Previously, in the article on ESG vs. Corporate Sustainability, we mentioned the importance of robust Corporate Governance for organizations. Now, we will discuss this topic in more depth.
What is Corporate Governance?
Firstly, let's start with the concept of Corporate Governance as outlined in the 6th edition of the Code of Best Practices of Corporate Governance, on its 6º edition by the IBGC (Brazilian Institute of Corporate Governance):
"Corporate governance is a system formed by principles, rules, structures, and processes through which organizations are directed and monitored, aiming at generating sustainable value for the organization, its shareholders, and society in general. This system guides the actions of governance agents and other individuals within an organization in balancing the interests of all parties, contributing positively to society and the environment."
According to the Securities and Exchange Commission of Brazil (CVM), Corporate Governance is "a set of practices aimed at optimizing a company's performance by protecting all stakeholders, such as investors, employees, and creditors, facilitating access to capital."
Over time, due to various changes, this concept has evolved. Currently, a good Corporate Governance model aims at shared value between shareholders and other stakeholders of an organization.
Fundamental Principles of Corporate Governance
It is impossible to talk about robust governance without discussing the foundation of ethics and integrity. Within an organization, this foundation extends to other parties such as employees, suppliers, communities, investors, etc. After all, the example comes from the top ("Tone at the top"), and Corporate Governance based on ethical, integral, and transparent values makes all the difference for the longevity of an organization.
In this sense, there are some principles of Corporate Governance that help companies, regardless of their size, industry, or location, to develop good governance. According to the aforementioned IBGC, which updated these principles in its 6th Edition of the Code of Best Practices of Corporate Governance, they are:
- Integrity: Practice and promote the continuous improvement of the organization's ethical culture, avoiding decisions influenced by conflicts of interest, maintaining coherence between speech and action, and preserving loyalty to the organization and care for its stakeholders, society, and the environment.
- Transparency: Provide stakeholders with truthful, timely, consistent, clear, and relevant information, whether positive or negative, and not just those required by laws or regulations. This information should not be limited to economic-financial performance but also include environmental, social, and governance factors. Promoting transparency fosters business development and encourages a trustful environment for stakeholder relationships.
- Equity: Treat all shareholders and other stakeholders fairly, considering their rights, duties, needs, interests, and expectations, individually or collectively. Fairness presupposes a differentiated approach according to each stakeholder's relationship and demands with the organization, motivated by a sense of justice, respect, diversity, inclusion, pluralism, and equality of rights and opportunities.
- Accountability: Perform duties diligently, independently, and with a view to generating sustainable value in the long term, taking responsibility for the consequences of actions and omissions. Additionally, account for performance clearly, concisely, comprehensibly, and promptly, aware that decisions can individually impact the organization, its stakeholders, and the environment.
- Sustainability: Ensure the organization's economic-financial viability, reduce negative externalities of its businesses and operations, and increase positive ones, considering various capitals (financial, manufactured, intellectual, human, social, natural, reputational) in the short, medium, and long terms. In this perspective, understand that organizations operate in an interdependent relationship with social, economic, and environmental ecosystems, strengthening their leadership and responsibilities towards society.
It is considered that the 6th Edition of the Code of Best Practices of Corporate Governance brought an "update" of the principles, as they were clarified even further. For example, the principle of "integrity" gained strength by having its own topic within the Code, although it was indispensable for obvious reasons. The same happened with the principle of "sustainability," which was very well defined within a shared value perspective, considering the interdependence between companies, stakeholders, and the environment.
Governance agents, such as shareholders, directors, CEOs, auditors, and committee members, are guardians of these principles and responsible for incorporating them into their decision-making.
Purpose and Shared Value
The company's purpose must be defined and disseminated to everyone so that it can be a shared value and achieve results consistent with the organization's plans. Governance based on fluid communication, offering positive examples to other parties, will bring intangible value to any institution.
Thus, we can affirm that a good Corporate Governance structure helps companies: ensure the effectiveness of their processes; generate trust for all stakeholders; obtain better directions and business management; make strategic decisions; increase profitability and the quality of services offered, among others.
In conclusion, good Corporate Governance practices are directly correlated with fulfilling the ESGagenda, aiming at beneficial points for the environmental, social, and governance pillars. This should be a constant evolution for every company, always connecting the current reality to the organization's reality, aiming for ethics, focusing on purpose, and sustainable development in its strategy.
