Corporate governance has always been an important topic. Even more so today, as many organizations recognize the need to develop a more robust corporate governance regime amidst the ongoing COVID-19 crisis. Corporate governance ensures that the company has appropriately laid out policies to create long-term shareholder value. Investment decisions play a vital role in achieving the firm’s strategic plan. In this article at McKinsey, Michael Birshan and others explain why corporate governance is essential for stakeholders and share some governance factors that shareholders target.
Why Governance Matters to Shareholders
Board members need a comprehensive governance framework that helps them prevent risk and make effective decisions. Proper governance structures identify the distribution of rights and responsibilities among different participants in the company. Additionally, it outlines the rules and procedures for making decisions.
Good governance offers several significant benefits to organizations. It includes:
- Better organizational plans
- Improved stakeholder engagement and communication flow
- Enhanced operational efficiency
- Increased agility, enabling organizations to achieve their goals
Governance Factors that Investors Target
Rules for Shareholder Engagement
“Given the pace of change in business and the world today, shareholders are demanding that companies adopt faster decision-making processes,” say the authors. Frequently reviewing how shareholders participate in organizational activities will help business leaders keep up with changing shareholder expectations.
Environmental and Societal Impact
Investors in all sectors indicate that the impact of businesses on the environment and society matters to them. To ward off investors’ concerns, executives and board members must regularly review business activities and map the impact on global initiatives through corporate governance practices.
Senior management and boards must give shareholders a coherent narrative about significant decisions and their impact on the organization’s performance. Establishing clear and frequent communication, comprehensive updates on decisions and follow-up reports will undoubtedly relieve shareholders’ concerns.
To read the original article, click on https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/investors-remind-business-leaders-governance-matters.