Corporate governance is the practice of corporate regulations. It ensures every corporate citizen works in the best interest of all stakeholders besides making money. But, does corporations always adhere to governance regulations? According to a New York based research data firm, only a third of the directors of Chinese companies are independent.
Usually, companies that want to comply with strict corporate governance principles develop a very strong board of directors. Each member within the board of directors is selected based on their background, strong ethics, integrity, skills set, etc.
These members have their defined roles and responsibilities. But, they are never given a right to participate in voting matters in which they’ve an interest. So yes, corporate governance will need strict adherence to rules, policies and practices.
As for examples, we’ve companies that implemented corporate governance effectively and did very well. Nexen Inc. is one of them.
Nexen Inc. Corporate Governance Success
Year 2014 had many corporate success stories that clearly prove the importance of corporate governance. Take the example of Nexen Inc. Nexen Inc. was a global oil and gas exploration company before it was purchased by CNOOC. The company was listed both in Toronto and New York Exchanges. In 2004 the company changed the regulatory mandates entirely to help the auditors and the board to have a better view of business activities and responsibilities.
They prepared road maps and calendars that included a complete checklist to provide to the board of directors throughout the year. It took intensive consultation and participations from all corporate divisions. The road maps and other documents were prepared in a way so that the company executive management and directors could get a clear idea of the appropriate agenda. Besides the board of directors and the management, the internal and external audit teams could also follow the workflow and keep an eye on the work updates.
The whole process proved to be very successful as it helped the company’s board to focus on essential business activities and other responsibilities it was supposed to carry out.
Ensuring Corporate Governance: What Works Best?
A recent study has revealed that the culture inside a company has a more influencing effect on the company’s success than its CEO. Corporate culture is definitely one important factor that can effectively protect the right of the employees and also the shareholders. Therefore, it works in favor of corporate governance principles.
A professor of leadership development at Harvard Business School, Rakesh Khurana, said “large-scale statistical studies have failed to find any direct causal link between CEOs and firm performance.” He added “a corporation’s internal culture exerts a far greater longer-term influence on the company’s success.”
Second important aspect is financial reporting. When you build a company and work with investors, you’ll have to provide them reliable and transparent financial reporting. Despite maintaining a good corporate culture, if you can’t provide a transparent and clear picture of your financial to the shareholders, they won’t invest in your stock.
So you see, corporate governance is important if you want to improve your company’s market reputation and thus popularity of the market share. Principles of corporate governance ensures corporate governance best practices.