What is Corporate Governance and what are its benefits for the organization?
According to the OECD (Organization for Economic Cooperation and Development), Corporate Governance is the mechanism that shareholders can implement to guide and control both the Board and the Business Management, ensuring fairness, efficiency, and transparency of decisions and their results.
On the other hand, the Code of Best Practices for Corporate Governance defines Corporate Governance as the system by which companies are directed and controlled. This definition involves the set of principles and mechanisms that design and integrate the Management and Administration bodies of the company.
In general, Corporate Governance is for those organizations that want to improve transparency, professionalize administrative practices, and strengthen shareholders' rights, which in the end is essential to achieve growth and competitiveness in the long term.
How?
By issuing directives, policies, and procedures through figures and bodies specifically created for that purpose. These directives must be followed by the entire organization, in order to achieve not only results, but also transparency, reasonableness, and fairness.
What are the benefits?
According to a study conducted by Renato Grandmont, Deutsche Bank Investment Bank strategist for Latin America, investors reward companies that have good Corporate Governance, in addition that they are less dependent on financing through debt.
With good Corporate Governance, investors are willing to pay more for the actions of the organization, and consequently, having a better reputation, employees and hired managers are more competent.
Thus, Corporate Governance can be visualized as a means to encourage investment in companies, since by maintaining an adequate design in their administration and management, they give confidence signals to investors with regard to the protection of their rights, which favors the reduction of the cost of capital and greater and better access to sources of financing and long-term investment.
Among the diverse benefits of good practices in Corporate Governance for companies are:
In May, 1999, the OECD issued the “Principles of Corporate Governance”, an international reference for Corporate Governance. These cover its six key areas:
Good Corporate Governance requires that the board focus on long-term issues, such as: the corporate strategy to be followed and the management activities of the company, rather than taking on day-to-day operational responsibilities. Therefore, the principles established by the OECD specify responsibilities for the Board of Directors, such as:
In Mexico, Corporate Governance development has been linked to the evolution of the stock market due to the need to establish clear rules of administrative and ethical responsibility, as well as to disclose and make transparent the information of public companies.
In June, 1999, the Business Coordinating Council (CCE in Spanish) announced the Code of Best Corporate Practices (CMPC), and in April, 2010, issued the second revised version. This code is not mandatory, but proposes behaviors and parameters for the functions of administrative bodies.
The Code seeks to establish trust mechanisms to attract investment, increase the competitiveness of companies, seek greater transparency in the disclosure of information and establish controls that avoid mishandling of information.
On the other hand, the new Mexican Securities Market Law, effective as of 2006, incorporates most of the practices and principles of good corporate governance as recommendations in the CMPC to make them applicable to securities issuers in the Stock Exchange.
For medium and small companies it is advisable to improve their corporate governments since this will allow them to reach higher levels of competitiveness and become more attractive for public or private investors.
Implementing best practices and Corporate Governance not only applies to very large companies or to those listed on the stock exchange, and it does not require a heavy investment of resources. In fact, it can be carried out by making the most of the resources the company already has, and certainly, the invested resources will be less than the benefits obtained later.
Our approach to this service is to support you to carry out this great challenge in terms of compliance with your organizational and economic possibilities, achieving a balance between the objectives of the shareholders and the realities of the administration.
