The importance of adopting good corporate governance practices
Corporate governance provides a framework for efficient, transparent and accountable decision makign
That framework is needed in every enterprise regardless of the size or form of ownership: 'All companies must have a way of reconciling divergent interests, planning for strategy and succession, accessing capital, cultivating company image in the community and ensuring legal compliance. Corporate governance is a key tool for achieving those business goals'
Board succession: the replacement of a senior director (typically the chair or CEO) when he or she retires or resigns
There is a plethora of evidence that well-governed organisations perform better. The studies show that the adoption of good governance practices by organisations lead to
Examples of studies showing the benefits of corporate governance
Long term sustainability
Improved access to external financing whether through listing or from banks
Lower cost of capital
Improved operational performance
Increased firm valuation
Improved share performance
Reduced risk of corporate crisis and scandals
Effective decision making
Improved oversight, monitoring and evaluation
Succession planning
Ethical behaviour - an anti-corruption tool
McKinsey's Global Investor Opinion Survey 2002 concluded that a majority of investors are prepared to pa a premium for companies exhibiting high governance standards. Premiums averaged 12-14% in North America and Western Europe, 20-25% in Asia and Latin America and over 30% in Eastern Europe and Africa
The S&P ESG Pan Arab Index which monitors and ranks listed companies in the Middle East and North Africa region on ESG issue. Showed that companies within the index had outperformed those in its benchmark for the past 9 years
Derwall and Verwijderen found that Us companies with better corporate governance practices received a lower cost of equity
Hermes, a UK investment firm, after reviewing evidence on the benefits for organisations of adopting good corporate governance practices is of the view that is not just the governance structure of organisations that lead to better performing companies but the active engagement by the ownership of those organisations with the boards and senior managers that matter