Understanding the Benefits of Good Corporate Governance

Good corporate governance is an essential part of every company’s foundation. Practicing good corporate governance reflects good ethics in company management, presenting a reliable and sustainable brand to the larger public. On this page, we cover what good corporate governance is, why it is important and provide examples for companies looking to improve their corporate governance practices.

What Is Corporate Governance and Why Is it Important?

Corporate governance is the system of rules and practices that reflects how a company is managed and controlled. Studies show that good corporate governance increases a company’s performance and makes it more attractive to investors. Good corporate governance is an essential part of businesses today as investors have grown to expect deliverables beyond profits when considering which companies to support financially.

A company’s board is the arbiter of these policies, setting the course for the company to maintain ethical practices and create a sustainable business model. Good corporate governance considers all stakeholders of a company: investors, employees and the public at large. To stakeholders, good corporate governance translates to a stable growth model and sustainable and ethical business practices.

Examples of Good Corporate Governance

Here are five corporate governance examples of good practices paired with explanations as to why they are important for a company.

ESG Report Card

ESG Report Card: Generated from an independent firm, a glowing ESG report card shows stakeholders how the company enforces positive ESG policies and initiatives. It is important for the report card to indicate a positive rating and commentary on a company’s ESG policies and programs, both collectively and individually.

Stakeholder Engagement

Stakeholder Engagement: Outreach and reporting to all important company stakeholders—and the public—regarding business performance and practices makes stakeholders feel listened to and included in company policy. Directors’ and officers’ (D&O) questionnaires may help companies strengthen engagement by meeting stakeholder demands for transparency through the disclosure of potential conflicts of interest, company compensation practices and board composition.

Board Assessment of Corporate Governance Team

Board Assessment of Corporate Governance Team: Annual evaluations and feedback from directors and executives on the level of knowledge and support of the governance team is important and valuable. A routine review of corporate governance tools and policies helps keep them up-to-date and efficient.

Risk Management

Risk Management: Utilizing the latest tools and staying relevant on the latest information to identify, assess and mitigate risks surrounding the company keeps it profitable and resilient for the long term. Compliance questionnaires help manage potential corporate governance risks related to conflicts of interest, codes of conduct, cybersecurity, anti-bribery and related parties.

Technology

Technology: Technology may be leveraged to make all processes more efficient across board operations and communication. Board portal software, such as Nasdaq Boardvantage, helps ensure effective board meeting management, improve document storage, streamline collaboration across leadership teams, enhance corporate governance operations and adds security to workflows that contain sensitive information.

What are the Benefits of Good Corporate Governance?

The benefits of a good corporate governance framework extend to all stakeholders, from employees, suppliers and vendors to customers and communities. Having a clearly defined corporate governance framework encourages a culture of compliance and positive behavior amongst all employees, as well as suppliers and vendors. It also enables boards and management teams to establish a controlled environment that helps them execute strategic plans, effectively allocating resources and capital and leveraging technology to put plans into production.

Furthermore, creating processes that support good corporate governance improves a company’s identity and reputation, building trust between the company and its stakeholders. A good corporate governance framework should also include supporting the communities that the company serves, protecting the environment by embracing sustainable practices and establishing initiatives that uplift and provide opportunities for the people in those communities.