Corporate governance: Why it needs a good corporate culture

Jul 07, 2015Nii Ashalley

The road map to corporate governance behooves every corporate citizen to adhere to sound corporate protocol in order to be successful.

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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 do 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, businesses that want to comply with strict corporate governance principles develop a very strong board of directors. Companies that want to adhere to stringent corporate governance principles select each member of the board of directors based on their background, strong ethics, integrity, skill set, etc.

These members have their defined roles and responsibilities. But, they may never take part in voting matters in which they may have interest. So yes, corporate governance will need strict adherence to rules, policies, and practices.

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

The year 2014 had many corporate success stories that clearly prove the importance of corporate governance. Take the example of Nexen Inc. It was a global oil and gas exploration company before CNOOC purchased it. The company listed itself on both the 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.

A good business culture ensures that the principles of corporate governance achieve business success.

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 participation from all corporate divisions. The team designed the road maps and other documents to ensure that the company executive management and directors had a clear idea of the agenda. Besides the board of directors and the management, the internal and external audit teams could also follow the workflow and monitor the work updates.

The entire process proved very successful as it helped the company’s board to focus on essential business activities and other responsibilities it was supposed to carry out.

What works best to ensure corporate governance

The principles of corporate governance ensure business success. A recent study has revealed that the culture within 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 found no 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.”

A 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 picture of your finances 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 the popularity of the market share. Following corporate governance principles ensures the adoption of effective corporate governance methods and practices.

Nii Ashalley

Nii Ashalley is the inspirational voice at The Business Frontal. His uplifting quotes, dubbed "Ashalleyistics", have encouraged many entrepreneurs, start-ups and leaders to achieve their maximum potential. He is a seasoned counselor, a life and business coach and an author of many call to action business articles.