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