Public Company Governance Best Practices Lowers Risk and Increases Results
Governance practices for a public company are crucial to ensuring transparency, accountability, and long-term success. Here are some key practices, accompanied by some relevant statistics:
1. Strong Board Composition and Structure
- Diversity: Boards with diverse members in terms of gender, ethnicity, and skills tend to perform better. Companies with diverse boards see a 15% higher return on equity according to McKinsey & Company, “Diversity Wins: How Inclusion Matters”. McKinsey & Company also found that companies with higher gender diversity on their executive teams were 21% more likely to outperform on profitability and 27% more likely to have superior value creation .
- Independence: At least half of the board should be independent directors. Companies with a higher percentage of independent directors have better stock performance.
- Committees: Establish key committees such as audit, compensation, and nominating/governance committees, each with clearly defined roles and independent directors.
2. Clear Roles and Responsibilities
- Defined Responsibilities: Clearly outline the roles and responsibilities of the board, CEO, and management to prevent overlaps and conflicts.
- Performance Evaluation: Regular performance evaluations of the board and management ensure accountability and continuous improvement.
3. Transparency and Disclosure
- Financial Reporting: Provide accurate and timely financial reports. Companies that excel in transparency attract more investors and see a lower cost of capital. According to the CFA Institute, companies that maintain high levels of transparency often experience a lower cost of capital by 10-15% .
- Non-Financial Reporting: Include environmental, social, and governance (ESG) factors in disclosures. Over 90% of the world’s largest companies now report on sustainability issues, and those with robust ESG practices typically have higher long-term value creation according to a KPMG Survey of Corporate Responsibility Report.
4. Risk Management
- Risk Assessment: Implement a comprehensive risk management framework to identify, assess, and mitigate risks.
- Crisis Management: Develop and regularly update crisis management plans. Effective risk management can reduce the impact of financial and operational disruptions.
5. Stakeholder Engagement
- Shareholder Rights: Protect and facilitate the exercise of shareholders’ rights. This includes transparent communication and opportunities for shareholders to participate in key decisions.
- Stakeholder Communication: Engage with other stakeholders (employees, customers, suppliers, community) regularly to understand their concerns and expectations.
6. Ethical Culture and Conduct
- Code of Conduct: Establish a robust code of conduct that outlines ethical behavior and compliance with laws.
- Training: Regular training programs for employees and board members on ethics and compliance.
7. Sustainability and Corporate Responsibility
- Sustainability Goals: Set and disclose clear sustainability goals. According to MSCI ESG Research, companies with strong ESG performance have better risk management and more stable financial results .
- Corporate Responsibility: Engage in activities that contribute to the well-being of society and the environment.
By implementing these best governance practices and leveraging SEO strategies, public companies can enhance their governance framework, attract more investors, and improve overall performance.
Bob Dietzel 267-482-8386 bdietzel@kmrdpartners.com
