A principle is different than a rule, a law, a practice or a protocol. A principle is a fundamental truth that supplies the basis for a system of belief or behavior. There are no manual and no exact standards for the principles of good corporate governance. The corporate world has experienced many ups, downs and changes over the decades. That will continue to happen for the foreseeable future. Good corporate principles have evolved over time. Corporate trends are fluid, and the principles of good corporate governance must also remain fluid to adapt to an ever-changing financial marketplace.
A Source for the Principles of Good Corporate Governance
Good corporate governance principles stem from practices that have historically served shareholders and the marketplace well. One good resource for learning more about good corporate governance is the OECD, the Organisation for Economic Co-operation and Development. The OECD is a group of members from 34 different democratic countries that discuss and develop economic and social policy with the aim of supporting free market economies.
The OECD analyzed the workings in these countries and formulated some important principles of good corporate governance. The OECD believed that good corporate principles are primarily based on an ethical code of business conduct. While principles are non-binding, they’re much valued in the corporate world. It’s globally accepted that good governance prevents fraud.
The complexity of the financial marketplace requires corporate board directors to practice good corporate board principles and to be at the top of their game at all times. The best way to do this is to take some help from digital technology by utilizing a board management software system. Some of the recommendations for good corporate governance by the OECD follow.
Fair Treatment for Shareholders
In addition to preventing fraud, good corporate governance principles protect all shareholders and their rights. Fairness in shareholder rights should extend to include all minority and foreign shareholders. Fairness requires corporations to provide an opportunity for shareholders to vocalize their grievances and address any issues concerning a violation of shareholder rights.
Shareholders have the right to accurate and timely financial information and information about those serving on the board of directors.
The rights of shareholders are important because the overall corporate value by providing employment for citizens and ensuring that the company functions in a financially sound and responsible manner. Two of the biggest principles of good corporate governance are transparency and accountability.
Transparency as a Part of the Principles of Good Corporate Governance
There are two vitally important reasons for corporate boards to practice transparency as part of good corporate governance. First, transparency holds board directors and managers accountable for their decisions and mistakes. It prevents them from knowingly or willingly participating in fraud. Second, transparency provides a platform where shareholders can build trust with a company and make better decisions, which will result in a better return on their investment.
Good investments ultimately improve the overall economy because it attracts domestic investors and foreign capital inflows. These are the forerunners of positive long-term investment strategies and sustained growth.
Just as transparency promotes good corporate principles, the lack of transparency leads to scandals and fraud. Hidden financial reports hamper a corporation’s functionality and eventually adversely affect the stock market. We’ve seen this happen in many major companies, such as Enron, WorldCom, Xerox and Wells Fargo.
Corporations should practice transparency on many levels within the corporation. Disclosures should cover the corporation’s financial position and profitability and ownership, and provide accurate, complete and timely reports to shareholders and stakeholders. Corporations that practice good corporate governance will readily disclose their corporate code of conduct, conflict-of-interest and whistleblower policies. They automatically furnish their rules for business ethics.
Accountability as a Part of Good Corporate Governance
Previous scandals on Wall Street have caused a substantial decline in the economy. Corporate boards are feeling the pressure from the fallout, as they’re increasingly being held accountable for corporate financial failures.
Regulations and laws alone can’t ensure accountable corporate governance. Today’s corporate boards are liable for every transaction, activity and decision they make, whether it’s minor or major. Issues can go wrong on many levels, including financial reporting, disclosures and general decision-making. The board takes full responsibility for any and all wrongdoing.
They are also responsible for monitoring management to ensure that their performance is effective. Shareholders, financiers and investors rely on the board’s knowledge, experience and expertise to win over their confidence and assure them that oversight is strong and sufficient on all accounts.
This is why there is so much emphasis on the quality of board composition, including diversity and responsible succession planning.
A Board Management Software System Is a Staple of Good Corporate Governance
Corporate board directors stand the best chance of following good corporate governance principles when they implement a board portal and other digital tools that were designed specifically with good corporate governance principles in mind. The pace of the corporate world is too fast to get stuck in the mire of manual processes and archaic business practices.
Today’s boards need to work as effectively and efficiently as possible. Their best resource for digital solutions is Diligent’s Governance Cloud — a suite of digital governance solutions that were designed based on the needs of corporations working in the financial markets and other industries.
The tools within Governance Cloud are fully integrated, which means that they all share the same strict security features to keep confidential board business fully functional and private. Governance Cloud provides the secure platform for corporate boards that are actively working on board composition, board development, onboarding, orientation and succession planning. Governance Cloud makes accurate and timely disclosures a matter of simple electronic protocols with automatic notifications.
Diligent’s board management software system allows board directors to communicate securely with Diligent Messenger at any time of day or night using any electronic device. Governance Cloud provides the platform for accuracy and efficiency for director and officer questionnaires and board self-evaluations.
Governance Cloud streamlines many of the processes and procedures related to the principles of good corporate governance that bogs board directors down. Ensure transparency, accountability and other good corporate principles with Governance Cloud – the total enterprise governance system.