What Is Corporate Governance?
Corporate governance is a process that determines the way the company is managed , which is reflected in its culture, policies and internal regulations.
It aims at excellence in management and business strategy.
In summary, we can also say that it is about the way companies are managed and controlled.
The essence of corporate governance lies in transparency, with clarity about its actions for both internal and external audiences.
It is interesting to note that this is one of the most important values of an institution today, whatever it may be, which is typical of an increasingly open and globalized world .
It is not by chance that the expression corporate governance acquires increasing evidence and interest.
So much so that more and more organizations, day after day, are interested in following its precepts.
It is also worth noting the direct relationship between corporate governance and the way a company competes in the market .
“In the business world, the game is tough, but it’s on the ball, not on the shin”, says Fábio Colletti Barbosa , administrator and adviser to large companies.
With this metaphor, he translates the basis of corporate governance: fair play – also known as fair play.
And, as in football, it is not just those on the field or, in this case, on the front line, such as managers or leaders, who need to master good management practices.
In a business, each employee plays an important role in making the process work.
How Did Corporate Governance Come About?
As a business practice, corporate governance has always existed, if we only consider its implications in terms of image and reputation .
However, like any major business movement, GC gained momentum after a crisis , in this case, that of the multinational fuel company Texaco, in the 1980s.
Basically, this crisis was caused by the company’s own management.
To prevent the purchase of shares by a group of minority shareholders, it made use of a legal strategy, but reprehensible from an ethical point of view : the repurchase of the company’s shares at high prices.
As a result, the concept of corporate governance began to gain strength in the North American society and business ecosystem.
In addition to an assumption of conduct, it is also structured in an independent sector, composed of specialists in this area, as we will see in this content.
What Is The Concept And Principles Of Corporate Governance?
To properly conceptualize,
“Corporate governance is the system by which companies and other organizations are directed, monitored and encouraged, involving the relationships between partners, the board of directors, the board of directors, supervisory and control bodies and other interested parties”.
Note that, as we have already highlighted, we are not talking about a personal initiative, nor limited to the individual scope.
Corporate governance is a commitment of the organization and, as such, depends on collective effort.
This appears prominently in each of its four principles.
Let’s see now what each of them means:
Transparency
By reporting facts, whether positive or negative, companies create a network of trust both internally (with their employees) and externally (with stakeholders ) .
Equity
This principle is nothing more than the equal treatment of all partners and interested parties of organizations.
Accountability
It is when governance agents show the consequences of their actions , decision-making, or even omissions.
Corporate Responsibility
More comprehensively, this principle values the sustainability – social and environmental – of the organization, aiming at its longevity .
What Is The Corporate Governance Structure?
The aforementioned Texaco episode highlighted the need to create a new corporate culture , in which companies could regulate themselves in their management and governance practices.
The human language. The objective has always been to prevent abuses by leaders from corrupting the entire market, leading to the collapse of the economy itself.
Thus, the first sectors dedicated exclusively to acting as “guardians” of ethics and transparency began to emerge in companies , formed by:
- shareholders
- Independent Audit
- Internal Audit
- CEO and Directors
- Committees
- Administrative Council
- Fiscal Council
- Ombudsman and Internal Affairs
- Secretary of the Council
What Are The 8ps Of Corporate Governance?
Like most concepts, that of corporate governance has motivated and continues to motivate the creation of a series of methods and theories .
One of them is the 8ps, by which a KM sector is guided in relation to its activities.
It was created by professors Adriana Solé and José Paschoal Rossetti, authors of the book “ Corporate Governance: Fundamentals, Development and Trends ” (2007).
According to the work, the application of each of the “ps” leads the company to:
- keep your competitiveness
- Mitigate potential conflicts of interest between your partners
- Enable strategic planning is not something HR can do just once and put it aside. HR strategic planning
- Facilitate the application of GC
- Improve corporate governance practices
- Align management goals with shareholder expectations.
Shall we meet each of them?
1-Property
Ownership control is just one of the possible sources of disputes in a company.
In addition to it, the right to property and, mainly, inheritance privileges are among the most recurrent reasons for disputes in the administrative or judicial sphere.
The “p” of property deals with the relationship between the infrastructure and assets of a company with the legal/tax regime of which it is a part.
Thus, the CA can anticipate future disputes, making it clear who has rights at the moment the “baton” has to be passed.
2-Principles
In certain cases, fratricidal disputes can be avoided when the corporation makes clear to its leaders , shareholders and stakeholders what its values and principles are .
In this case, this “p” is based on four grounds:
- Disclosure of results with transparency
- Justice and equity of rights
- Tax compliance and compliance with rules, laws and regulatory frameworks
- Accountability made responsibly.
Once the principles are defined, based on the above fundamentals, it will be up to top management to disseminate them among its employees and validate them before the external public.
3-Purposes
The principles are like general rules of conduct , from which a company defines its purpose, mission, vision and values .
This purpose, in turn, will serve as a kind of unwritten “code of ethics”, which should guide all the actions of an organization.
It is through this “p” that the company positions itself as a member of society and a specific community.
It should be noted that, although it has a philosophical bias, the purpose must also be measurable and always consider the expected return for the activities carried out.
4-Papers
Perhaps one of the main points of contention within companies is the lack of clarity in assigning the roles of each of its members.
A member of the Board of Directors has different functions from those of a member of the Supervisory Board, and so on.
The clear attribution of roles is also a way to avoid the abuse of power which, as we saw in the case of Texaco, is a marked presence in misconduct.
When roles are well defined, it is easier to identify those responsible, thus allowing the company to take appropriate measures in crisis situations.
5-Power
With well-defined roles, it is also easier to delimit the scope of executive positions .
The focus of this “p” is to show that the exercise of a certain power must always be oriented to the benefit of the company and not to private interests.
It also aims to rein in the questions related to the sector and thematic to be evaluated. You can ask about everything, such as beliefs about the job, dynamics within it, performance of leaders and senior management, so that authority is not confused with authoritarianism .
Another important point is the consideration of the company’s objectives in the decision-making process, which, as such, must be shared.
In addition, the “p” of power aims to anticipate critical issues that usually emerge in succession processes.
6-Practices
GV’s discourse is very beautiful, but it would not go beyond that if it were not experienced in practice, in the day to day of the companies .
Therefore, in the 8ps of governance, the bases that should guide daily practices are foreseen.
In addition to the philosophical-humanist approach, good practices are based on two essential factors.
The first one is data , which serves to guide decisions and the entire operational strategy .
Not least, practices must comply with the precepts defined in accordance with the governance, risk and compliance (GRC) triad.
7-People
The only “p” present in all the others is that of people .
It is for them that all initiatives aimed at raising ethical standards , keeping a company on the path of transparency .
However, it is necessary to define consistent HR policies, which privilege the human being at the same level of the required skills and abilities .
Thus, organizational culture tends to be more accepted, allowing a productive and collaborative work environment to be formed.
This applies from the selection processes to the definition of criteria to justify removals and dismissals, with or without just cause.
8-Perpetuity
No company is born planning the day it will cease to exist.
Thus, it is necessary to develop mechanisms and strategic actions so that the brand is perpetuated over the generations , if necessary, even changing the core business .
This is a critical point, as attachment to products can lead an organization to failure and extinction.
The most important thing is that above them are the principles, below which people must be.
In order to remain active over time, it is necessary for the company’s leaders to be constantly questioning themselves about what they can do today so that the company continues to exist.
