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Discover the corporate governance best practices!

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CONTEÚDO

In the 1980’s Corporate Governance emerged as a movement among US shareholders and investors, who wanted to protect themselves from abuses committed by their corporate boards and their lazy and ineffective boards of directors.

In recent years the theme has since gained prominence and has become the focus of studies and debates by experts within business, law, economics and finance.

Beyond this difficult change in the relationship between shareholders and administrators, majority and minority shareholders gave even more prominence to the issue. Resulting in the entry of foreign investors in the capital market and a greater involvement of institutional investors.

But what is corporate governance? What’s the concept of corporate governance?

In these posts you will learn about corporate governance best practices, what’s it for, its objectives as well getting to know the 8 Ps of corporate governance.

What is corporate governance?

Corporate governance is a set of practices that aims to align the objectives of company management with the interests of shareholders.

The corporate governance process within companies enables the harmonious coexistence between capital, management, family (in the case of family businesses) and the society in which the company is operating.

All the best practices of good governance are based on ethics.

Ethical practice is reinforced in the application of values and principles exercised through daily application by partners, managers, executives, employees and third parties.

Thereby the best corporate governance strategy follows 4 principles and 8 best practices you need to know.

The 4 Principles of Corporate Governance Best Practices

We can classify some of the best corporate governance best practices by these 4 principles:

  1. Equity;
  2. Accountability;
  3. Transparency;
  4. Corporate responsibility.

These 4 values of good corporate governance practices should always be preserved to enable the flow of best practices of good governance in companies.

1. Equity

The equal treatment of all partners and stakeholders.

2. Accountability

The management must assume the consequences of their acts and oversights.

3. Transparency

It’s essential to create trust internally and externally. The authentic requirement to report positive or negative facts without restrictions.

4. Corporate Responsibility

To ensure the sustainability of the organization, aiming at longevity and incorporating definitions of social and environmental governance.

Good corporate governance practices transform principles into attitudes.

This facilitates the access to capital, thereby enhancing performance and contributing to the long life of a business in a sustainable and profitable manner.

Among the components of corporate management, compliance is one of the most relevant.

Corporate Governance best practices: 8 Ps Methodology

Professors José Paschoal Rossetti and Adriana Solé developed the 8 Ps methodology to assist in the effective application of best corporate governance practices in companies.

The 8 P’s of corporate governance are:

  1. Property;
  2. Principles;
  3. Purpose;
  4. Roles;
  5. Power;
  6. Practice;
  7. People;
  8. Permanence.

Definitions of the 8 P’s of corporate governance.

1. Property

The most important thing is to know how social capital is distributed and organized.

The set up within every company is different.

They can be: mixed capital, open or closed, family, consortium, state, anonymous, etc.

What does corporate governance methodology measure in this case?

  • Cohesion among shareholders;
  • Succession;
  • Corporate shielding.

2. Principles

Principles are the foundation of ethics in  good corporate governance practices.

The owners determine the hierarchy of principles that will apply within their company.

However, the above are the 4 fundamental principles of corporate governance that can serve as inspiration.

The ideal is that the principles should be internally shared and externally accepted.

3. Purposes

The purposes and values bring us to the quality and consistency of strategic planning.

Measured here is the alignment between the mission, vision and tactical plans of a company.

4. Roles

The important thing is to understand the division of roles within an organization.

What does a board of directors and an executive board do? and how are these roles and functions internally deployed?

A practical example:

If in your company “popular radio” is more efficient than formal communication between various levels then something is wrong.

When the distribution of roles within a company is unclear, it usually means a corrupted power structure.

5. Power

When talking about power we need to analyze the issue of authoritarianism vs authority.

Most important in a power structure is that leaders are legitimized by the staff.

6. Practices

Good corporate governance practices are related to the 2 main factors:

  • Data Driven: Means that everything a company does and decides is based on data.
  • The (GRC) Governance, Risk and Compliance: aims to ensure the integration of processes within an organization, making the business strategy happen in a unified and transparent manner, in accordance with corporate policies, laws and regulations and minimizing risks.

7. People

The principle goal is to measure the quality of HR and HR processes.

Whether strategic or not, the organizational climate is mapped and deployed with succession at all hierarchical levels.

8. Permanence

In the overwhelming majority of cases the goal of companies is to remain operational, active and growing their share in the markets in which they operate.

The remaining question of these 8 Ps is: If your company does absolutely nothing now, will it be around in10 years time?

Examples of corporate governance in Brazil

After a serious crisis of confidence that made the company values plummet, Petrobras has taken decisive corporate governance measures. The company has since regained its credibility and at the same time consolidated its assets and profitability.

This is just one of the examples of corporate governance in Brazil. We can also mention Nestlé, winner of the Compliance Brazil Award in Food Safety in 2017 and Grupo Fleury, which has been awarded twice by IBCG for its  good corporate governance practices.

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