shareholders also have an important role to play firstly in putting in place an appropriately skilled and experienced team to sit on the board, and secondly in overseeing the functioning of the board.
Good corporate governance starts with devising a simple strategy for the business and putting the correct people in place to implement that strategy and who will maintain strong and detailed reporting lines with the custodians of the business. There is no magic to this process beyond being disciplined, organised and proactive around a strategy which has been broken down into a series of simple, easy to follow steps.
