Good governance is not only important for corporations, it’s important for society. To begin with, good corporate governance improves the public’s faith and confidence in its corporate leaders. Legislative processes were designed to protect societies from known threats and to keep problems from occurring or reoccurring. Recent corporate scandals shed light on the effect that corporations have on social responsibility. The new focus on corporate social responsibility increases corporations’ responsibility and accountability to their stakeholders. As a result, we’re seeing corporations increasingly place pressure on themselves to improve best practices for corporate governance with the goal of enhancing their relationships with stakeholders. The largest attraction for corporations to direct some of their attention on sustainability is that it ultimately improves corporations’ ability to thrive and prosper.
Corporations Gain Interest in Sustainability
Corporations that recognize that their business impacts the environment around them create an innate sense of accountability to their societies. Sustainability takes into account a strong concern for the future. It’s in a corporation’s best interest to be socially responsible and innovative because it’s these things that ensure sustainability. The corporation and society will see evidence of that impact now and in the future.
Corporations are also taking a look at how they can incorporate sustainability into their strategic planning. In taking this approach, companies need to take four key aspects into account. These key aspects hold equal importance.
- Societal influence. This refers to how society impacts the corporation, including the influence on stakeholders.
- Environmental impact. This refers to the impact of the corporation on the geophysical environment, such as water waste, paper waste and energy waste.
- Organizational culture. This refers to the relationship between the corporation, including its managers, and its internal stakeholders, particularly employees, and all that those relationships entail.
- Finance. This refers to the impact of the corporation’s financial return in relation to the potential for risk and the level of risk.
These four dimensions consider that everyone and everything is essentially a stakeholder in the company’s business.
Sustainability Provides Benefits for Corporations
In recent years, people throughout the world have been increasingly concerned about saving our earth’s natural resources to make them last as long as possible. Businesses are big users of natural resources, so it makes sense that they’d also be interested in operating as “green” as possible without compromising the vitality of their operations. Many businesses are finding that a good way to do this is by incorporating conservation principles into their mission, culture and strategic planning. Companies are trying to develop a culture that encourages all employees and other stakeholders to reserve energy, cut costs, reduce waste and enhance other environmental factors.
The collective impact between businesses and people that work toward preserving energy and resources benefits the public while having a positive impact on businesses that contribute materially to conservation efforts.
Stakeholders appreciate the effort that businesses take to place recycling bins throughout corporate facilities. They enjoy reading about how businesses have lowered their emissions, gone paperless and engaged in other conservation efforts. Each year, more businesses find ways to implement conservation efforts as part of their strategic, tactical and operational procedures. They gain the benefit of positive impact for their efforts.
Reducing energy, waste and costs has obvious benefits for companies. Taking a conservationist perspective allows companies new opportunities to promote innovative and creative ways of doing things that save energy for their stakeholders. Corporations may also find that the cost savings they realize from their conservation efforts may afford them opportunities to expand to new markets, boost them above the competition, and perhaps, even get ahead of future regulatory issues.
The progression of conservationist efforts also benefits companies because it attracts like-minded people to them, such as employees, shareholders and customers. Most companies also find that their efforts improve the public’s view of their companies, which has a direct positive impact on their bottom line.
Making some changes requires companies to revisit what their corporate governance policies and practices are and what they need to be. Ultimately, these efforts will be worthwhile, as they increase the corporation’s credibility and provide them with a competitive edge.
Factoring Corporate Governance Combined With Sustainability Efforts
Corporate governance is a structure that boards and senior managers rely on to help them manage the company responsibly and according to sound ethics and accountability. The principles of corporate governance are based on transparency, accountability, responsibility and fairness.
Those four principles are also inherently related to the company’s corporate social responsibility. Good corporate governance and social responsibility help corporations keep things in good balance. It also supports the company’s efforts to develop control mechanisms, which will also increase shareholder value and promote satisfaction with shareholders and stakeholders.
Pulling Together Final Thoughts on Corporate Governance and Sustainability
Governance experts agree on many things, but they haven’t been able to come up with a distinct way to measure good corporate governance, so the topic continues to be a grand subject for debate. Good corporate governance is essentially built on three precedents — economic progress, social development and environmental improvements.
Good governance ultimately fosters sustainability, creates sustainable values and helps companies achieve their values. Companies also realize long-term benefits, including reducing risks, attracting new investors and shareholders, and increasing the company’s equity.
As the quest for corporate sustainability continues to improve and enhance the principles of good corporate governance, companies will feel pressured to support their efforts with transparency and public disclosure. Transparency efforts will provide information to the general public on the relationship between corporate governance and improved sustainability. The better informed stakeholders are about the connection between corporate governance and sustainability, the more apparent the relationship will become over time. The best way to accomplish that is by implementing a board portal by Diligent, which supports all aspects of corporate governance.
The marketplace has seen a flurry of change during the recent tumultuous financial times. The relationship between good corporate governance and sustainability is just one part of the evolution of corporate businesses. Good governance certainly helps companies withstand the ups and downs of the marketplace. Perhaps one day soon, sustainability measures will be considered best practices.