Since its emergence a few years ago, discussions around the topic have kept rising. In English, the abbreviation stands for Environment, Social, and Governance. Environment and Social aspects have found a firm place on many corporate agendas, but Governance often remains a challenge for some. In 2020, 125 listed companies showed that the average adherence to the good governance code was 83.7 percent, two points below the previous year according to the CNMV Annual Corporate Governance Report.
So what exactly does good corporate governance mean? Ferran González, partner and subject matter expert at Cremades-Calvo Sotelo, defines it as a set of tools, protocols, and systems that help a company make sound decisions about ownership. In essence, it outlines the relationships among the board of directors, shareholders, and other stakeholders. This framework establishes the rules for managing the decision‑making processes within the company.
Experts point out that adopting solid governance rules brings clear benefits. The company becomes more competitive, efficient, attractive, reliable, and sustainable, González notes. He adds that good governance helps a firm stay focused, articulate long‑term plans more clearly, and allocate resources more effectively. It is a path to stronger performance.
One example is Ezentis, a technology company that claims full compliance with CNMV governance rules. Ezentis explains that adhering to good governance makes management more efficient, optimizes resource use, and supports fairer labor policies, all of which bolster competitiveness and financial results. For them, governance goes beyond a mere set of policies and procedures; it requires commitment and active participation from all governing bodies.
González emphasizes that people are the most complex element in governance. Sometimes individuals are brought into governing bodies who are not sufficiently involved or who simply echo the executive’s views. To make governance work, diverse perspectives are essential.
He encourages companies to ask a few key questions before starting a governance program. Why is this governing body needed? What profile of person is required? How should the process be managed? He also recommends seeking external counsel. An outside eye can reveal issues that are hard to see from inside the organization.
That approach has paid off for Ezentis, which has 50 percent independent board members and a majority presence on all Board Committees. They also stress that implementing good corporate governance is not a one‑time effort but a continuous evolution because the challenges keep changing.
González identifies seven basic principles that should guide every company’s governance practice:
1. Fulfillment of purpose
The mission defines why the company exists, how it creates value, and what good governance does to ensure the mission is followed once it is defined.
2. Protecting the interests of all stakeholders
While it is natural to look after customers and shareholders, the best value comes from considering everyone involved, including employees and suppliers, according to González.
3. Alignment with the corporate mission
Companies should articulate how they want to position themselves in the coming years and outline a growth strategy accordingly.
4. Cultivating a healthy corporate culture
Corporate culture often begins with the founder and evolves as influential people join the company. It is important to know the direction in which it is moving.
5. Proper allocation of resources
Resource allocation must reflect a clear overview and a balanced risk‑return perspective, forming a core management responsibility.
6. Identification and assessment of risk
Risks must first be identified and then evaluated for their probability and potential impact, guiding the design of preventive and mitigating measures.
7. Leveraging market opportunities in mergers and acquisitions
When a company is not large enough to handle deals alone, the board of directors can effectively seize opportunities through the right governance framework.