6 Key benefits of Good Corporate Governance
Good governance is a critical factor for corporations’ success and sustainability. Adopting and implementing the principles of good governance can offer several advantages, such as increased efficiency in processes, improved visibility of errors and mistakes to quickly correct; better risk management with more accurate analysis on potential risks; enhanced decision making capabilities by having proper due diligence when taking crucial decisions at all levels within the business; assurance that operations adhere closely to accepted regulations thereby mitigating legal or regulatory issues – not only aiding compliance but also minimising reputational losses associated with alleged improprieties or unethical practices.
Additionally, it leads to greater trust among stakeholders while enabling corporate growth strategies aimed at long term prosperity.
- Improve Board-level decision making: Good corporate governance is a key factor in improving top-level decision-making. Effective governance structures enable organisations to access information quickly to make an informed decision. Moreover, good governance supports rapid and accurate prioritising of actions, thereby streamlining the executive decision-making process and its associated performance results. There is a strong correlation between good governance and improved organisational performance.
- Less capital investment: Effective Governance practices are key to reducing an organisations cost of capital. Governance activities such as risk management, compliance and transparency helps to instill confidence in investors as there is an existing governance framework in place. Good corporate governance reduces the need for external oversight and monitoring from shareholders or lenders. This alleviates costs associated with overseeing the business operations, allowing companies to put more resources into growing their businesses.
- Board Clarity: Clarity on the where the role of the board stops and that of the CEO begins is essential for an effective board. Ambiguity and confusion over the roles of the CEO and board directors, particularly in an unpredictable world, will have a negative impact on decision making and board effectiveness. It’s the role of the chair to provide clarity in this area and facilitate the discussion where the boundaries between board and CEO are unclear.
- Improved Strategic Planning: With more rapid access to information and efficient communication with management, the board will be equipped to formulate plans that are in best interest of the organisations stakeholders. This includes effective allocation of resources and capital, as well as understanding of the regulatory environment that governs the business. As a result, stakeholders benefit from being part of an enterprise with strong governance which provides a foundation for both trust and long-term success. Ultimately, good governance allows boards to plan strategically by utilizing data-driven insights.
- Encourage the best talent: By developing an effective governance framework new directors and senior management will be more satisfied to join the organisation knowing that compliance with legal requirements & industry standards have been formally defined. Millennials – now the largest single group on the labour market in many countries – tend to rank an organisation’s commitment to responsible business practices highly in their employment choices.
- Reputational Boost: Transparency in a company’s internal policies, control mechanisms and how it deals with its suppliers, vendors, media, staff and government bodies boosts an organisations reputation and thus its brand value.