Enhancing shareholder value through good corporate governance
When we think of corporate governance, we do not often associate it with enhanced shareholder value. Yet, it is one of the major levers that successful companies utilise to realise exactly that aim.
Traditionally, corporate governance was seen as a painful compliance task that was relegated to the company secretary. Today, we see corporate governance as a way to enhance economic growth, entrepreneurship, innovation and value creation which will lead to an enhanced shareholder value. Corporate governance highlights a rigor to companies that measures performance against strategy and ensures sustainability in a very uncertain world.
In latter times, shareholders would often select a portfolio of shares based on the word of a peer or the recommendation of a broker. However, the 2008/2009 economic crash has meant that investors of all types are far more stringent about the selection methodologies when investing their money. Investors who become shareholders are not only seeking a financial return. They also want their reputation to be linked with a strong and reputable brand. And this is where corporate governance becomes the brand builder, the guarantee of return on investment and the driver of sustainable global momentum.
A study conducted by the OECD in 2004 found that companies with good corporate governance are not only more likely to attract excellent investors but also to give their shareholders a much higher return on their investment over a consistent period of time. Companies proficient in corporate governance have a robust system of risk management, exercise excellent controls and achieve their stated strategy. To quote the OECD report:
“The corporate governance framework should promote transparent and efficient markets, be consistent with the rule of law and clearly articulate the division of responsibilities among different supervisory, regulatory and enforcement authorities.”
When corporate governance is given its due place, values will be a clear driver: legal compliance, quality, safety issues, employee welfare, policies and stakeholders are constantly discussed, assessed and reviewed. Profits will not be the only matter which prevails and it has been seen that this may lead to better long-term results, hence building shareholder value.
 OECD, Corporate Governance Principles, 2004