Introduction
In times of crises, especially during the Global Financial Crisis (GFC) and the Covid-19 crisis, corporate governance plays a very important role in minimising risks and avoid company failure. Under corporate control, corporate governance practice is commonly affected by external environment factors as well as the internal factors.
These external environment factors are the legal structure, the regulatory framework, the information infrastructure and the market infrastructure. The internal factors of corporate governance which contributes to good corporate practice consist of the shareholders structure, the relationship of financial stakeholders, the financial transparency and disclosure of information, and the board structure and process (Standard &Poors, 2001). Corporate culture is also one of the internal factors that affects good corporate practice.
Based on one’s management experience, especially in corporate and management controls, good corporate governance would usually lead to better corporate and business performance affecting the ability of one company to perform better than other companies and survive during an economic crisis. Although there are some conflicting results, there are some evidences that the factors of corporate governance can affect the company performance.From the corporate governance point of view, good corporate governance practice can be the driver of the company survival during the crisis.
The Role of Corporate Governance
Corporate officers (CEO, CFO and COO) respectively in their own tasks and responsibilities, largely influence their behaviours in affecting organisational outcomes such as strategies and company financial performance in their corporations.Corporate governance is critical to organisational success in the long run. In its own rights, the choices and decisions that corporate board of directors make, and hence corporate governance and strategic imperatives and priorities in general, can very much determine the success or failure of organisations. As has been studied, many research outcomes suggest that bad corporate governance choices have resulted in very negative effects on stakeholders, customers, employees and shareholders.
Therefore, in order to improve and strengthen corporate governance, corporations should consider creating and havingaudit committees, chief risk officers, chief compliance officers, and having ethics committees in their organisations. There are many other structural and legal concepts that can be employed to improve corporate governance but at the end of the day, these structures are only as good as the people who are appointed and serve on corporate boards and their committees. In short, successful corporate governance and leadership are ultimately about choosing the right people.
Good Corporate Governance and Company Performance
The role of corporate officers (CEOs, CFOs and COOs) in affecting organisational outcomes such as company financial performance has been at the centre of continuing business discussion and debate, even since late 1990s and early 2000s when some corporate failures and accounting scandals happened in the US such as Waste Management (1998), Enron (2001), Worldcom (2002), Tyco (2002) and Healthsouth (2003) until recently Noble Group (2018), Wirecard (2020), GP Global (2020) and Hin Leong (2020), to name a few. In the corporate governance structure area, there is usually a significant relationship between ownership concentration, firm strategy and financial performance. The ownership concentration can influence the strategic behaviour of firms and its strategic outcomes which ultimately influence corporate performance. Establishing a good corporate governance may require changes in governance structure which may bring about closer alignments between owners and corporate officers interests. Good board composition with its respective individual director’s personal integrity, leadership, capability, professional qualification and experience may have significant effects on the company profit and its return on investment and equity in the long run.
Values and Principles of Good Corporate Governance
Integrity
Integrity is everyone’s task and responsibility. In corporations, integrity starts with the board, management, employees, shareholders and all stakeholders involved in the business of the corporation. The board has to leadthe company to conduct itself in a fair and ethical manner. For the board to be effective it should be concerned about its integrity inside and outside of the boardroom.As such everyone else have to follow suit in everything they do in an ethical manner.
Capability
The imperative to begin with, is the capability of the board and the CEO. The importance of whether the board members have the right mix of skills, experience and ability to manage and monitor the company efficiently and effectively. Finding the right individuals for the board is very important in building a well governed organisation in the long run.
Leadership
Leadershipis about the act of leading, providing guidance and directing a team to act towards achieving strategic business goals. The board and CEO at the head of the organisation strategically should practise the principles of good leadership, steerthe company in the right direction to meeting its short and long term business goals. Anyone with line management duties mustalso be advocates of good leadership and ambassadors of goodgovernance.
Accountability and Transparency
Accountability relies on transparency. The board should have clear visibility of what is happening throughout their organisation and the ability to communicate a fair and balanced assessment to its shareholders and stakeholders.It should be a relatively straight forward function, and everyone should be accountable to what they do in the company.
Sustainability
Sustainability is an important principle of good corporate governance. This aspect of corporate governance requires an understanding of the company’s role in triple issues like financial performance, social responsibility and environment preservation. The board should be strategically leading the business to create value and allocate it fairly to its shareholders, directors, employees and customer and all other stakeholders in line with its vision and mission.
