For UK companies, there is a direct link between best-practice corporate governance and better performance. Good corporate governance principles have come to have an extended vision of successful results: Today, organisations are expected to take actions that have a beneficial effect on all stakeholders, and that includes employees, stakeholders like suppliers, and the community at large. Studies show that those that assured compliance with the UK Corporate Governance Code showed better corporate results than those that did not. A strong compliance culture correlates equally with improved performance. For example, an organisation that is seen to be stable, reliable and able to mitigate potential risks will be able to borrow funds at a lower rate than those with weak corporate governance. We look at the ways in which best-practice corporate governance offers multiple benefits to UK companies.
For UK companies, corporate governance is a success factor
The importance of corporate governance is stronger as ever. What factors make UK companies successful? A recent study by the London Business School lists good corporate governance as one of the major factors contributing to improved corporate results and growth.
As the report observes, boards of directors that assured compliance with the UK Corporate Governance Code showed better corporate results than those that did not. Even if these boards of directors chose to “explain” rather than comply, their organisations performed better. Implementing certain measures, like separating the CEO position from that of the chairman of the board role, appointing a sufficient number of non-executive directors, and reinforcing internal controls with particular reference to cybersecurity, all led to faster growth.
Want to find about 2019 corporate governance priorities & challenges for your board? Read more.
Compliance culture supports corporate governance and success
The report found that a strong compliance culture definitely correlates with improved results as well.
“At the companies surveyed in the report, there was coherence between their assumptions, values and artifacts. All the companies described their cultures in terms of their companies’ values, which were embedded into their organisational fabrics. One of our sample companies, whose basic assumption was to be responsive to customer needs, and valued being passionate about the customer, moved its entire headquarters to be right next to them. Our sample companies also took deliberate effort to shape their values and cultures, drawn up by senior management, particularly the CEO. The newly appointed CEO of one sample company had reviewed the company’s values as one of his first tasks at the helm. Another company told us that they reviewed their values annually and the exercise involved all employees.”
Benefits of good corporate governance and examples
With the support of a solid compliance culture, boards of directors can benefit in a multitude of ways from best-practice corporate governance. Below are some good corporate governance practices and examples.
- Encouraging positive behaviour. “Having clearly delineated policies and processes and a board of directors and executive managers who maintain the compliance culture directly supports improved results,” writes chartered secretary Monique Legair. It is imperative that all board members themselves participate in that culture, ensure clear lines of communication with management and the rest of the organisation, and are immediately responsive to any evidence that part of the organisation is not participating.
- Reducing the cost of capital. In today’s volatile environment, the implementation of good governance practices can lead to a reduction in a company’s cost of capital. An organisation that is seen to be stable, reliable and able to mitigate potential risks will be able to borrow funds at a lower rate than those with weak corporate governance. Companies with debt or equity investors may find that their investors pay a premium to work with a company that has a sound governance framework.
- Improving top-level decision-making. There is a strong and demonstrable link between an organisation’s governance and rapid decision-making associated with improved performance, explains the Corporate Governance Institute in a recent report. Moreover, a number of performance failures have been directly linked to poor governance. There is no doubt that good governance assures rapid access to information and the good communication among stakeholders that leads to better results. Good governance also enables rapid and accurate prioritising of actions. This can prove invaluable in enabling the organisation to weather tough economic storms and supports the organisation’s sustainability.
- Assuring internal controls. By implementing corporate governance correctly across the organisation, the board may be certain that an adequate and effective control environment is in effect, with the level of assurance associated with each important component of governance. What’s more, the board or the board committee is better positioned to take action when the controls signal non-compliance.
- Enabling better strategic planning. With more rapid access to information and good communication with management, boards are able to formulate more successful strategies. This includes more efficient allocation of resources and capital. The strong governance framework will further assist the board in some of the following ways – understanding the regulatory environment governing the business; leveraging technology from a production, distribution and communications point of view; and identifying and managing the reasonable interests of all stakeholders in the business. All these components are essential elements of a robust strategic plan.
- Attracting talented directors. Bringing in talented non-executive directors with complementary skillsets helps to make an overall and comprehensive assessment of the overall sustainability of the organisation, including its level of compliance with relevant legislation. This kind of new talent is vital to the sustainability of the organisation which has to adapt to the ever-evolving conditions of the market. For the candidate to the non-executive post, providing this kind of environment is equally important.
Diligent Governance Cloud provides the complete solution
The Governance Cloud, the only integrated board management software that enables organisations to achieve best-in-class governance. The board software digitises the various activities and tasks for the board of directors. As organisations grow more complex and regulations more stringent, the scope of governance responsibilities evolves. The Governance Cloud allows boards of directors to meet the demands in the boardroom and beyond with the ability to select the products they need that help them perform at their best and work within their allotted budgets.
It’s clear that maintaining a high level of corporate governance is demanding and requires regular reviews of changing regulations and standards. Governance Cloud is Diligent’s ecosystem of cloud-based governance tools that provides a complete solution to enable leading bodies of organisations to mitigate risk and govern collectively at the highest level.
Seasoned in the governance space, Diligent has been in the leading position in the market for more than 15 years, offering the industry’s leading, most secure and most intuitive board management technology. Our deep customer insights and heavy investment in R&D have allowed us to expand our offering to support the full governance journey. Whether you choose to start with only Diligent Boards™ or multiple, integrated tools, we are the only partner in the market you can grow with as your governance needs evolve.
Board directors are obligated to perform a host of varied duties and responsibilities. Diligent developed a suite of governance tools to help them fulfil their responsibilities accurately and efficiently. The Governance Cloud ecosystem of products includes:
- Diligent Boards
- Conflict of Interest forms (pre-filled forms)
- Board Assessment Tools
- Resolutions and voting
- Diligent Messenger
- Diligent Minutes
- Insights (curated content and videos)
- Entity Management
Governance leaders, executives and board directors rely on the industry-leading Diligent platform for the most secure and intuitive solution to board material management and collaboration. Diligent Boards™ electronically stores a board’s agendas, documents, annotations and discussions within a secure board portal.
Company secretaries and board members can use the board portal to put together board meeting documents in minutes. The board portal also has designated virtual rooms for committee work. Administrators of the board portal can designate permissions for users to access various areas of the portal to avoid unnecessary problems with confidentiality. The “Manage Meetings” feature consolidates board directors’ contacts, calendars and the logistics of meetings. The program is a secure and intuitive solution for managing board collaboration.
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