Corporate governance: what it is and main practices

Did you know that companies with good management practices corporate governance have on average 30% more market value than their competitors?

Main points about corporate governance:

Definition and importance of corporate governance
Fundamental principles that govern it
Structure
Key governance practices such as transparency and accountability
Benefits of adoption
Corporate governance in family businesses
Governance and sustainability
Application of the concept in Brazil: regulations and codes
Implementation challenges

Basic concepts

Corporate governance is essential to ensure the sustainability and long-term growth of organizations.
Good practices are directly related to an increase in the market value of companies.
The principles of transparency, equity and accountability are essential to this concept.
Corporate governance is important for both family businesses and sustainability-oriented organizations.
In Brazil, there are regulations and codes that guide the adoption of practices in this niche.

What is corporate governance?

Corporate governance is a set of practices and principles that guide the management and control of organizations.

Thus, the objective is to ensure transparency, fairness and accountability in decisions, in order to protect the interests of everyone, including shareholders, customers and society.

Definition and importance

Corporate governance is the system by which companies are directed and controlled, and is crucial to creating an environment of trust, ethics and responsibility.

By applying this system, it is possible to guarantee the long-term sustainability of businesses.

Fundamental principles

The fundamental principles of the system are:

Transparency: Provide relevant and clear information about the company.
Equity: Ensure fair treatment to all shareholders and stakeholders.
Accountability: Holding managers accountable for their decisions and actions.
Compliance: Comply with laws, regulations and codes of conduct.

These principles seek to promote good corporate governance, which is important for companies as it strengthens their reputation and attracts investment.

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Corporate governance structure

Corporate governance is essential to the success of companies and is made up of several bodies and mechanisms that work together to ensure transparency, accountability, and good decision-making.

THE board of directors It is an important pillar, as it defines the company's direction, supervises management and defends the interests of shareholders.

It is worth mentioning that the board has independent members, both executive and non-executive, bringing different perspectives.

THE executive board takes care of day-to-day business, is led by the CEO and implements the strategies of the board of directors.

Furthermore, there is advisory committees, such as audit and compensation, which help the board make better decisions.

Organ	Function
Board of Directors	Define strategy, monitor management, represent shareholders
Executive Board	Implement the strategies defined by the board
Advisory Committees	Advise the board in specific areas

So, this complex corporate governance structure helps align interests, which contributes to the company's success and longevity.

Main corporate governance practices

As we have seen, adopting corporate governance practices is crucial for transparency and fairness in a company.

This is because they include principles and processes that seek to align the interests of everyone, from shareholders to employees and customers.

Learn about some of the main practices:

Transparency and accountability

Transparency and accountability are essential, as the company must display important information clearly and in real time.

This is because it is possible to understand and monitor the company's performance.

Important practices include:

Publication of financial reports regularly
Information on ownership and control structure
Open communication with the market
Disclosure Policies and Related Party Transactions

Equity and responsibility

Governance must also promote equity and accountability, which means treating all shareholders equally and holding management and the board accountable.

Practices that reflect these values are:

Respect for the rights of all shareholders
Mechanisms for resolving conflicts of interest
Holding managers accountable for their actions
Board and management performance evaluation

With these corporate governance practices, companies demonstrate their commitment to ethics and integrity, which increases the trust of investors, customers, and society.

Benefits of good corporate governance

Adopting good corporate governance practices brings many benefits to companies, such as improving performance and attracting investment.

Performance improvement

With a good governance structure, companies improve significantly, as this system promotes improvements such as:

Greater transparency and accountability, increasing the trust of the parties involved;
More solid decisions aligned with the company's objectives;
Better risk control and management, protecting the company.

Investment attraction

Good corporate governance also attracts investors, as they look for well-managed companies with strong governance.

Thus, this system can:

Increase investor confidence;
Facilitate access to financing;
Enhance the company's image.

Therefore, corporate governance is essential for companies that want to improve their performance and attract lasting investment.

Corporate governance in family businesses

Corporate governance is very important for family businesses, as this type of business has unique challenges that require effective practices.

A major challenge is balancing the family's interests with those of the company, as emotions and personal relationships can affect business decisions.

In this way, a good application of the concepts establishes clear boundaries between family and business, promoting transparency and accountability.

Generational succession is another critical point, so a well-designed succession plan that involves all family members is crucial. This ensures the continuity and growth of the business.

It is also important to separation of ownership and management, since in many family businesses, the owners also lead, and this can lead to decisions based on personal interests.

A good management system creates an independent and professional structure, which ensures objective decisions aligned with the company's objectives.

Therefore, although it faces unique challenges in family businesses, implementing this system brings benefits, including: preserving the family legacy, reducing conflicts, and increasing competitiveness in the market.

Corporate governance and sustainability

Corporate governance is crucial to the sustainability of companies, as it promotes social, environmental, and economic responsibility, concepts vital to long-term success.

Furthermore, this type of management brings transparency and accountability, and transparent companies show how their actions affect the environment.

This way, it is possible to gain the trust of stakeholders and align the company's objectives with what society expects.

Sustainable practices in various aspects are also encouraged, such as:

Efficient environmental management, focusing on reducing emissions and using resources rationally.
Promoting the well-being of employees, suppliers and local communities.
Adoption of ethical principles and integrity in all operations.

So, when governance and sustainability come together, companies see benefits that attract more investment, improve their reputation, and gain consumer trust.

Therefore, we can consider that this union is key to long-term success.

Benefits of Integrating Corporate Governance and Sustainability	Positive Impacts
Increased Transparency and Accountability	Strengthening stakeholder trust and aligning with societal demands
Adoption of Sustainable Practices	Efficient environmental management, promotion of employee well-being and integration of ethical principles
Competitive Advantages	Attracting investment, improving reputation and strengthening consumer confidence

Corporate governance in Brazil

In Brazil, this type of management is becoming increasingly important, and this is due to the adoption of specific regulations and codes, which aim to improve the management and transparency of companies.

Corporate governance regulations and codes

One of the major initiatives was the Corporation Law, which establishes rules for companies in the country.

Furthermore, the Corporate Governance Best Practices Code, from the Brazilian Institute of Corporate Governance (IBGC), is another key point.

THE New Market It is also very important, as it is a set of B3 rules for companies that want to have shares in a high governance segment.

Corporate Governance Regulations and Codes in Brazil	Description
Corporations Law (Law No. 6,404/1976)	Establishes rules for the organization and operation of companies in the country.
Corporate Governance Best Practices Code (IBGC)	Reference prepared by the Brazilian Institute of Corporate Governance (IBGC) for Brazilian companies.
New Market (B3)	Set of rules adopted by B3 (formerly BM&FBovespa) for companies that wish to have their shares traded in the highest level of corporate governance on the stock exchange.

Therefore, this regulatory and best practices framework has strengthened corporate governance in Brazil, and also promoted higher standards of transparency and accountability.

Challenges in implementing corporate governance

Adopting corporate governance poses challenges for companies, as there is a major barrier: resistance to change.

This is because many companies do not want to exchange old practices for a more open and responsible model.

Another major obstacle is a lack of understanding of the benefits of governance. Some companies don't see how a good structure can improve their performance and attract more investors.

Furthermore, aligning the interests of different groups, including shareholders, management, and the board of directors, is a major challenge.

Therefore, finding a balance and clearly defining responsibilities is crucial for effective governance.

This way, it is possible to apply this concept to any and all business models, which brings visible benefits.

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Valor Notícias Content Team 19 de August de 2024