Corporate governance is the enabler of success in organizations. It is about board members following the policies to the T for good and ethical business. The board members should be aware of the significance of corporate governance and know how to measure it. Corporate governance sets the path of board members as well as an organization’s future.
Ignoring corporate governance will have its own repercussions in the long-term. A lot of organizations have failed when they have ignored corporate governance. It also helps directors in understanding the current status of their organization.
Corporate governance in businesses
We can say that since good corporate governance leads to good business, they both are directly correlated to each other. But we can say that even though stakeholders, policymakers & investors have a piqued interest in corporate governance, its implementation varies from business to business, and so does their policy-making process.
Good corporate governance is based on these principles: Consistency, Responsibility, Accountability, Fairness, Transparency, and Effectiveness that is Deployed throughout the organization.
Measuring corporate governance is important & based on the above principles. This will provide board members with a real-time picture of their organization’s status and in which areas should they make changes for better results.
Significance of measuring corporate governance:
- The board members can understand the compliance-related issues and resolve them with the help of their directors, CEO’s and employees. They can revise their compliance-related policies for better governance and better results. For better compliance of policies, apart from rating models, board members need to focus on information quality, the decision-making process of employees, customer satisfaction, training imparted to understand and follow the compliance policies, etc.
- Evaluation of C-suite employees on a regular basis by board members is also important. Apart from their background, the relevance of their experience also plays an important role in such employees handling the business successfully. If the CEO is unaware of the ESG risks or is unable to take pertinent measures to avoid cybersecurity risks, his or her experience in corporate governance may not be as relevant as the board members think. This will affect the business and compliance policies at a later stage resulting in huge financial losses or non-compliance and audit issues.
- Handling ESG risks and including them in the overall risk strategies is inevitable for any organization. Reducing carbon footprint as much as possible is a priority goal that organizations have in their current governance policies. So, if the same isn’t followed, there will be long-term financial implications for that organization, thus affecting the overall business. Thus, ESG mitigating ESG risks are also considered a sign of good governance.
Good corporate governance doesn’t only mean high profits. Good corporate governance includes:
- Mitigating ESG risks & reducing the carbon footprint
- Policy compliance
- Gaining the trust of stakeholders, investors, shareholders & other interested parties
Hence, good corporate governance was, is and will always remain significant for organizations across the globe.