Corporate Governance Enhances Long-Term Interests of Shareholders

In my previous post on Corporate Governance (Part II), I discussed the need for corporations to adopt corporate governance in order to ensure the long term viability and success of that corporation. However, what many people do not understand is that corporate governance is much more than just figuring out what the corporate governance is or what the corporate governance should look like. The purpose of this article is to explain what each of these are, so that people can appreciate what they mean.

First off, what exactly is corporate governance? Corporate governance is an assessment of corporate practices based on standards and values that promote long-term sustainable development of the organization. These practices are incorporated into corporate policy. Examples include corporate governance in the United States, which is focused on ensuring that publicly traded corporations take responsibility for their own environmental practices and that they provide reliable information about their environmental impacts. Other examples include sustainable building practices in the UK and the Basel Convention.

The second component of corporate governance is risk management. In this regard, companies develop and implement best practices that deal with managing both the short-term and long-term aspects of their operations. Best practices may include eliminating non-value added transactions, focusing on low carbon investments and diversifying portfolios to mitigate the exposure to credit risk. The goal is to ensure that the risks associated with corporate investments do not weigh down the value of the company’s equity or the value of its ownership stock.

The third component of corporate governance is executive compensation. Executive compensation reflects the value of the owners’ equity as well as the value of the company’s assets and retained earnings. While the concept of equity and retained earnings are relatively self-explanatory, the concept of value is somewhat more complicated. In order to value stock, companies must provide enough information to shareholders about the nature of the assets and retained earnings of the company in order to determine a fair price for the securities. While many shareholders are comfortable with the idea of companies receiving compensation based solely on the value of their ownership in a company, others are less comfortable with such practices.

To address some of these concerns, companies have developed additional components of corporate governance that directly impact the way that the board and management to make recommendations. Initial requirements for company officers and senior managers under the New York Stock Exchange requirements are set forth in the code. For example, shareholders must be given a record of such information as well as details regarding the deliberations of the board and the manner in which it had reached conclusions.

One of the concerns that have been raised regarding the implementation of best practices regarding corporate governance and sustainability is the absence of a monitoring and feedback mechanism for the major decision makers. This lack of a board or senior management committee has been blamed for not providing adequate supervision to the management and ultimately resulting in poor decisions and actions. However, by bringing together a CEO and other key members of a company’s management, you can ensure that good corporate governance is put into place. The CFO and other members of a company’s board should be included on your company’s board of directors. By putting these key individuals in place, you will be able to have a more cohesive and unified approach to corporate governance.

Another way to improve the way your company manages its finances is through the use of an effective corporate governance strategy. This includes the implementation of policies that create and maintain an environment that allows you to maximize the value of your equity holders. You want to ensure that you do not take risks that would negatively impact your capital structure and your liquidity position. Additionally, there are numerous strategies that can be implemented to ensure that your lenders are made whole following a default. These policies should be considered alongside other practices such as credit card consolidation and the use of bridge loans for businesses that are in stable financial environments.

Last but not least, corporate governance helps to ensure that the interests of your stakeholders are protected. In doing so, you are able to prevent your company from becoming vulnerable to the whims of short-term investors. By putting safeguards in place, you can limit the risk that these investors take when making investments in your company. In the end, this can mean that your investors have more invested capital available to them and can continue to provide funding while your business rebounds. As a result, you are able to retain the loyalty of your core workforce and you can easily weather any economic or market fluctuations that may occur over the course of the long-term.