Best Practices and Main Themes of Corporate GovernanceWhat are the main themes of corporate governance? These vary between companies, but three main themes should be emphasized by all companies.
AccountabilityThis refers to your company's ethical behavior. Set up ethical guidelines for your management, employees, outsourced operations and dealings with the government. These rules should be consistent and strictly enforced. Many multinational corporations often blur and cross these lines in countries where environmental and human rights laws are lax to pad their bottom lines, only to be hit by negative publicity and criminal prosecution years later.
FairnessDoes your company treat shareholders, debtholders and stakeholders fairly? Shareholders who are alienated by an unfair voting structure - such as "executive shares" with 10 times voting power - are unlikely to support your company when it loses its growth momentum. Are debtholders given fair yields in comparison to your company's profits? Lastly, are stakeholders - both inside and outside the company - given an adequate say in the operations of your company? Holding meetings with each of these parties to negotiate favorable terms should be a top priority, since each of these three groups can sink your company immediately by bailing out.
TransparencyThe Enron disaster of 2001 caused many companies to revise their rules of transparency - both operational and financial - to assure investors of the financial health of their operations. Your company's investor relations arm should clearly announce and detail all its current operations to investors and the media, and answer all questions regarding controversial business segments. Financial reports should be clear and easy to understand, without creative accounting. Losses should be clearly stated and one-time gains should not be used to pad the bottom line. Forward guidance should be realistic and revised on a timely basis should market conditions change.
What to Include in a Corporate Governance PolicyWhen molding these themes into your company's Hammurabi Code, there are also several factors to consider. These include:
ComplianceThis is the greatest challenge of successful corporate governance. Will your employees - especially old-timers - comply with your new rules? Setting the rules in stone, promising lenience and anonymity to whistleblowers, and firing non-complying employees publicly all help enforce compliance. Efficient management, dedicated to your cause, should infiltrate all your business segments to check for violations. Make sure you report all these discrepancies to your shareholders, stakeholders and debtholders.
Risk ManagementIf your company has a financial arm that dabbles in investments, or your company is cash rich and in the market for acquisitions, then risk management should be an integral part of your corporate policies. As the banks have shown us over the past few years, taking oversized risks can dent your company's credibility and cause investors to dump shares and lose faith in your organization. Make sure there are clearly defined standards for your company's risk tolerance, and always insure that there is enough free cash flow to cover these risks. Biting off more than you can chew will cause your company to choke to death.
StrategyMake sure all your employees - especially your managers - are on the same page in regards to your company's vision for the future. Google kept it simple with its well-known mantra, "Don't be evil", but your company doesn't have to keep it so succinct. These strategies can include goals of renewable green energy in factories, to profit margin standards, to the timing of product cycles. Weed out managers and employees whom don't agree with your company-wide strategies to promote a more cohesive work environment in the long run.
These are some simple guidelines to drafting your company's first corporate governance policies. Keep them consistent and clear, and you'll be able to stop the fires before they start - the key to keeping any company profitable and well-perceived by investors and the public eye.