What is corporate governance and why is it important?, is a organization issue that must be resolved for a proper management.
The emergence of this corporate governance term in the U.S.
The corporate governance term in the United States arose from the need to establish a management structure that ensures transparency, accountability and protection of the interests of a company’s stockeholders and other stakeholders.
Throughout the economic history of the United States, there have been several events that have led to the development and evolution of corporate governance.
One of the key moments in the development of the corporate governance term in the U.S. business environment was the Great Depression of the 1930s.
During that period, the stock market collapsed and many companies were involved in fraudulent and unethical financial practices. This led to the enactment of the Securities Act of 1933 and the Securities Exchange Act of 1934 to regulate and supervise the securities market and protect investors from abusive practices.
Subsequently, in the early 1980s, a series of financial scandals that affected major U.S. corporations, leading to increased pressure to promote corporate governance.
As a result of these scandals, a number of initiatives were undertaken to strengthen corporate governance in the United States. Stock exchanges, such as the New York Stock Exchange (NYSE) and NASDAQ, began to require companies to comply with certain governance standards and to disclose more detailed information about their financial and management practices.
In 2002, one of the most important corporate governance events in the United States history was the enactment of the Sarbanes-Oxley Act (SOX), which established new accounting standards, financial transparency and the accountability of corporate directors and officers.
What is corporate governance?
Corporate governance in a company refers to the set of practices, policies and established mechanisms for a correct management and control of a Company.
Compliance experts point out that this term helps to articulate the internal control system that governs and supervises the actions and decisions of a company in terms of procedures and social responsibility.
Its main objective is to ensure an efficient, transparent and ethical way for a correct company operation protecting the shareholders and other stakeholders interests.
Governance strategy
In order to conform the corporate governance it is important to take into consideration a series of elementary aspects, which should be coin under a close and collaborative work between the corresponding areas of the company such as: human resources, administration, auditing and general management.
The strategy to integrate a corporate governance of an organization implies the delimitation of policies, processes and guidelines directed under the following principles:
Responsibility:
Refers to the responsibilities and roles of shareholders, the board of directors, senior management and other relevant members in the decision making and company management.
Transparency:
Encourages an adequate disclosure of information about the company, its operations, financial results so that shareholders and other stakeholders can make informed decisions.
Accountability:
Mechanisms to ensure that managers are held accountable for their actions and decisions to shareholders and, in some cases, to regulators and general society.
Fairness:
Seeks to ensure that shareholders are treated fairly and equitably, avoiding conflicts of interest and detrimental practices to one party to the detriment of another.
Regulatory and ethical compliance:
Establishes adherence to laws, regulations, codes of conduct and ethical principles governing business activity, ensuring respect for human rights, environmental protection and ethical behavior in general.
Risk management:
Refers to the policies and processes for identifying, assessing and managing the risks faced by the company, minimizing the possibility of significant losses and reputational damage.
Board of directors independence:
It is the autonomy of the members of the board of directors with respect to senior management to avoid conflicts of interest and ensure impartial decision making focused on the company’s best interest.
Governance structure
Corporate governance within companies is shaped by a series of key elements, who will have the main responsibility for overseeing that policies and processes adhere to labor rights, which include:
Board of directors:
The board of directors have a crucial role in corporate governance. It is composed of independent directors, executives and, in some cases, shareholder representatives. The board of directors is responsible for overseeing the management of the company, making strategic decisions, and ensuring that shareholders’ interests are met.
Bylaws and regulations:
Each company has bylaws and internal regulations that establish the organizational structure, rights and duties of shareholders and directors, and guidelines for decision-making.
Codes of conduct and ethics:
Companies usually have codes of conduct and ethics that establish the values and principles that govern their behavior. These codes apply to all employees and managers and seek to promote a culture of integrity and accountability.
Corporate governance committees:
In many companies, there are specialized committees, such as the Audit Committee, the Compensation Committee, and the Nominating and Governance Committee, which assist the board of directors in oversight and decision-making.
Information disclosure:
Companies should provide timely, accurate and complete information about their financial, operating and governance performance to shareholders and the public in general.
External audits:
External auditing is a common practice in many companies to ensure the accuracy and reliability of their financial statements. An independent auditor reviews the company’s records and operations to provide an unbiased opinion on its financial health.
Issues
The corporate governance of a company may face several issues that affect its performance, reputation and the trust of its various stakeholders. The main corporate governance issues are mainly 4:
1. Conflicts of interest: when the personal interests of managers or board members take precedence over the interests of the company and its shareholders, there is a risk of making decisions that do not benefit the organization as a whole.
2. Poor accountability: If there is no clear and responsible accountability by the managers and executives, they could make irresponsible or risky decisions without consequences, which can negatively affect the company and its employees.
3. Inefficient board of directors: A board of directors that is not independent or has poorly qualified members may not be able to adequately oversee the company’s operations and ensure that ethical and responsible practices are followed.
4. Lack of whistle-blowing mechanisms: If the company does not have adequate channels for employees, customers and other stakeholders to report improper or illegal practices in a confidential and secure manner, the ethical problems could be difficult to detect and correct.
Trends
Nowadays, one of the main corporate governance trends is the focus on sustainability and social impact that focuses on integrating ESG (environmental, social and governance) criteria into business strategy to ensure that ethical decisions also consider the long-term well-being of society and the environment.
From this stems , a greater focus on diversity and inclusion in which the representation of minority groups and women on their boards and leadership teams increases.
It also highlights the issue of cybersecurity, since as companies become increasingly reliant on technology, corporate governance must also adapt to protect customer data and privacy and ensure ethical information management.
EthicsGlobal and corporate governance
EthicsGlobal helps companies shape their corporate governance processes and policies to strengthen internal leadership and project a strong corporate image that inspires confidence in all.
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