There may not necessarily be a “best” way to govern a business-each company has its own market, client base, culture, and so forth, and corporate governance needs to be handled in a way that makes the most of the company’s specific situation. However, there are good practices and poor ones, and it’s only the good ones that really lead to any benefits for the company. In addition, there are many laws in place regarding how a business should be run, so good corporate governance will take those laws and regulations into account.
Strong corporate governance leads to numerous benefits for a company, and we’ll outline the main categories for these benefits below.
Increased Accountability
Perhaps the most direct result of good corporate governance is the fact that it keeps everyone accountable. It ultimately reduces corruption, improves transparency, and enables effective and efficient management. The more efficient the managers are-who ultimately make the day-to-day decisions in your company-the better the company will run as a whole, and that naturally leads to the other benefits that follow.
Lower Costs
Honest, efficient management will reduce costs for the company. This occurs as the capital contributed by stakeholders is used more efficiently—less waste, less loss, and better returns. This allows the company to operate more efficiently as well since with lower costs from waste and other factors, it is able to focus more capital on reaching its business goals. For example, policies governing the way employees use the company’s resources can eliminate waste from frivolous or unnecessary expenditures.
Higher Revenue
The lower cost naturally leads to higher revenue on its own, but that’s not all of it. More efficient use of existing funds under good corporate governance policies will allow the company itself to grow and become more profitable overall, yielding a higher return on stakeholders’ investments. In addition, a well-governed company will gain the trust of its client base, bringing in even more income from its expanded business activities.
Resilience Against Legal Issues
Lawsuits and government actions are a very stark reality for businesses, and while the other benefits of higher revenue and reduced waste are certainly important, so too is staving off potential legal complications. Sound corporate governance helps reduce the incidence of noncompliance issues, making them far less likely to occur. This has obvious benefits for companies of all sizes since lawsuits take time and money to resolve successfully.
In addition to preventing disputes and lawsuits from occurring, good corporate governance also gives the company a great deal of protection in the event that litigation does occur. Transparency and full adherence to federal and state regulations will give the company a strong position when it comes to combatting these suits. Proper recordkeeping, reporting, and other sound corporate governance practices provide a solid basis in these cases, making it difficult for the prosecution to find an avenue of attack and generally rendering many charges futile.
Given the highly legal nature of corporate governance, it naturally benefits from outside counsel. Hart & David provides legal assistance when it comes to establishing corporate governance policies and practices.