Since its emergence a few years ago, discussions on the so-called topic have not stopped. g?. Abbreviation meaning ‘Environment’ in English (environment or environment), ‘Social’ (social criteria) and ‘Governance’ (good corporate governance). Although the first two have managed to find a place on the agenda of many companies, governance is still an issue awaiting solution for some. In fact, 125 companies listed in 2020 continued: According to the CNMV’s Annual Corporate Governance Report, an average of 83.7% of recommendations in the good governance code are two points lower than in the previous year.
So what exactly is good corporate governance? Ferran González, partner and subject matter expert at Cremades-Calvo Sotelo, defines it this way: “It is a set of tools, protocols and systems for companies to make good decisions in terms of their ownership.” That is, relationships are established between the board of directors, the board of directors, shareholders and other parties. In this way, the necessary rules for managing the decision-making process regarding the company are determined.
According to experts, implementing good corporate rules has a number of direct benefits to the company. “The company becomes more competitive, effective, attractive, reliable and sustainable,” González summarizes, then adds: “Having good corporate governance allows the company to be more focused, have clearer long-term ideas and better allocate resources.” It helps.
An idea shared by Ezentis, one of five publicly traded companies that 100% comply with CNMV good governance rules. Ezentis comments: “Compliance with good governance rules allows us to have more efficient management, make better use of resources and adopt fairer labor policies, resulting in greater competitiveness and financial performance.”
This technology company assures that for them, governance “goes beyond a set of policies and procedures” as it requires the commitment and participation of all governing bodies of the company. González also talks about this implication, noting that people are the most complex element when it comes to implementing good governance in a company. “Sometimes people are unconsciously brought into governing bodies who are not involved enough or who only accept what the executive is thinking.”. (…) In order for these bodies to work, diversity must exist.”
Additionally, González emphasizes that companies should ask themselves a series of questions before they start implementing good governance. “Why do I want this governing body, what is the profile of the person I need for that government and how do I want to manage this process?” In this sense, González recommends that interested companies seek advice from someone outside the company, because “you can see things from the outside that are very difficult to see from the inside.”
A piece of advice that works. Ezentis has 50% independent board members and they are also the majority on all Board Committees.. Likewise, they emphasize that “the implementation of good corporate governance is not a matter of one or two days, but is a continuous evolution because the challenges also change.”
González says good corporate governance has seven basic principles of action that every company should be based on:
1. Fulfillment of purpose
Our mission is similar, why we are here, how we want to add value. What good corporate governance does, once defined, is to ensure that it is followed.
2. Secure the interests of all stakeholders (interest groups)
“It is obvious that sometimes we need to look after the interests of our customers or shareholders, but the best way to add value is to look after the interests of everyone, including employees, suppliers, etc.,” says González.
3. Compliance with corporate mission
Companies need to define how they want to see themselves in a few years, what their growth strategy is.
4. Adequate development of corporate culture
Corporate culture often starts in the company as an element of the founder and develops as people who have more influence on the organization join the company, and it is good to know in which direction it develops.
5. Correct allocation of resources
How resources are allocated with an overview and an adequate risk-return vision is also a mission of the company’s management.
6. Identification and assessment of risk
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“Risks must first be identified and then matured, what is the degree of probability of their occurrence and what will be their impact on designing palliative and, above all, preventive measures,” says González.
7. Taking advantage of the opportunities offered by the market regarding mergers and acquisitions
If the company is not large enough and does not have a dedicated department to deal with these issues, the board of directors is a good mechanism to seize these opportunities.