Moores Rowland is proud to be among the leaders of the world in providing assistance to corporates to build corporate governance structures and elevate its compliance with international principles and standards to protect stakeholders’ rights. Our services are provided through raising awareness and training executives and modifying structures and bylaws to comply with best practices of corporate governance.
Importance of corporate governance:
Corporate governance structure determines the rights, responsibilities, and privileges extended to each of the corporate parties, and to what extent is it fulfilled.
The foundation of any corporate governance system is determined by several factors, all of which help to form the final form of governing a company. Within any corporation, the structure of corporate governance begins with applied laws that design the framework which impacts the operations of any company within the jurisdiction of a country.
Most of corporate governance principle foundation is found in the bylaws documents prepared and approved before incorporation can take place. These documents help to form the basis for the final expression of the balance of power between shareholders, stakeholders, management, and the board of directors. The bylaws, articles of incorporation, and the company’s charter (registered bylaws) include details that determine the framework and the level of authority in the decision making process of the company.
“OECD Definition” “The relationship between the company’s management Its Board, its shareholders and its stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, the means of attaining those objectives and monitoring performance are determined.”
A company that is well-governed is one that is accountable & transparent to its shareholders and other stakeholders.
The presence of strong governance standards provides better access to capital and aids economic growth. Corporate governance also has broader social and institutional dimensions. Properly designed rules of governance should focus on implementing the values of fairness, transparency, accountability, and responsibility to both shareholders and stakeholders.
Benefits of Corporate Governance:
A) The Benefits to Companies
Compliance with the CG principles can benefit the owners and managers of companies and increase transparency and disclosure by:
- Improving access to capital and financial markets;
- Help to survive in an increasingly competitive environment through mergers, acquisitions, partnerships, and risk reduction through asset diversification;
- Provide an exit policy and ensure a smooth inter-generational transfer of wealth and divestment of family assets, as well as reducing the chance for conflicts of interest to arise.
- Also, adopting good CG practices leads to a better system of internal control, thus leading to greater accountability and better profit margins.
- Good CG practices can pave the way for possible future growth, diversification, or a sale, including the ability to attract equity investors – nationally and from abroad – as well as reduce the cost of loans/credit for corporations.
- Many businesses seeking new funds often find themselves obliged to undertake serious corporate governance reforms at a high cost and upon the demand of outsiders, often in a time of crisis. When the foundations are already in place investors and potential partners will have more confidence in investing in or expanding the company’s operations.
B) The Benefits to Shareholders
- Good CG can provide the proper incentives for the board and management to pursue objectives that are in the interest of the company and shareholders, as well as facilitate effective monitoring.
- Better CG can also provide Shareholders with greater security on their investment.
- Better CG also ensures that shareholders are sufficiently informed on decisions concerning fundamental issues like amendments of statutes or articles of incorporation, sale of assets, etc.
C) The Benefits to the National Economy
- Empirical evidence and research conducted during recent years, supports the proposition that it pays to have good CG. It was found out that more than 84% of the global institutional investors are willing to pay a premium for the shares of a well-governed company over one considered poorly governed but with a comparable financial record.
- The adoption of CG principles - as good CG practice has already shown in other markets - can also play a role in increasing the corporate value of companies.
Rules versus principles:
Rules are typically thought to be simpler to follow than principles, demarcating a clear line between acceptable and unacceptable behavior. Rules also reduce discretion on the part of individual managers or auditors.
In practice rules can be more complex than principles. They may be ill-equipped to deal with new types of transactions not covered by the code. Moreover, even if clear rules are followed, one can still find a way to circumvent their underlying purpose - this is harder to achieve if one is bound by a broader principle.
Principles on the other hand are a form of self-regulation. It allows the sector to determine what standards are acceptable or unacceptable. It also pre-empts overzealous legislations that might not be practical.
Key elements of good corporate governance principles include honesty, trust and integrity, openness, performance orientation, responsibility and accountability, mutual respect, and commitment to the organization.
Of importance is how directors and management develop a model of governance that aligns the values of the corporate participants and then evaluate this model periodically for its effectiveness. In particular, senior executives should conduct themselves honestly and ethically, especially concerning actual or apparent conflicts of interest, and disclosure in financial reports.
- Ensuring the Basic for an Effective Corporate Governance Framework.
- The Rights of Shareholders and Key Ownership Functions.
- The Equitable Treatment of Shareholders
- The Role of Stakeholders in Corporate Governance.
- Disclosure and Transparency.
- The Responsibilities of the Board.
Commonly accepted principles of corporate governance include:
- Rights and equitable treatment of shareholders
- Interests of other stakeholders
- Role and responsibilities of the board
- Integrity and ethical behavior
- Disclosure and transparency
Issues involving corporate governance principles include:
- internal controls and internal auditors
- the independence of the entity's external auditors and the quality of their audits
- oversight and management of risk
- oversight of the preparation of the entity's financial statements
- review of the compensation arrangements for the chief executive officer and other senior executives
- the resources made available to directors in carrying out their duties
- the way in which individuals are nominated for positions on the board dividend policy