Companies that value profit, elevated share prices, consumer confidence, and a productive workforce should equally value the role of a corporate governance committee, which can positively influence all of these factors and more.

Corporate governance is, essentially, how a company is governed and directed, and is based on conducting business with integrity and fairness, being transparent, making all necessary disclosures, providing accountability to its stakeholders, and an overall commitment to ethical business practices, according to the Economic Times.

Unfortunately, corporate governance tends to make headlines following corporate scandals that showcase what happens when it is not being practiced well, further underscoring its importance in companies of all types, sizes, and industries.

Corporate governance influences financial performance

While corporate governance committees are certainly important in enforcing ethical business practices and complying with regulations, their value is, perhaps, most significant when it comes to financial performance. Studies have established that corporate governance can boost a company’s financial results and enhance its competitive advantage in the marketplace. Business in the Community’s Corporate Responsibility Index measured corporate governance and financial performance among 33 companies over the course of six years. From 2002 to 2007, companies that ranked higher in the index also performed better – anywhere from 3.3% to 7.7% on total shareholder return. Furthermore, excellence in corporate responsibility also translated into less volatile stock prices, a significant factor for potential investors.

Likewise, the Dow Jones Sustainability Index confirms a positive correlation between corporate sustainability and financial performance in businesses across the globe. Along those lines, investors often look to a company’s corporate governance procedures when determining whether to invest in a new business. Good governance practices also can make it easier to obtain access to capital at lower cost. All of these factors can add up to corporate success, thanks in part to a commitment to corporate governance.

How corporate governance continues to add value

While the commitment to corporate governance makes a lot of business sense, governance committees can provide value to companies of all sizes in a variety of manners, which can influence overall success in both the short- and long-term.

For example, corporate governance committees can help mitigate risks by carefully managing the various interests of both shareholders and management. Limiting risks can, in turn, reduce exposure to scandals and potential bad news headlines which may result in loss of customer loyalty.

In addition, corporate governance can bolster confidence in companies recognized for sound practices, and it can contribute to a positive work environment, where employees recognize company safeguards, procedures, rules, and regulations that ultimately contribute to the business’ overall success.

For these reasons and more, corporate governance recognition can provide as much reason for celebration as do good earnings or optimistic sales reports. Corporate governance influences all levels of an organization and acts to solidify sound business practices.

Tenets of good corporate governance committees

Corporate governance protects shareholders, employees, and directors, according to U.S. Securities and Exchange commissioners, and can include:

• A board of directors that is independent from company management and that has the experience to advise on behalf of its shareholders
• A compensation committee that provides oversight and sets appropriate and supportable pay programs that are in the organization’s best interests and aligned with its mission and strategy
• Insuring the company is meeting its public disclosure requirements (both financial and non-financial), and providing shareholders with accurate and up-to-date information on the business’ performance
• Thorough auditing oversight confirming accurate and timely financial disclosures

A good corporate governance committee can provide all of the above and more, adding value in numerous ways to a company’s bottom line.

Corporate governance continues to grow

An impressive 96 percent of boards now conduct annual performance evaluations, according to Business Week, and 71 percent limit directors’ outside board commitments to ensure they can devote the requisite time needed to accomplish their duties. Anecdotally, more and more companies highlight their corporate governance policies in annual reports, their website, and other company material as evidence of their dedication to ethical business practices. And more institutions of higher education now offer programs on sensible corporate governance practices to prepare current and future directors for their responsibility. Corporate governance isn’t just a theory or a written statement of intention, rather it is a sound business practice which can contribute markedly to a company’s profits, sales, and overall success, further highlighting its value in today’s economy.