The purpose of this essay is to analyze and interpret the actions and benefits of a corporate governance plan and how an efficient plan contributes to increasing the sustainability of a company, in addition to understanding the functions of each participant within a plan, the which basically consist of analyzing the functions of the senior management, shareholders in charge of carrying out management plans in order that companies can reinforce their image through investors and society.
Key Words: Corporate Governance, Sustainability, Profitability
The significant growth of companies, whether large or small, including family businesses in Peru and Latin America present a problem regarding their organizational and management practices, which can directly affect the generation of profits and the return on investment of shareholders. For this reason, it is important to establish parameters that define the functions and business objectives, that is, the actions that must be carried out by both shareholders, directors and workers within an organization in order to be sustainable and achieve their goals.
This article seeks to provide more information in a clear way about what corporate governance means and its application, since many companies, especially small businesses, lack information on these matters of vital business importance. There is a scarce literature, theoretical bases that talk about the application, corporate governance strategies, which is why recommendations adapted to the Peruvian reality have been presented by the Organization for Economic Cooperation and Development (OECD) and the National Supervisory Commission of Companies and Securities (Consasev).
The results of good corporate governance in companies will directly impact the economic benefits, as well as adding value and sustainability to each of the organizations, quality decisions can be made, reinforcing corporate wealth, investor confidence and the management of risks efficiently, on the contrary, a bad management is reduced to immediate losses.
THAN
Corporate governance is the system of rules, practices and processes by which a company is directed and controlled. Corporate governance essentially consists of balancing the interests of stakeholders in an organization, such as shareholders, senior executives, customers, suppliers, investors, and the community.
A good corporate governance plan provides a framework for achieving a company's objectives, covering virtually all areas of management, from action plans and internal controls to performance measurement and corporate image.
Fundamentals of Corporate Governance
Governance refers specifically to the set of rules, controls, policies and resolutions established to dictate corporate behavior. Senior officials and shareholders are important parties that indirectly affect governance, but these are not examples of governance per se. A good overall business-wide management plan is critical to an efficient plan, and can have significant ramifications for assessing business equity and sustainability.
Most companies strive to have a high level of corporate governance. For many shareholders, it is not enough that a company is merely profitable; You must also demonstrate good corporate citizenship through environmental awareness, ethical behavior, and sound corporate governance practices. Good corporate governance creates a transparent set of rules and controls in which shareholders, directors and officers have aligned incentives.
Poor corporate governance can cast doubt on a company's reliability, integrity, or obligation to shareholders, all of which can have implications for the company's financial health. Tolerance or support for unsuitable activities in relation to the company can directly affect economic benefits, as well as business growth. For example, Volkswagen in 2015 had deliberately and systematically rigged engine emission equipment in its cars to manipulate the results of pollution tests, in America and Europe. Volkswagen saw its shares lose almost half their value in the days following the start of the scandal, and its global sales in the first month, after the news, fell 4.5%.
The purpose of corporate governance is to facilitate efficient, entrepreneurial and prudent management that can offer the long-term success of companies, it is a system by which companies are directed and controlled. The role of shareholders in governance is to appoint directors and auditors and to ensure that an adequate governance structure exists.
The responsibilities of the shareholders include setting the company's strategic objectives, providing the leadership to implement them, supervising the administration of the business and informing the shareholders about its administration.
Good governance can have broader impacts on the sector because it is fundamentally about improving transparency and accountability within existing systems. Many academic studies conclude that well-governed companies perform better in commercial terms.
BUSINESS SUSTAINABILITY THROUGH A CORPORATE GOVERNANCE
Good governance is not only important for corporations, it is important for society. To begin with, good corporate governance improves the faith and trust of the public in its corporate leaders. Legislative processes were designed to protect societies from economic and social threats and to prevent problems from occurring or recurring.
The new focus on corporate social responsibility increases corporate and accountability to its investors and clients. As a result, we are seeing companies become increasingly pressured to improve good corporate governance practices with the goal of improving their relationships with stakeholders. The greatest attraction for corporations to direct some of their attention to efficient compliance with the corporate governance plan in sustainability and profitability.
Corporations that recognize that their business has an impact on the environment around them create an innate sense of responsibility to their societies. Sustainability takes into account a strong concern for the future. The best thing for a company is to be socially responsible and innovative because it is these things that guarantee sustainability. The corporation and society will see evidence of that impact now and in the future.
Corporations are also examining how they can incorporate sustainability into their strategic planning. In adopting this approach, companies must consider four key aspects.
According to Aras, (2018) the key aspects are the following:
- Social influence. This refers to how the partnership impacts the corporation, including influencing the stakeholders. Environmental Impact: Refers to the corporation's impact 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 performance relative to potential risk and the level of risk.
The collective impact between companies and the people who work to preserve energy and resources benefits the public, while having a positive impact on companies that materially contribute to conservation efforts.
Stakeholders appreciate the effort companies make to place recycling bins at corporate facilities. They enjoy reading about how companies have cut their emissions, become paperless, and participated in other conservation efforts. Every year, more companies find ways to implement conservation efforts as part of their strategic, tactical and operational procedures, obtaining a positive impact on their sustainability.
Reducing energy, waste and costs has obvious benefits for companies. Taking a conservation perspective allows companies new opportunities to promote innovative and creative ways of doing energy-saving things for their stakeholders. Corporations may also find that the cost savings they derive from their conservation efforts may provide them opportunities to expand into new markets, increase them above the competition, and perhaps even anticipate future regulatory problems.
Making some changes requires companies to review what their corporate governance policies and practices are and what they should be. Ultimately, these efforts will pay off as they enhance the credibility of the business and give them a competitive advantage.
Good governance ultimately fosters sustainability, creates sustainable values, and helps companies achieve their values. Companies also reap long-term benefits, including reducing risks, attracting new investors and shareholders, and increasing company assets.
Bibliography:
Price, N (2018). Relationship between Sustainability and Corporate Governance. United States, retrieved from:
Viegas, M (2018). Corporate governance: a path to sustainability strategy, retrieved from:
Boza, B; Stenning, F (2018). The challenges of Corporate Governance in Peru facing the Pacific Alliance. Peru, recovered from:
www.ey.com/Publication/vwLUAssets/Estudio_de_la_voz_del_mercado_2016/$F ile / EY – estudio – la – voz – mercado – 2016.pdf
ICAE, (2018). What is Corporate Governance? United States, recovered from:
www.icaew.com/technical/corporate–governance/principles/principlesarticles/does–corporate–governance–matter
