PARTNER EXPERIENCE BUSINESS GOVERNANCE PRACTICES ENSURE BUSINESS SUSTAINABILITY

Gary GARITA Control de Calidad y Planificación Estratégica

Regardless of regional economic development, the level of education of its inhabitants, or administrative improvement, incidences of misconduct, internal fraud, and corruption continue to tarnish the reputations of large firms and smaller organizations. The latter usually face less scrutiny as they get less media coverage. It is sufficient to view a few episodes of Netflix’s “Dirty Money” or examine the most recent 2023 affectations on large North American and European institutions to find the same stories being retold, with striykingly similar causes and risk manifestations experts had foreseen and predicted.

The growing, unstoppable incorporation of information technologies to productive processes, the big data revolution, and, more recently, the “explosion” of selflearning systems and responses based on artificial intelligence never cease to amaze the world; they will undoubtedly kickstart transformation opportunities in the coming years. But novelties will also bring new, parallel risks to managing those new technologies; an early sign of those challenges is the startling rise of cybercrime.

Thus, talking about corporate governance is a timely concept, considering that it is still valid despite the significant last-century transformations the field of administration has experienced and the goals it pursues.

The internationally respected Basel Committee defines corporate governance as the underlying relationships between a company’s management, its board, shareholders, and other stakeholders that establish the organization’s structural goals and the methods used to achieve and develop those goals.

Corporate governance practices are not exclusive to the private corporate world. The Organization for Economic Cooperation and Development (OECD) and the G20 Group have discussed the importance of good corporate governance practices in organizations that manage public funds through the application of macro principles that require additional legislation in the affiliated countries; one would not assume that corporate governance practices only apply to the private sector since their introduction in the 20th Century.

According to OECD, the purpose of corporate governance is to facilitate the necessary trust, transparency, and accountability required to foster long-term investment, financial stability, and business ethics. Governance contributes to more substantial growth and the evolution of inclusive societies.

The Basel Committee focuses primarily on bank governance, but its recommendations can be applied to private equity firms. The committee has issued thirteen principles ranging from board duties (the highest body) to supervisors’ roles, including private auditors and governments.

There are diverse paradigms to effective corporate governance that share fundamental traits applicable to various governance models.

What should an organization anticipate following the implementation of corporate governance practices?

In private companies, governance practices are predominantly voluntary rather than mandated; nevertheless, a common misconception has led many to think that only regulated entities or state organizations are bound by law to implement them.

Such practices are no longer required to provide growth and sustainability opportunities for an organization. A three-pillar figure clearly exemplifies governance practices: each pillar represents internal structure, risk management, and compliance management. The three facets find their foundation on each company’s unique circumstances, a financial peak level is no longer a requirement to implement a governance practices.

The structural definition of the organization must be understood in its entire context, including its current standing and the envisioned type of organization envisioned. Board membership is crucial, particularly in family-owned organizations where succession plans must be agreed upon to ensure permanent viability. This pillar also considers the organization’s internal structure, complexity, the formation of related parties, and the identification of all stakeholders. A clear structure acknowledges the board’s duties, ethical conduct, business strategies, and the value offered to society.

Companies must also address all aspects of risk management. Risk management activities coordinate, direct, and regulate an organization considering the uncertainties hindering its objectives. A modern company that fails to proactively identify and quantify its risks is destined to decline.

Risk will be permanently present in every organization operation; stakeholders must strive to eliminate every risk factor. Corporate governance elements such as human capital, internal processes, information technologies, and external events must be continually monitored and analyzed by corporate authorities.

The third pillar supports compliance with local laws, regulations, treaties, and international laws related to the business operation that may impact the organization operations.

Following the principle that no one can disregard the law, organizations must remember that regulations are to be observed. Constant changes in the regulation of supervised entities, taxing and economic agreements between countries, reconfiguring economy blocs, and shifting restrictions on money laundering could substantially impact the organization’s future existence.

Senior and top management must admit that unchecked, rampant organizational growth is as hazardous as not billing at all. Proper organizational development can only be attained in environments with tight control and management. The concept “the greater the revenue growth, the more significant the control investment should be” is a synonym of success.

Economies change rapidly, customer loyalty has changed significantly, and only a few brands have reached a global establishment status, those successful firms have left many competitors behind in a dust cloud. The successful corporate governance principles and practices companies have embraced have helped them succeed by lifting the limitations that may have hindered their organizational transformation. Corporate governance persuades organizations to respect human values such as transparency, truth, constant communication, ethical practices, and respect for natural resources, to ensure life in society and sustain balanced economies.