March 19, 2015 Corporate Governance Practices
In an interview recently, Apple’s CEO Tim Cook commented on the ever changing nature of business. Admitting that “there will be things where we say something and two years later we’ll feel totally different” he commented that it is good to have the courage to admit that what was said in the past has now changed.
When you think about these comments, the only really surprising thing is that such an admission is necessary. Given the pace of change it naturally follows that ideas and outlooks and products are going to change over time. But also given the pace of change, sometimes it is necessary for us to step back and review where change has taken us.
Take corporate governance for example. According to the foreword to A Guide to Corporate Governance Practices in the European Union, Europe has “one of the most rapidly changing corporate governance environments in the world.” In response to this the publication, which has been jointly authored by the International Finance Corporation and The European Confederation of Directors Associations, aims to offer an overview of the changes which have taken place across the EU’s corporate governance landscape.
The wide-ranging report examines corporate governance from the point of view of the company, owners, board, management and stakeholders as well as backing up comments with a number of interesting case studies. It would be impossible to do full justice to the report in one short article but we will just pick up one section which covers the benefits of good corporate governance.
Reducing risk, improving operational performance and reputation are all high level benefits of good governance; but the report also highlights areas such as improved access to external financing and a lower cost of capital as following on from strong governance. These then lead on to increased company valuation and improved share performance. It follows therefore that good governance isn’t just something for the directors to ‘do’ or which will help the company to comply with regulation; rather, good governance also impacts on customers and on investors. In fact, as the report highlights, researchers have identified that organisations which are well governed carry a ‘corporate governance premium,’ essentially a higher share price than would otherwise be expected in recognition of the levels of governance.
The world of business is changing all the time and directors have to ensure that their company changes with it. But what doesn’t change is way in which a continuing focus on strong governance can truly make a difference to a business, its investors, its customers and its employees.