Ensuring good corporate governance to ensure the long-term future of the organisation

Good corporate governance seems to be a sine qua non of successful organisations and ensures their longevity. And for good reason: it ensures that powers are perfectly distributed and that the overall strategy is applied effectively, so as to guarantee the entity's performance and generate maximum value. All in strict compliance with the regulations in force.

But corporate governance has evolved over the last few years, so that it no longer serves the interests of shareholders alone. The interests of all stakeholders are now taken into account.

So what does corporate governance look like today, and how should we define it? What are the principles of corporate governance? How can its effectiveness be ensured, and with what tools?

These are just some of the issues we will address in this article.

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How is corporate governance defined?

What is corporate governance?

Corporate governance, also known as corporate governance, is defined as a system deployed with the aim of directing and controlling the company in the most optimal way, while protecting the interests of stakeholders.

It is based on :

• the processes and regulations that govern our work,
• but also on the company 's values and culture.

Organisational governance is the system by which an organisation makes decisions and implements them to achieve its objectives.

Norme ISO 26000

Ideally, corporate governance involves various players or stakeholders, both internal and external, with a view to achieving a better distribution of power. Although the concept was developed in the context of protecting the rights and interests of shareholders, today it also concerns :

• employees
• suppliers
• customers
• banks, etc.

Some experts go even further, saying that corporate governance needs to take a more holistic view, considering all the components that impact the entity and the world of work in general, such as environmental issues.

☝️ Corporate governance is not just the preserve of large companies. Indeed, it is recommended that organisations of all sizes develop an effective governance approach to enhance their performance.

The differences between corporate governance and business management

Corporate governance should not be confused with business management. Although the two concepts are complementary, they are nonetheless distinct.

Here is a table summarising their main differences:

What are the principles of good corporate governance?

Corporate governance is based on universally recognised principles, pillars that reinforce its solidity.

These principles vary considerably from one source to another, but here are the main ones, which we find in particular in a partnership governance model (we will come back to this concept later):

1. The independence of directors: this principle guarantees the freedom of the board of directors with the aim of fully looking after the good and interests of the company... and not just those of the executives.
   
   
2. Integrity: the integrity of the organisation applies not only to compliance with the law and regulations, but also to other factors such as the safety of employees.
   
   
3. Accountability: to the extent that corporate governance serves the interests of all stakeholders, it requires 'accountability' to all stakeholders, not just shareholders.
   
   
4. Strategic planning: this means constantly questioning the strategy envisaged, and monitoring the actions taken to apply it as effectively as possible.
   
   
5. Transparency: optimal communication, guaranteeing maximum transparency, is one of the keys to corporate governance. It is no longer aimed solely at shareholders, but at all stakeholders, both internal and external.
   
   
6. Fairness and balance: these principles promote diversity and parity within the company, even at the highest levels (gender balance, for example). Furthermore, directors must be selected for their skills and their ability to best represent stakeholders... and not for personal reasons.
   
   
7. Respect for the environment: the environment is a major issue for companies today. For both legislative and ethical reasons, corporate governance must include respect for sustainable development within its scope.
   
   
8. Flexibility: the principles set out, but also the application of corporate governance, must be adapted to each structure in order to gain in relevance. A large international company is not governed in the same way as a small local VSE!

What are the main types of corporate governance?

Traditionally, there are two types of corporate governance.

Shareholder governance

Shareholder governance, also known as the shareholder model, defines the prevailing norm.

More concretely, it consists of giving priority to the interests of shareholders, offering them control over the actions taken by the company and favouring a balance between shareholders and management.

Partnership governance

Partnership governance, also known as the stakeholders model, is the most popular type of governance today. It takes account of all stakeholders and their interests.

In other words, strategy is no longer driven solely by profitability and increasing shareholder wealth. The value generated by the entity takes on a broader meaning, incorporating other elements such as consumers and the environment.

Who are the players in corporate governance?

While corporate governance means taking all stakeholders into account, certain players have greater responsibility for achieving the organisation's objectives.

This is why corporate governance is largely structured around the Executive Committee, or CODIR.

This body is traditionally made up of the Chief Executive Officer, together with representatives of the company's departments (notably department directors or managers). The purpose of this body? To make strategic decisions and monitor performance indicators in order to improve the overall efficiency of the entity.

☝️ Note that there are other bodies that play an important role in corporate governance. These include

• The COMEX, or Executive Committee: its functions are similar to those of the Management Committee and it assists the CEO. However, it generally meets in smaller groups.
  
  
• The COPIL, or Steering Committee: this body has a more operational role in the execution of overall objectives, and operates within the framework of the company's major projects.
  
  
• The COMOP, or Operational Committee: this is similar to the previous one. In some large companies, it may be responsible for implementing COPIL decisions.

Stakes and objectives of corporate governance

Enhanced growth and performance

While corporate governance is now taking on a more holistic character, no longer focusing solely on increasing wealth, the organisation's performance remains a major challenge, if only to ensure its long-term survival.

Corporate governance provides a framework for the actions taken at operational level to achieve the objectives defined by the overall strategy. At the same time, it ensures that these actions are monitored, as well as the way in which they are carried out and by whom.

👉 Ultimately, this approach helps to ensure the company's growth and longevity.

Enhanced credibility and confidence

Maintaining a good image among the various stakeholders is also a challenge for today's companies.

Since good governance leads to greater profitability and transparency, it helps to build credibility with investors, buyers, potential lenders and so on.

In addition, by considering interests other than its own financial profits, such as social and environmental components, the organisation develops a better image:

• with consumers, who are more inclined to trust it,
• with employees, who are more willing to invest in their tasks when their benefits come into the equation. What's more, this tends to improve the company's employer brand, which in the long term boosts employee productivity.

Distribution of power

The world of work has changed dramatically in recent years. With the rise of new practices such as participative management and the disappearance of silos, every stakeholder participates directly or indirectly in this governance.

As a result, the distribution of power has become more complex. Internally, it's a question of determining the best way to take decisions, encouraging consultation, defining optimal management practices, etc.

At the same time, companies need to bear in mind that all players now have an impact on them, even external ones. We are thinking, for example, of the growing influence of customer opinions or environmental protagonists.

Compliance with regulations and corporate governance codes

Improving overall performance must be done in accordance with the law and the company's articles of association. The actions of companies remain highly regulated, and regulations are constantly evolving. All these factors must be taken into consideration, and with the utmost seriousness, to avoid abuses and increase the confidence of all stakeholders.

Furthermore, while the rules of governance as such are not recognised by regulatory or legislative texts, there are codes that provide a framework for organisations whose financial securities are listed on the stock exchange:

• the AFEP-MEDEF code: adopted by almost all SBF 120 companies, it contains a number of recommendations relating to corporate governance, particularly with regard to the remuneration of executive and non-executive directors.
• the Middlenext code: this is aimed at the smallest listed companies. It provides guidance on compliance with standards and regulations, as well as advice on how to improve efficiency and competitiveness.

Creating value

Value creation remains the ultimate goal of good corporate governance.

But this notion must be understood in a broad sense. While it includes financial value, enriching shareholders or managers is no longer the only priority. Governance now embraces a more global approach, in particular to regain consumer confidence, which has been shaken in recent years by repeated scandals.

As a result, it is now dealing with the human dimension, and organisations need to recognise the value contributed by each stakeholder, particularly employees, in order to establish their solidity and credibility.

How can effective corporate governance be put in place?

Determining long-term strategy

Corporate governance involves developing a robust strategy, supported by its mission and its long-term vision.

To do this, organisations need to rely on a number of factors:

• their values, which must be understood by all those involved so that they can support them on a day-to-day basis,
• the environment and the market
• the satisfaction of all stakeholders, etc.

Defining a framework and rules

Good corporate governance means defining the rules that govern the organisation, resources and framework put in place to ensure that actions are effective and compliant.

In other words, you need to know exactly who does what and how, from both a decision-making and an operational point of view.

Ensuring strategic alignment

Strategic alignment defines the organisation and actions deployed to ensure that the operational side acts in accordance with :

• the overall strategy
• previously established processes, frameworks and distribution of powers.

☝️ This operation involves striking a balance between achieving the entity's objectives in line with the financial and human resources available.

Controlling activities

Strategic alignment requires control operations. Companies therefore :

• monitor their results accurately
• detect any anomalies, future risks or areas for improvement, with a view to taking corrective action.

Indeed, one of the fundamental principles of corporate governance is flexibility: organisations must be fully prepared to adapt to changes in the market and society.

Holding governance bodies

The various governance bodies play a vital role in the smooth running of a company. We have already mentioned several of them, such as the Executive Committee and the Steering Committee.

Good corporate governance means that these key bodies should meet regularly, as they facilitate interaction between the various stakeholders to ensure fair and informed decision-making.

What are the tools of corporate governance?

To ensure optimum performance from its governance, a company can use different types of tools.

These include

• document management software, because it is important for all stakeholders to be able to work on and exchange a large number of documents, even remotely,
• meeting management software, to help manage large meetings,
• electronic signature software, as part of the move towards dematerialisation and the digital transformation of organisations,
• project management software, to put into practice the actions defined at board meetings and monitor overall strategy,
• business intelligence software, which supports business decision-making by analysing company data.

💡 Good to know: to avoid companies getting lost in the proliferation of tools (which are often costly, to boot) and to centralise the essential functionalities, there are solutions that are 100% dedicated to corporate governance. For example, the DiliTrust Governance suite is a comprehensive service that lets you manage your corporate governance via a dedicated, secure portal. These include the Board Portal and Legal Entities modules, which make it easier to manage governance meetings face-to-face and/or remotely, as well as digitising and simplifying the legal management of your group's companies.

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Corporate governance in a nutshell

Corporate governance is a complex concept at first sight, but it is one that all types and sizes of company need to master, as it is the guarantee of sound and efficient management.

Because if you attach as much importance to growth as you do to regulation and people, then you are giving yourself the means to generate as much value as possible, so that you can survive in the face of new economic and social challenges.